Should I get health insurance?
We’re glad you asked. The good news is, if you’re a permanent Australian resident you already have health insurance: it’s called Medicare. For most of us, our Medicare health insurance premiums cost two per cent of our annual salary for 'free or subsidised' access to doctors, specialists, optometrists and treatment and accommodation in public hospitals, plus a few other perks.
Thanks for that, smart alec, we hear you say, I already knew that. So let us re-phrase…
Should I get private health insurance?
Good question. But we need to break it down further because there’s really no such thing as private health insurance. There’s private hospital insurance and there’s private extras insurance, and we’re not just being sticklers here because a lot of people waste good money on one of these insurance types without ever using it. We don’t want you to be one of them.
Hospital insurance versus no hospital insurance.
Now we’re getting down to the nitty-gritty. You’re already forking out at least two per cent of your pay packet on Medicare, so why take out private hospital insurance as well?
Private hospital insurance, the case against:
- If you earn less than $90,000 in 2014-15 (double that for couples and families), the only financial incentive to get private hospital cover is that you’ll have to pay the Lifetime Health Cover (LHC) loading if you take out hospital cover after you’re 31.
- The public hospital system serves people who require emergency surgery well. For more complex and expensive medical conditions, you’ll end up in a public hospital regardless of whether you have private hospital insurance or not, because public hospitals have the equipment.
- If you’re admitted to public hospital as a public patient, Medicare will foot the doctor’s bills.
- But if you’re admitted as a private patient, to a private or public hospital, you may end up paying a "gap fee" to your doctor or sometimes even to the hospital. That’s the gap between what Medicare and your health fund pays, and what the doctor’s fee actually is, and it can run to thousands of dollars.
Private hospital insurance, the case for:
- If you earn $90,000 or more, taking out at least basic hospital cover can cost you less than paying the extra Medicare Levy Surcharge (MLS).
- For elective surgery in the public hospital system, you’ll end up on a waiting list...
- ... and you won't be able to choose your own doctor.
- Private hospitals generally have better conditions and service than public hospitals.
- For every year that you delay getting private hospital insurance after you turn 31, you’ll pay more for it in the form of the Lifetime Health Cover loading if you do eventually get it.
Decided you want private hospital insurance? Choose your policy with our selection of private hospital policies.
What about extras cover?
Theoretically, the whole idea of paying insurance premiums is to put a financial cap on how much money comes out of your pocket when the unexpected occurs. Rear-ended a Porsche? No problem, pay your $500 excess and the insurer will pay the rest. House burnt down? Pay the excess and the insurer will re-build. Need a new hip? Pay the excess and your insurer will pay the hospital costs (and maybe some of the doctor’s fees).
Need to go to the dentist? Your extras insurance will pay the first $200 (for example) and you pay the rest. Do you see the difference? The insurer’s liability is capped, yours isn’t.
For that reason, extras "insurance" really isn’t insurance at all, but rather a budget management tool.
Do I need extras insurance?
If you’re buying "health" insurance purely for tax reasons – i.e. to avoid the MLS – then no. Not having private hospital insurance can mean you pay extra tax and higher premiums should you take it up again, but these penalties don’t apply to extras cover.
Extras rarely covers the full cost of your treatment. On average, health funds pay about:
- half the cost for the dentist and for glasses
- a third for medicines not covered by the PBS
- a quarter for hearing aids.
And there are wide variations between funds and policies, too. The most generous health insurance fund for dental refunded 75% on average in 2012-13, while the most miserly health fund covered just 31%.
But there are two groups of people who benefit most from extras insurance.
- Families generally pay the same health insurance premium as couples – or double the singles premium – so children are insured for free. (Tip: Some health funds offer no-gap cover for kids; for example, for dental.)
- People aged 55-74 make the most use of their extras cover benefits compared with other age groups, and receive an average benefit per person of about $500 – almost 10 times more than for children under five.
What about combined?
This is simply hospital and extras combined into one policy. It can be useful because you only deal with one health fund for both types of insurance. It can also be useful for the health funds because they’ve just sold you two insurance policies in one go.
Ask yourself these questions before buying a combined policy:
- Do you need both hospital and extras?
- Do you need to get them from the same fund?
While there are some good combined policies available, you can often get a better deal by buying the best value extras and hospital insurance from separate funds. As always, shop around.
Ambulance expenses are not covered by Medicare, and the extent of coverage by state governments varies. By definition, you can’t predict if or when you’re going to need an ambulance, so it’s worth making sure you’re covered:
- Queensland and Tasmanian residents are covered by the state government.
- NT, SA, Victorian and WA residents can purchase insurance through a private health fund or subscribe to the state ambulance service.
- NSW and ACT residents ambulance are covered if you have hospital insurance, otherwise you can purchase through a private health fund.
Ambulance cover is sometimes included with hospital cover and sometimes with extras, so if you buy health insurance check:
- Does the policy include ambulance cover?
- What kind of ambulance cover is it? Some funds only cover ground transport, excluding air ambulance for example, while others may only cover emergency ambulance, for example, excluding transfers between hospitals.
Why do you keep quoting acronyms at me?
Because there are a lot of them. Here’s a list of the most important ones:
- LHC – Lifetime Health Cover (loading) adds two per cent to your hospital cover premium for every year you don’t have hospital insurance on 1 July following your 31st birthday. It can add up to 70% and applies for the first 10 years of your hospital cover, but doesn’t apply if you were born on or before 1 July 1934. Note this is for hospital insurance only – there is no surcharge to extras insurance.
- MLS – Medicare Levy Surcharge is a surcharge on top of the Medicare Levy that you pay if you don’t have private hospital insurance (again note it’s hospital – you don’t need extras to avoid this). Usually it costs less to take out basic hospital cover than pay the MLS, income thresholds are listed in the table below
- PHIR – Private Health Insurance Rebate OK, it doesn’t normally go by an acronym, but it is a real thing. It’s a rebate that you get from the government on your private hospital and extras insurance if you fall in the following thresholds...
Private health insurance rebate and MLS income thresholds (2014/15 - 2017/18)
Medicare Levy Surcharge
Waiting periods & switching
- Waiting periods for extras vary per policy. Usually its two months for most services, 12 months for major dental and 36 months for hearing aids.
- For hospital cover, waiting periods for pre-existing conditions are generally 12 months.
- If you switch to hospital cover that's considered equivalent or lower than your existing policy (check with your health fund), the waiting period you served on your previous policy will be carried across.
- But if you upgrade your cover or lower your excess, you’ll have to serve a new waiting period for the difference in cover.
But wait! There’s more…
Decided private health insurance is right for you? Great – but don't get out your wallet just yet. Read our buying guides on hospital and extras insurance first.
If you’re ready to buy a policy, check our health insurance comparisons. You can also review the standard information statement, a one-page fact sheet about your policy at privatehealth.gov.au