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Will private health insurance save you money?

Don't fall for misleading marketing – taking out cover isn't always a necessity.

close-up of a stethoscope sitting on Australian money - how to save on health insurance lead image
Last updated: 29 July 2019

Private health insurance premiums increased again this April, and health insurers and for-profit comparison sites are ramping up their advertising campaigns in a bid to retain customers.

Young people face a barrage of fear-laden advertising from health insurers and for-profit switching sites designed to pressure them into increasingly pricey 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.

Accidents and emergencies

In Australia, not everyone needs private health insurance, especially if you are in a life-threatening situation. In an emergency you'll end up in your nearest public hospital as an emergency ward patient and receive high quality care for free.

If you need an ambulance, private cover isn't necessarily going to help with that cost. For residents of Queensland and Tasmania, ambulance cover is provided for free by your state government. In Victoria, Northern Territory, South Australia and regional Western Australia you can purchase an ambulance subscription.

Only in NSW, ACT and the Perth metro area is health insurance the only way to get cover for ambulance. In those places ambulance cover comes included in all hospital policies, or you could choose to buy a much cheaper ambulance-only policy.

Premium pain

With an average premium price hike of 66% since 2009, it's little wonder the rate of people with private health insurance is dropping.

Given the complexity of the products, people often turn to health insurers for advice. CHOICE believes this is contributing to consumers being downgraded into poor value 'junk' policies as insurers try to keep them in the system.

Another issue is the reliance on for-profit comparison sites, all of which have a clear incentive to sell you any kind of health insurance product – including junk policies – rather than helping you figure out if you need insurance in the first place.

Tax and health insurance

There are two financial incentives the government uses to push people into private health insurance. 

Medicare Levy Surcharge (MLS)

The MLS is an additional 1-1.5% tax paid by high income earners (singles earning over $90,000 and couples over $180,000) who don't have private hospital cover. It begins at $900 a year for singles, and increases the more you earn. Since there are Basic-tier hospital policies that cost less than this, if you're on a high income if you can reduce your tax bill by simply buying low-value insurance.

Lifetime Health Cover (LHC) loading 

This is the other stick the government wields to drive people to private health insurance. The LHC loading affects you if you take out hospital cover after your 31st birthday, or if you have any long gaps between cover. If you don't take out hospital cover before you turn 31, and you do eventually take it out, you'll pay an extra 2% on your premiums for every year you waited. If you never get private health insurance, the LHC loading will never affect you. In any case, CHOICE crunched the numbers and figured out you're probably better off paying the loading, instead of buying insurance you don't want just to reduce your bill later on.

Keep in mind that you don't need to get extras cover (dental, optical, etc.) to avoid either of these penalties – getting hospital cover will do just fine!

Young people should be asking: Do I need health insurance?

In an effort to bring in young people, health funds are now able to offer discounts to new customers who sign up before they turn 30. Unlike the LHC loading, which they pocket off everyone who gets health insurance after 31, health funds get to pick and choose which policies they will discount. Less than 40% of policies will let you claim the discount, and those that do tend to be cheaper, lower cover.

Young people pay the same premiums as everyone else but tend to claim far less. Insurers are desperate to attract them, so they can subsidise the healthcare costs of older customers. With that in mind it's worth asking whether private health insurance is really worth the money.

"It's important to realise that every Australian already has health cover through Medicare, and if you're deciding to go private, it pays to be aware of exactly what you're getting in terms of cost, coverage and value for money," says Dean Price, CHOICE's health insurance expert.

"We want people to fight back against the industry fear campaign so we've created a free tool at doineedhealthinsurance.com.au," Price says. "The site asks you a few simple questions to help you decide if you actually would benefit financially from taking out private hospital cover."

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