Need to know
- For most people under 30, there's no benefit to taking out private health insurance
- You may be able to stay on your parents' health insurance for free instead
- If you do take out a policy before you're 30, you're eligible for a discounted premium
Taking out health insurance seems like the grown-up thing to do, but you might be wondering whether it's actually a savvy financial move or a waste of precious funds.
CHOICE health insurance expert Uta Mihm answers some key questions for under 30s thinking about taking out (or dropping) private health insurance.
1. Which type of insurance do I need?
The first thing you need to know is that there are two different types of health insurance: hospital cover and extras.
"Depending on your circumstances you may need only one or the other, both or neither," says Uta. "And even if you decide you need both, you can get two separate policies from two different insurers if that gets you a better deal."
If you have hospital cover, you can get treatment at a private hospital, might be able to choose your own doctor and have shorter waiting times for elective surgery.
Younger people are less likely to need treatment in hospital and therefore less likely to benefit from health insurance than older people. That means your premiums are used to subsidise the higher cost treatment charges of older people.
Younger people are less likely to need treatment in hospital and therefore less likely to benefit from health insurance than older people
For example, according to APRA, 20–29 year olds with health insurance only got, on average, about $185 health insurance benefit for hospital stays per year, compared to over $1470 on average for 80–89 year olds (12 months to December 2021).
An extras policy can help with dental costs, but it won't cover 100% of the bill.
Extras policies cover you for health care that you receive outside a hospital, and which Medicare does not cover, like dental care, glasses and clinical treatments like physiotherapy. Exactly which services are covered and how much money you get back for them will vary according to your policy.
Unlike hospital cover, extras insurance has no bearing on the Medicare Levy Surcharge or the Lifetime Health Cover loading, so you should only take it out if you think you'll receive more in benefits than you'll pay in premiums.
Uta recommends adding up how much money you'd spend on 'extra' health services per year and comparing that with the premium you'd pay to see which option is cheaper. (But keep in mind that extras policies don't cover 100% of the cost.)
"If you already have extras insurance, ask your insurer for a claims statement for the last year," she says. "If you paid more in premiums than you received in benefits, you may want to consider cancelling your policy."
If you've been chatting to friends or family about health insurance, they may have mentioned that getting insurance when you're still young could save you money on your policy when you're older.
What they're referring to is something called the Lifetime Health Cover loading, a government initiative which means that if you take out hospital cover for the first time after you turn 31, you'll pay an extra 2% on your premiums for every year you waited. Depending on your situation, our experts have crunched the numbers and learnt how you can pay the Lifetime Health Cover loading and save money.
Of course, if you're under 31, this loading doesn't apply to you and there will be no effect on your future premiums if you don't take out cover now. It also won't affect you if you never take out health insurance.
The Medicare Levy Surcharge (MLS) is a tax-time surcharge the federal government charges high income earners who don't have hospital cover.
If you're a single person earning up to $93,000 or a couple or family earning up to $186,000, you're exempt from paying the MLS so there's no tax benefit to having health insurance.
If you're a single person earning up to $93,000… there's no tax benefit to having health insurance
If you earn over the threshold and want to calculate if having hospital cover will save you money at tax time, check out doineedhealthinsurance.com.au.
Depending on your circumstances, you may be able to remain on your parents' policy.
4. Can I stay on my parents' policy for free?
If you're under 31, many funds (including Bupa, Medibank, HCF and NIB) allow you to stay on your parents' policy. If you're a full-time student, you can usually stay on the regular family policy for free. But there would normally be an additional cost for non-students – depending on the insurer, this can add up to 30% to the premium and is usually called an extended family policy.
If there's an extra cost, it's a good idea to carefully consider everyone's health cover needs. It could be cheaper to take out your own policy if you only need low to medium cover and your parents are on top cover – especially if they have a family income of $188,000 or higher and don't get the full health insurance rebate. You'll be eligible for the full rebate as well as a youth discount (see below).
Funds have different conditions for dependants they allow on family policies. Normally you can't be married or in a de facto relationship, but with some insurers, you also need to live with your parents, be financially dependent, or the insurer sets a cap on how much you can earn.
There are also differences in the definition of a full-time student (who can usually get insured for free), so it's important to check the individual policy for details. For example, Bupa excludes apprentices while Teachers Health includes apprentices, interns and cadets.
Uta says it's worth shopping around for a better deal if your health fund tells you that adult children are no longer covered by your existing policy.
5. Am I eligible for any discounts?
If you do decide to take out health insurance before you turn 30, insurers can offer you a 2% discount off your premium every year you're under 30, up to a maximum of 10% for people aged 18–25.
Not all insurers offer the discount and not all policies are eligible for the discount, so shop around.
The good news is, if you stay on that policy, you'll keep getting the full discount until you turn 41. Some funds will even let you keep your discount when you switch to a different policy, so it's worth doing your research.
You don't need to go private to have a baby, but it does give you the option of giving birth in a private hospital.
6. What if I'm planning a family or have children already?
Pregnancy and birth
Both public and private doctors provide high quality care for pregnancy and birth.
The main advantage of going private is that you can choose your obstetrician and can give birth in a private hospital, which may be more comfortable.
The main benefit of going public, on the other hand, is that you have a higher chance of having a vaginal birth and a lower chance of having a caesarean.
Read more about the pros and cons of private insurance for pregnancy. If you decide you want to go private, you'll need to take out hospital cover 12 months before you give birth because of the standard waiting period.
For two-parent families, children are included on the policy for free, so you'll likely get more value from a policy if you have kids, though Uta says children often have low healthcare costs.
However, single parents are penalised in the private health system, paying the same as two-parent families – or sometimes slightly less – meaning children aren't insured for free on single-parent policies.
It's worth taking into account the health care you expect your children will need in the coming year to calculate whether you want to take out health insurance.
The bottom line
If you're under 30 and not a high income earner, there's no benefit to taking out private health insurance unless you actually need it now. If you do decide you need health insurance, you'll want to get the best policy for your needs.
Our experts have created a tool to help you compare health insurance policies from dozens of funds – no sponsored results, no pesky phone calls, just impartial advice.
Stock images: Getty, unless otherwise stated.