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The 5 worst things about private health insurance in Australia

Private health insurance is in a death spiral in Australia. Here’s why you should sign up for our campaign to change it.

Last updated: 12 November 2019

Australians are annoyed about the state of private health insurance. People are being taken for a ride by insurers who confuse us into buying policies we don't need or don't give us the best value for our money. 

The system is difficult to navigate and it's tricky for everyday Australians to compare policies to ensure they make the best choice for them and their family, including whether they need private health insurance at all – not to mention the unexpected out-of-pocket costs you might face when actually admitted to a hospital as a private patient. 

That's why CHOICE is fighting for a better, fairer system. In a nutshell, here's a round-up of the worst things about private health insurance right now, and why you should join our campaign for change to ensure we can all get a better deal.


1. It's very expensive

The average Australian with health insurance spends $1806 on it a year, and with yearly increases in premiums a near-certainty, it's only set to get more costly. Premiums have increased by 66% in the last decade, which is significantly more than the rate of inflation.

With the large amount of cash Australians are dropping on private health, you'd hope we'd receive cover we can rely on without unexpected added costs. But this just isn't the case, especially for pensioners who have paid for it all their lives and now can't afford it when they most need it. 

"Increases in premiums mean Australians with private health cover have been hit by a 66% cumulative price hike since 2009, forcing many to downgrade or drop their private health insurance," says CHOICE health insurance expert, Uta Mihm. "In reality, it's just unaffordable for many people."


2. It's confusing and difficult to compare policies

In April this year, the government introduced an overhaul of health insurance policies that was supposed to make the system fairer, easier to understand and more affordable for Australians. But it didn't. 

The new system introduced tiers for hospital cover – Gold, Silver, Bronze and Basic – with each product tier covering a specific number of treatment categories in a private hospital. "In theory, this should make the system simpler and easier for Australians to compare health insurance," says Uta. 

"However, insurers were then permitted to label their products as 'Plus', which created seven categories instead of four. There are thousands of versions of potential policies. The set-up of these categories means people's confusion remains unaddressed." 

You shouldn't have to spend hours combing through policies and analysing exclusions: the system should be fair and transparent

The system is so broken that, recently, CHOICE's expert health insurance analysts discovered that many Australians were paying higher premiums for rip-off 'Silver Plus' policies with restrictions that actually covered less than many cheaper Gold policies on the market. 

CHOICE health insurance campaigner, Dean Price, says the average Australian barely stands a chance: "In addition to rip-off tactics from insurers, another problem is commercial comparison sites that don't show you all available options. 

"Unfortunately, price isn't an indicator of quality, and different providers charge vastly different rates for similar coverage, so that's why it's really important to shop around to ensure you get the right cover for you. 

"You shouldn't have to spend hours combing through policies and analysing exclusions: the system should be fair and transparent, and easy for everyday people to find the best cover, but it just isn't."


3. You might not even need it

Despite what the insurers may be telling us, private health insurance isn't necessarily for everyone. 

Young people in particular face a barrage of fear-laden advertising from health insurers and for-profit switching sites designed to pressure them into increasingly pricier policies. Such campaigns are designed to confuse you into thinking taking out private health insurance is a matter of life and death – but nothing could be further from the truth.

Some people will save money based on their age or income by buying health insurance: this is because of the Medicare Levy Surcharge (MLS), which means you'll pay additional tax if you don't have cover, depending on how much you earn. And the government's Lifetime Health Cover (LHC) means that you pay a loading if you don't take out cover by age 31.

But CHOICE's expert analysts have crunched the numbers and worked out that some may be better off not taking cover out at all. Find out more if you actually need health insurance.


4. You could be paying for extras you don't use or need

There are two types of health insurance policies: ones that offer hospital cover (if you're admitted for surgery, for example) and extras cover, which will usually pay you a portion of the fee on services such as dental, optical or physio. 

CHOICE health insurance expert, Daniel Graham, says: "A lot of people waste good money on health insurance they don't use. Extras insurance (sometimes called 'ancillary care' or 'general treatment') is often misunderstood. It doesn't affect your tax, and you don't need to even purchase extras from the same provider you have hospital cover with."

You should only consider top-shelf extras if you anticipate you'll need expensive treatments such as major dental work

Many people automatically sign up for an extras policy when they take out hospital cover, but make sure you do the maths: will you really get more money back than you're outlaying each month? 

Cheaper policies are easier to get value from – you should only consider top-shelf extras if you anticipate you'll need expensive treatments such as major dental work, orthodontics or hearing aids. And keep in mind that extras will usually not cover your whole bill – you might get 50-80% back from your fund.


5. You can easily be hit with unexpected extra costs

Even after paying thousands for private health insurance, you can still be slugged with large costs if you go to hospital – otherwise known as 'bill shock'. This sometimes means that private patients can pay a premium for the same treatment a public patient receives. 

First up, be aware that whatever excess you have opted in for (perhaps $500 or $750) is the amount you will pay up to twice a year when you're admitted to hospital and there could also be a daily charge such as $70 per night.

On top of that, there could be certain procedures or tests your policy does not cover you for, or other restrictions on treatments that can be buried in contracts between health insurers and hospitals that you don't have access to.

Unexpected gap fees

One of the things that is touted as an advantage of private health cover is that you're able to choose your own doctor and a private hospital. In practice, there are many things that limit the choice and availability of your preferred doctor. 

You could also have to pay a 'gap fee', which is the difference between what your doctor charges you and what your health fund will pay

You could also have to pay a 'gap fee', which is the difference between what your doctor charges you and what your health fund will pay towards the services. 

There could also be a 'hospital gap fee' which is the difference between what the hospital charges for an overnight stay versus what your health insurer has agreed to pay – for example for a private room. Your choice of hospital is limited to the ones your health fund has an agreement with, otherwise you have to pay the gap fees. Find out more about gap fees and out-of-pocket costs