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Hospital insurance buying guide

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

doctor visiting patient in hospital

Should you get hospital insurance?

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

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), 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.
  • 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.

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 junk insurance covers only a handful of treatments (if any) in a private hospital 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. 

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. 

Top cover

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

  • Top hospital $0 excess – suitable if you need to go to hospital in the next two years.
  • Top hospital with excess – good if you don't plan on going to hospital in the next two years. Premiums are reduced in exchange for you agreeing to pay an excess if you go to hospital.

Top cover might cost more, but if you take out a policy with an excess and/or co-payments they're often not much more expensive than medium cover.

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. 

You may also have out-of-pocket costs if your doctor charges more than the charge Medicare recommends for a treatment, although your fund may cover all or some of that extra charge under their gap cover scheme.

While top cover policies cover all treatments that are covered by Medicare (i.e. are listed on the Medicare Benefits Schedule, or MBS), basic or medium policies may limit or exclude one or more of the following treatments:

  • Pregnancy and birth-related services If you're planning a family, you need to get insurance well ahead of time. Health funds impose a 12-month waiting period before you can claim for birth-related services. While public hospitals provide very good birth-related services, with private cover you can choose your own obstetrician and private hospital facilities can be more comfortable. Read more about health insurance for pregnancy.
  • Fertility treatment such as IVF. Fertility treatment is mostly available in private clinics. Read more about the cost of IVF.
  • Heart surgery Coronary heart disease is the leading cause of death for Australians aged 45+, and the fourth leading cause for ages 25–44. Urgent heart surgery, such as for heart attacks, can be performed quickly in public hospitals. But you can encounter waiting lists of up to three months in a public hospital for some treatments, such as stent procedures, valve replacements and pacemaker implants.
  • Rehabilitation You may need rehabilitation after an accident or stroke, for example. Rehabilitative services in a public hospital are good but can be overcrowded. Private hospital cover gives you greater access and flexibility of where and when you have your treatment.
  • Joint replacement Covers surgery and prosthesis for joint replacements such as knee and hip replacements. If you're young and fit you may think you don't need this, but it could be useful in case of an injury. Public hospital waiting lists can be up to a year.
  • Major eye surgery Covers major eye lens procedures, such as cataract surgery. Laser eye surgery usually isn't covered. It could take up to a year to get cataract surgery in a public hospital. 
  • Palliative care Covers services designed to help people who have a life-limiting or terminal illness live life as comfortably as possible. Can include home nursing and equipment hire. Public hospitals and community services and facilities also offer good palliative care, often fully funded by Medicare. Choose private hospital cover if you'd prefer the comforts and setting of a private hospital.
  • Psychiatry This is for in-hospital psychiatric care, such as for eating disorders, severe depression, post-natal depression, schizophrenia, drug and alcohol rehabilitation. It's difficult to predict if you'll need this cover, but it's good to have for peace of mind. Psychiatric services are available in public hospitals, but it can be hard to get a place depending on the condition you need treatment for. Read more about mental health and health insurance.
  • Non-cosmetic plastic surgery includes reconstructive surgery for medical reasons after an accident or cancer, for example. Cosmetic surgery is not covered by Medicare or private health insurance. Public hospital services are good for reconstructive plastic surgery (such as for burns), but waiting lists are up to five months. Also, plastic surgery is more readily available in the private system, and you might prefer a plastic surgeon over a general surgeon for some procedures to reduce the risk of scarring.
  • Renal dialysis Very few people with indicators of chronic kidney disease will need dialysis, and when they do, it's usually only necessary at end-stage kidney disease. Renal patients can get high-quality care in a public hospital, but private hospital cover could give you greater flexibility of where and when you have your treatment.
  • Sterilisation includes vasectomies and tube tying. This is mainly available in the private system.
  • Obesity surgery Gastric banding is the most common form of bariatric (obesity) surgery. Obesity surgery is mostly done in private hospitals and public hospital waiting lists can be several years. 

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.

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's 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're 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 let you 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 funds

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 policies

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, see 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.

Private health insurance rebate

A single person earning up to $90k a year (or a couple or family earning $180k) gets a 25.9% (1 April 2017 to 31 March 2018) 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
% rebate by
income bracket
≤$90,000 $90,001–105,000 $105,001–140,000 ≥$140,001
< age 65 25.415% 16.943% 8.644% 0%
Age 65–69 29.651% 21.180% 12.707% 0%
Age 70+ 33.887% 25.415% 16.943% 0%

Private health insurance rebate for families/couples
% rebate by
income bracket
≤$180,000 $180,001–210,000 $210,001–280,000 ≥$280,001
< age 65 25.415% 16.943% 8.644% 0%
Age 65–69 29.651% 21.180% 12.707% 0%
Age 70+ 33.887% 25.415% 16.943% 0%

Medicare levy surcharges for singles
% surcharge by
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
% surcharge by
income bracket
≤$180,000 $180,001–210,000 $210,001–280,000 ≥$280,001
All ages 0.00% 1.00% 1.25% 1.50%

Please note: Rebate tiers are correct from 1 April 2018–31 March 2019.  

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