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Hospital insurance buying guide

We explain the benefits of the different levels of private hospital insurance.

patient in hospital bed holding mug
Last updated: 22 July 2020

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.

But the government doesn't like us using the public hospital system too much so 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 look at why you might want to take out hospital insurance.


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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 can 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.

What level of private hospital insurance do I need?

In a bid to simplify health insurance, the government has introduced a system of tiers so consumers know what they're covered for when they purchase a particular policy. Since 1 April 2020 all policies have a new classification.

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

New hospital 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:

  • if you want health insurance mainly for avoiding tax and surcharges 
  • if you 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:

  • if you want health insurance mainly for avoiding tax and surcharges
  • if you're 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:

  • if you don't have any chronic or major health issues
  • if you don't need cover for pregnancy
  • if you want to be covered for a heart attack, cancer surgery and plastic surgery needed after a burn or accident

Gold policies can be suitable:

  • if you're planning to have a baby
  • if you need a hip or knee replacement or cataract eye surgery
  • if you have chronic health issues and may need pain management with a device, insulin pumps, dialysis or gastric banding surgery

What's not covered by hospital insurance?

You're usually not covered for treatments outside hospital, for example, your appointments with your specialist or obstetrician. Also, tests and imaging like blood tests, X-rays and ultrasounds that are performed outside hospital are usually not covered by health insurance. Medicare does cover part of the costs for appointments and tests.

Waiting times

If you need treatment for a condition that your policy restricts and you want to upgrade your cover, you'll have to serve a 12-month waiting period until your new policy covers you. Rehabilitation and palliative care have only a two-month waiting period. No waiting period applies for psychiatric services once you have held any level of hospital insurance for at least two months.

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 $750 per year for singles and $1500 per year for couples and families, but there's no restriction on co-payments.

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, 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 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'll be up for the whole amount. 

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're liable for a gap fee.

Rebates, discounts and extra tax

Private health insurance rebate

A single person earning up to $90k a year (or a couple or family earning $180k) gets a 25.1% (1 April 2020 to 31 March 2021) 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 are:

Private health insurance rebate for singles
Income bracket ≤$90,000 $90,001–105,000 $105,001–140,000 ≥$140,001
< age 65 25.059% 16.706% 8.352% 0%
Age 65–69 29.236% 20.883% 12.529% 0%
Age 70+ 33.413% 25.059% 16.706% 0%
Private health insurance rebate for families/couples
Income bracket ≤$180,000 $180,001–210,000 $210,001–280,000 ≥$280,001
< age 65 25.059% 16.706% 8.352% 0%
Age 65–69 29.236% 20.883% 12.529% 0%
Age 70+ 33.413% 25.059% 16.706% 0%

Note: Figures are correct from 1 April 2020–31 March 2021.

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 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

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

Medicare Levy Surcharges for singles
Income bracket ≤$90,000 $90,001–105,000 $105,001–140,000 ≥$140,001
All ages 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
All ages 0.00% 1.00% 1.25% 1.50%

Note: Figures are correct from 1 April 2020–31 March 2021.