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Hospital insurance buying guide

Why get private hospital cover, which level is for you, and the meaning of terms like excess, copayments and gap payments.

patient in hospital bed holding mug
Last updated: 12 March 2021

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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Benefits 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) – a surcharge the federal government charges 'high income earners' at tax time.
  • 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. The LHC loading is a government levy designed to get people to take out private health insurance early in life, and to keep it.
  • 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.
  • 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.

What level of private hospital insurance do I need?

All hospital-based treatments are organised into 38 categories, based around 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 your 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, 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 appointments and tests.

Waiting periods for cover

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. The two-month waiting period will apply again if you reduce your cover level or ditch your policy. 

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 or only apply for a private room.
  • Some co-payments are only charged after you've been in hospital for a period of time. For example, they may kick in after five days in hospital.
  • Check how many times the co-payment applies per year, so you don't get any surprises.
  • Unlike with an excess, choosing a higher co-payment won't incur the Medicare Levy Surcharge.

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.

Rebates, discounts and levies

Private health insurance rebate

A single person earning up to $90k a year (or a couple or family earning $180k) 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 $90k, the rebate steps down incrementally until it reaches 0% for people earning over $140k (families or couples earning over $280k). 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:

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 $90k as a single or $180k 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 2022.