All Australians who are permanent residents already have health insurance – it's called Medicare, and it entitles you to free or subsidised treatment in a public hospital. If you have an accident or are seriously sick, chances are you will go to a public hospital regardless of whether or not you have private hospital insurance, because they have the resources to deal with the most complex and expensive medical cases.

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

In this article, we take a look at why you might want to take out hospital insurance.

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The benefits of private hospital insurance

Here are the advantages of private hospital insurance:

  • If you're a single person earning over $90k or a couple or family earning over $180k a year and you have private hospital insurance, you won't have to pay the Medicare levy surcharge (MLS).
  • If you've had private health insurance since 1 July 2000 or 1 July following your 31st birthday (or were born before 1 July 1934), you won't pay the Lifetime Health Cover (LHC) loading on private health insurance.
  • If you're a single person earning $140k or less, or a couple or family earning $280k or less, then the government will subsidise your private hospital and extras insurance.
  • Shorter waiting lists for elective surgery.
  • Choose your own doctor.
  • Go to a private hospital (which some believe have better conditions and service).

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.

But there are different levels of private hospital insurance, and depending on your needs, you could find yourself under- or over-insured if you don't do your homework.

What level of private hospital insurance do I need?

'Junk' insurance

This is a relatively new type of cover. Like other hospital cover it lets you avoid extra tax and surcharges, but it covers only a handful of treatments and gives you limited cover for an accident. You're unlikely to be able to use it.

However, some of these policies can be cheaper than basic cover if tax avoidance is your only priority.

Basic cover

Basic policies are a good fit for avoiding tax. While they usually cover thousands of treatments in public or private hospital, they restrict or exclude a range of treatments so make sure you don't need these, or else you'll need to join long public hospital waiting lists. Restricted treatments can include:

  • assisted reproduction and IVF
  • obstetrics and birth-related care
  • cataract and eye lens surgery
  • cardiac and cardiac related services
  • non-cosmetic plastic surgery
  • dialysis for chronic renal failure
  • gastric banding and obesity surgery
  • hip, knee and other joint replacements
  • palliative care
  • psychiatric care
  • rehabilitation
  • sterilisation.

Some basic policies are called public hospital policies as they only cover treatments in a public hospital. That means you can't jump the waiting list but you can choose your own doctor and possibly get preference for a private room.

Medium cover

Covers you for heart disease, rehabilitation, plastic surgery, psychiatric and palliative care and thousands of other treatments in a private hospital. However, some treatments are excluded or restricted so make sure you don't need them, or else you'll need to join long public hospital waiting lists. Restricted treatments can include:

  • pregnancy and birth related services
  • assisted reproductive services
  • cataract and eye lens procedures
  • joint replacements i.e. shoulder, knee, hip and elbow including revisions
  • dialysis for chronic renal failure
  • sterilisation.

Cover that only excludes pregnancy, birth and related treatments could be a good choice for singles or more mature people.

Top cover

If you want to be fully protected then go for top cover, nearly all treatments are covered, you have two choices:

  • Top hospital $0 excess – Premium cover in a private hospital. Suitable if you need to go to hospital in the next two years.
  • Top hospital with excess: The premiums are top shelf but if you take out a policy with an excess and/or co-payments they're often not much more expensive than medium cover.

Excesses and co-payments

By choosing an excess or co-payment, you can save on the premium.

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.
  • Some policies do not 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 is $500 per year for singles and $1000 per year for couples and families, but there is no restriction on co-payments.

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 or only apply for a private room.
  • Some co-payments are only charged after you've been in hospital a period of time, e.g. they kick in after five days in hospital.
  • Check how many times the co-payment applies per year.

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 be liable for the kind of accommodation costs that celebrities pay for penthouses. If there's no agreement between your fund and the hospital, you won't just be up for the excess or co-payment, you'll be up for the whole amount.

Medical gap payments

Talking of exorbitant costs, your first foray into the world as a private patient, in a private or public hospital, will likely be welcomed by the confusing and potentially costly world of 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 are not 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. Otherwise, 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.

  • No Gap = good
  • Known Gap = not so good but at least your health fund covers more than the 25% and you know how much you're paying.

Medical gaps can cost you thousands of dollars so make sure you find out if you are liable for a gap fee. The recommended top policies with $0 excess in our review have above average coverage of 'No Gap' agreements with doctors in that state.

Suspending your membership

Your health fund may allow you to suspend your membership if, for example, you go overseas or become unemployed.

  • You don't pay a premium and are not covered.
  • Your Lifetime Health Cover (LHC) rating stays in place, so later on, when you can afford to take up hospital cover again, you won't have to pay a surcharge.
  • The Medicare levy surcharge (MLS) can still apply depending on your income.

If your fund does not allow you to suspend your membership you can use your LHC 'days of absence' which allows a maximum of 1094 days (three years minus one day) of no hospital cover without affecting your LHC.

Restricted membership fund

Check whether you qualify to join a restricted membership fund – for example, for people working in the education or defence industry. They often offer good policies at a lower premium than open membership funds, especially if you're after top cover with no excess.

Family cover

Family cover generally includes your partner and children under a certain age. The age varies from fund to fund – it could be 16, 21 or even up to 23. Some policies may include full-time students under 25 or other dependants; check if an extra charge applies.

Switching and waiting periods

If you switch to hospital cover considered equivalent or lower than your existing policy (check with the health fund), the waiting period you served on your previous policy will be carried across. For more information, check out our article on how to switch and save on health insurance.

Ambulance cover

Ambulance cover varies between each state and health fund. Check our health insurance buying guide for the status of ambulance cover in your state or compare levels of ambulance cover between health funds in our health insurance review.

Private health insurance rebate

The income thresholds for the private health insurance rebate and the Medicare levy surcharge are:














Tier 1

Tier 2

Tier 3

< age 65





Age 65-69





Age 70+





Medicare Levy Surcharge

All ages





Please note: Rebate tiers are correct from 1 April 2016 - 31 March 2017.  

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