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How to buy the best hospital insurance

We look at which level of cover is right for you, plus the meaning of terms like excess, co-payments and gap payments.

patient in hospital bed holding mug
Last updated: 14 February 2022
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Checked for accuracy by our qualified fact-checkers and verifiers. Find out more about fact-checking at CHOICE.

All Australians who are permanent residents already have health insurance – it's called Medicare. This is our universal health insurance scheme, and it entitles you to free or subsidised treatment in a public hospital.

But the government doesn't like us using the public hospital system too much, so it offers a range of financial incentives to coax us into the private system, as well as the promise of shorter waiting times for elective surgery.

We take a look at why you might want to take out private hospital insurance.

What's the Medicare Benefits Schedule (MBS)? In this guide we refer to the MBS. This is the list of Medicare services that the government subsidises, and how much it'll pay for each service by way of a rebate. 

Some doctors will charge the MBS fee for their service which means it will be free to Australian residents, and other doctors will charge more and you'll need to pay the difference. 

Private hospital insurance can reduce the amount you'll need to pay to cover that difference (your insurer will pay the rest).

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What are the benefits of private hospital insurance?

  • If you're a single person earning over $90,000 or a couple or family earning over $180,000 a year and you have private hospital insurance, you won't have to pay the Medicare Levy Surcharge (MLS) – a penalty the federal government charges 'high income earners' at tax time. Our quiz can help you find out whether you need health insurance to save on tax.
  • If you're a single person earning $140,000 or less, or a couple or family earning $280,000 or less, then the government will subsidise your private hospital and extras insurance.
  • You'll have shorter waiting lists for elective surgery.
  • You can choose your own doctor.
  • You'll pay less to go to a private hospital (some people believe private hospitals have better conditions and service).

Is waiting for elective surgery really a big deal? Although elective surgery is for conditions that aren't life threatening, it can still be very uncomfortable waiting for surgery and your quality of life can be limited. You may be having trouble walking because you're waiting for a hip replacement, for example, or you're losing your sight waiting for cataract surgery.

Elective surgery was also paused due to COVID-19 and resulting lockdowns, so waiting lists have increased substantially. At this time hospital insurance may be more important than ever if you need elective surgery. 

Which health insurance fund is best?

Unfortunately, there is no clear answer to this as it depends on your requirements – there are 36 health funds and they all have thousands of different policies between them. To narrow down your options, you can use our tool to compare health insurance policies and see how you can save.

The Australian health insurance marketplace is highly concentrated, and many people are only familiar with the names of a few health funds. And it's no wonder – about eight in 10 health insurance policies belong to the five biggest health funds: Bupa, Medibank (which includes AHM), HCF, HBF and NIB.

Are big health funds better than small funds? It depends. The biggest health funds have some bad value policies, but we recommend some of their other policies. On the other hand, some small funds have a market share of less than 0.5%, but they can still be very competitive and give you great cover at cheap premiums.

What level of insurance do you need?

All hospital-based treatments are organised into 38 categories, which are grouped into different body systems (such as 'Ear, nose and throat' and 'Bone, joint and muscle').

Hospital insurance policies fall under one of four product tiers – Gold, Silver, Bronze and Basic – with each product tier covering a specific number of categories.

  • Basic: very little – if any – cover in private hospital.
  • Bronze: 18 categories of services.
  • Silver: 26 categories of services.
  • Gold: all 38 categories of services.
  • 'Plus' policies (Basic Plus, Bronze Plus or Silver Plus): cover more than the minimum requirement.

What's covered by Gold, Silver, Bronze and Basic?

Basic policies can be suitable for people who:

  • want health insurance mainly for avoiding tax and surcharges 
  • live in a regional area and do not have access to a private hospital but want to choose their own doctor in a public hospital (consider basic cover policies that provide only cover in public hospital).
Bronze policies can be suitable for people who:
  • want health insurance mainly for avoiding tax and surcharges
  • are healthy but want to be covered just in case, for broken bones, flu and diabetes treatment (note: insulin pumps are only covered by Gold policies).
Silver policies can be suitable for people who:
  • don't have any chronic or major health issues
  • don't need cover for pregnancy
  • want to be covered for a heart attack, cancer surgery and plastic surgery needed after a burn or accident.
Gold policies can be suitable for people who:
  • are planning to have a baby
  • need a hip or knee replacement or cataract eye surgery
  • have chronic health issues and may need pain management with a device, insulin pumps, dialysis or gastric banding surgery.

Read more about Gold, Silver, and Bronze health insurance cover.

What's not covered by hospital insurance?

Hospital insurance usually doesn't cover you for treatments outside hospital, such as appointments with your specialist or obstetrician. 

It also doesn't usually cover tests and imaging like blood tests, X-rays and ultrasounds if they're performed outside hospital. 

Note that Medicare will cover part of the costs for these appointments and tests.

How do waiting periods for health cover work?

If you need treatment for a condition that your policy restricts (which means the fund only covers the same amount as Medicare does) or doesn't include at all, and you want to upgrade your cover, you'll have to serve a 12-month waiting period for most treatments until your new policy covers you. 

The exceptions are rehabilitation, palliative care and in-hospital psychiatric services, which have only a two-month waiting period. There's no waiting period for psychiatric services once you've held any level of hospital insurance for at least two months, but this applies only once in your lifetime. 

If you switch to a policy with the same cover level, for example from a Gold policy to a Gold policy with a different fund, you won't have to serve waiting periods again. If you switch to a policy with the same cover level but a different excess, you'll be covered for your treatment but will have to keep paying the higher excess for the first 12 months.

What are excesses and co-payments?

Hospital insurance policies come with the options of an 'excess' and a 'co-payment'. Choosing one or both of these will reduce the cost of your premium (how much you pay for your policy), so they're a way to potentially save on hospital insurance. But they may not suit all people or situations.

An excess is an expense you pay out of your own pocket once per hospital stay.

  • Be sure to check how many times the excess applies per year so you don't get any surprises.
  • Some policies don't charge an excess for children, for a day stay, or for treatment after an accident.
  • The highest excess you can choose without becoming liable for the Medicare Levy Surcharge (MLS) is $750 per year for singles and $1500 per year for couples and families.

A co-payment is like an excess, but instead of paying a lump sum you pay an amount per day that you stay in hospital.

  • Some co-payments have a yearly cap such as $500, only apply for a private room, or have a cap per stay in hospital.
  • Check how many times the co-payment applies so you don't get any surprises.
  • Unlike with an excess, choosing a higher co-payment won't incur the Medicare Levy Surcharge.

What are gap payments?

Hospital gap payments

If you're going into hospital, first check that your health fund has a gap agreement with that hospital, or you may end up with a big bill. 

If there's no agreement between your fund and the hospital, you won't just be up for the excess or co-payment, you could have large out-of-pocket costs for things such as your accommodation and in-hospital services such as pathology and radiology.

Most of the big funds have hospital agreements with the vast majority of hospitals, so hospital gaps are not as common as medical gaps.

Medical gap payments

Under private hospital insurance, the government will pay 75% of the Medicare Benefits Schedule fee for each 'item' that your doctor intends to charge for, and your insurance will pay the remaining 25%. 

However, doctors aren't bound by the Medicare schedule fee so they can and often will charge higher. 

The amount that doctors charge above the Medicare schedule fee is known as the medical gap.

Some doctors have agreements with health funds to cover this gap. If the doctor recovers all of the medical gap from your health fund, then this is called a 'no gap' agreement. If the doctor recovers some of the medical gap from the health fund and the rest from you, then this is a 'known gap' agreement.

Types of gap

  • No gap = good.
  • Known gap = not so good, but at least your health fund covers more than the 25% and you'd usually only pay $500.

Medical gaps can cost you thousands of dollars so make sure you find out upfront if you're liable for a gap payment.

How do rebates, discounts and levies work?

Private health insurance rebate

A single person earning up to $90,000 a year (or a couple or family earning $180,000) gets a 24.6% (1 April 2021 to 31 March 2022) rebate on their private health insurance premium (hospital and extras). For those earning above $90,000, the rebate steps down incrementally until it reaches 0% for people earning over $140,000 (families or couples earning over $280,000). The rebate is paid by way of reduced premiums.

The income thresholds for the private health insurance rebate and the Medicare Levy Surcharge (which we explain further down) are as follows.

Private health insurance rebate for singles
Income bracket ≤$90,000 $90,001–105,000 $105,001–140,000 ≥$140,001
< age 65 24.608% 16.405% 8.202% 0%
Age 65–69 28.710% 20.507% 12.303% 0%
Age 70+ 32.812% 24.608% 16.405% 0%
Private health insurance rebate for families/couples
Income bracket ≤$180,000 $180,001–210,000 $210,001–280,000 ≥$280,001
< age 65 24.608% 16.405% 8.202% 0%
Age 65–69 28.710% 20.507% 12.303% 0%
Age 70+ 32.812% 24.608% 16.405% 0%

Note: Figures are correct from 1 April 2021–31 March 2022.

Discounts for young people

For every year you're under the age of 30, insurers may offer a discount of 2% on your premium. So a 29-year-old can get a discount of up to 2%, a 28-year-old 4% and so on, up to a maximum of 10% for 18- to 25-year-olds. If you stay on the same policy you can keep the full discount till you're 40.

But there's no guarantee your insurer will offer a discount, and you can't always keep it if you switch policies – which may prevent you from getting a better deal or a policy that meets your changing needs.

Medicare Levy Surcharge

The Medicare Levy Surcharge is an amount you're charged at tax time if you don't have private health insurance, and if you earn more than $90,000 as a single or $180,000 as a couple. 

Depending on how much you earn, it can be cheaper to take out some hospital insurance policies than pay the Medicare Levy Surcharge.

Medicare Levy Surcharges for singles
Income bracket ≤$90,000 $90,001–105,000 $105,001–140,000 ≥$140,001
You pay this % of your income: 0.00% 1.00% 1.25% 1.50%
Medicare Levy Surcharges for families/couples
Income bracket ≤$180,000 $180,001–210,000 $210,001–280,000 ≥$280,001
You pay this % of your income: 0.00% 1.00% 1.25% 1.50%

Note: Figures are correct from 1 April 2021–31 March 2023.