Private health insurance and Medicare cover exactly the same treatments and services. The main difference is in where you’re treated: the public or the private system. 

If you’re a permanent Australian resident, Medicare gives you free or subsidised access to doctors and specialists, and treatment and accommodation (the bed or room) in a public hospital. The standard of care you’ll get here is high.

Having a private hospital insurance policy lets you access treatment in the private system. While you’re more likely to have your own room, can choose your own doctor and avoid the sometimes long waiting lists in public hospitals, you’ll also face out-of-pocket costs, on top of your insurance premiums.

A gap is the difference between what Medicare recommends (the Medicare Benefits Schedule fee), and what your doctor or hospital actually charges. You'll need to pay the difference (the gap), which is why it's sometimes called an out-of-pocket cost.

Health funds have gap schemes to help cover your out-of-pocket costs, under which they'll pay all, or part, of the gap.

In a ‘no gap’ scheme the insurer sets an upper limit for how much they'll pay over the MBS fee. If your doctor charges above the MBS but under, or up to, the insurer's 'no gap' threshold, you'll have no out-of-pocket costs.

An excess is an amount you can choose to pay out of your own pocket, once per hospital stay, in order to lower your premiums. You’ll only pay the excess if you end up going to hospital, so if you don’t expect to go to hospital during the year (you have no surgery planned), choosing a policy with a higher excess could save you money.

A co-payment is similar to an excess, but instead of paying one lump sum you pay an amount for each day that you stay in hospital. Some co-payments have a yearly cap such as $500 or only apply for a private room. Some are only charged after you've been in hospital for a period of time, e.g. they kick in after five days in hospital.

The private health insurance rebate is an amount the government contributes towards the cost of your private health insurance premiums.

You can get the private health insurance rebate deducted from the amount of private health insurance premiums you pay to your insurer.

The rebate is means tested, so if your income is higher than the relevant income threshold, you may not receive a rebate. You’ll get a higher rebate if you’re over 65, and higher again if you’re over 70.

A pre-existing condition is an illness or medical condition that you’ve had, or shown signs or symptoms of, in the 6 months before taking out private hospital insurance.

Waiting periods

Insurers will make you serve a 12-month waiting period if you apply to be covered for a pre-existing condition, with some exceptions:

• Rehabilitation and palliative care have only a 2-month waiting period.
• Psychiatric services have a 2-month waiting period (may be waived once in your life if you’ve held hospital insurance for at least two months).

Once you’ve served waiting times with one policy you won’t have to serve them again if you switch, even if you have pre-existing conditions.

As you age you’re more likely to need certain types of treatments and surgeries, like cataracts or knee and hip replacements.

If you want to have these in a private hospital, this will only be covered by the expensive, top-tier (Gold and Silver Plus) policies, so keep this in mind when choosing health insurance for seniors.