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Even though Australia has one of the world’s best public health care systems, more than half of all Australians have private health insurance.
There are a number of reasons why a person may opt for private health insurance. Some of the benefits include being able to choose the hospital and specialist providing treatment, receiving quicker treatment for non-life threatening procedures, and to avoid paying for treatments that are not covered by the national public health scheme of Medicare. There are also tax incentives.
However, many Australians find private health insurance complex and some people may be paying for policies that they do not need. There is a lot to consider in choosing the right policy and getting the best value for money.
It sounds complicated, but in reality it’s not. In exchange for paying regular monthly premiums, a patient can have part or all of their medical treatment reimbursed by their insurance fund. A public patient, by contrast, relies on the national Medicare scheme to fund at least part of it. In the case that a particular treatment is not covered by the public Medicare system, the public patient must pay 100% of the bill.
A private patient may choose to be treated by their preferred specialist or surgeon, and to be treated in a particular hospital (and this could include being treated in a public hospital as a private patient). A private health insurance policy may cover all or some of the costs of treatments that are excluded from the public system, such as physiotherapy.
Treatment may also be provided more quickly in non-life-threatening situations (in the case of emergencies, most people are treated at public hospitals as they have bigger emergency departments). There are currently long wait times for non-life-threatening procedures in Australia’s public system. Wait times have doubled since the pandemic began, because in March 2020 these ‘elective surgeries’ were cancelled in order to divert health care resources to the COVID-19 response. The longest median wait at the moment is for tonsil removal, at 123 days, while the median for all elective procedures is 48 days.
The government provides tax incentives and rebates to private health insurance policy holders as a way of encouraging people to take out cover and relieve the burden on the public system.
For some people, having private health insurance is actually ‘free’ because they would otherwise have to put roughly the same amount of money towards paying a tax penalty for lacking private health insurance (more about this later).
In 2019, the government overhauled health insurance policies in a bid to make the system more affordable and less complex. The new system introduced Gold, Silver, Bronze and Basic tiers of hospital cover. Each tier covers specific minimum standards of treatment categories in a private hospital, which theoretically makes the different options easier to compare.
However, insurers may label their products as ‘Plus’, which complicates the picture by creating another three categories, making a total of seven. As consumer body CHOICE notes, consumers must be wary of “rip-offs” that offer poor value for money. CHOICE contends that the government’s attempts to simplify the system for consumers has been unsuccessful.
As Australia’s public healthcare system is free, some people, especially those who are younger, feel they don’t need it. Others, especially those who are older, wouldn’t be without it.
There is a lot to consider when choosing the right health fund. Much depends on the stage of life: if pregnancy could be on the horizon, consider pregnancy and birth-related services (and be mindful of applicable waiting periods). Health needs change over time, so it is worthwhile reviewing policy details every couple of years.
While no one can foresee when an accident or illness will occur, consider which extras are unlikely to be needed to save on costs.
The Commonwealth Ombudsman has a website called Private Health, which is an excellent resource for comparing policies and answering common questions.
There are more than 35 private health insurance funds in Australia, as well as different options for corporations.
A ‘for-profit’ health fund generates a profit from the premiums paid by members, after benefit payments and operating costs are deducted. Examples of for-profit insurers include Bupa and Medibank.
A ‘not-for-profit’ health fund, such as HCF and HIF, is a mutual organisation. The premiums paid into the fund are used to cover operating expenses and member benefits.
Private health insurance policies vary considerably, so always check the policy wording. Generally speaking, cover is divided into three types: hospital, general (better known as ‘extras’ for things like massage) and ambulance. However, sometimes ambulance services are provided by the state government, so there is no need to pay a premium for it in states such as New South Wales.
By law, private health insurance does not provide cover for GP visits, specialist consultations in their rooms and out-of-hospital diagnostic imaging and tests. That is because Medicare funds these services. Some private health insurance policies do not cover certain natural therapies either, or elective cosmetic surgery.
For some people, private health insurance is effectively “free” because it saves them paying extra income tax. The Medicare Levy Surcharge (MLS) is a 1% to 1.5% government levy that applies to those who are considered high income earners and do not have private health insurance cover.
The MLS applies to Australian taxpayers who earn above $90,000 for individuals and $180,000 for couples or families. It increases by $1,500 for every additional child after the first one is born.
The government introduced the MLS as an incentive for taking out private health insurance, because it reduces the burden on Australia’s public health care system. The good news is that you need only take out basic hospital cover to dodge the levy.
The Lifetime Health Cover loading is another Government incentive, which is a penalty that adds 2% to future premiums for every financial year that a person over the age of 31 does not take out hospital cover. Once again, the motivation here is clear: the Federal Government is attempting to lure people to the private health care system.
However, it’s not all punishment and no reward. The Federal Government also offers an income-tested rebate for those who take out private health insurance. This can be claimed from the insurer directly or at tax time.
There is no one-size-fits-all approach to health funds. They are as varied as people’s health needs and it’s often a case of searching until you find the right fit at an affordable price. You’ll need to weigh up your needs with the conditions of the policy.
Nevertheless, here are a few things consider during your research:
The cost of private health insurance varies depending on a number of factors, such as the type of cover, the tier, a person’s age and income, and where a person lives. Health insurers must obtain permission from the government to increase a premium (annually), and they must provide adequate justification from a costs perspective.
That being said, consumer group CHOICE has crunched the numbers and found that the average annual premium for a HCF Accident Only Basic policy for Victorian residents was $907 per year for someone earning $90,000 and $1204 for someone earning $140,000 per year or above.
To determine the best policy for your needs, keep track of health spending on things like massage, dental and optical. Compare the figure with different premiums to see whether it would be a cost saving to take it out – as well as the peace of mind it provides.
Some funds offer policies that are heavily weighted towards extras, others are more focused on hospital. Take some time to work out what you’re most likely to claim on and find the policy mix of benefits to match it.
Insurers have waiting periods on being able to claim a benefit. This is a way of discouraging people from only taking out private health insurance from the moment it is needed. Waiting periods vary for different services and are proscribed by law.
Waiting periods for hospital services must be no more than 12 months for pre-existing conditions and pregnancy and birth-related services. Regardless of whether it is pre-existing condition, the waiting period cannot be more than two months for psychiatric care, rehabilitation or palliative care. There is a maximum two month wait limit for all other services, however the waiting period on extras is up to the discretion of the insurance company. You could wait up to six months for optometry, for example.
Check policy wording carefully before making a purchase and note that when switching to a new policy that offers the same level of benefits as the previous one – even if it is a different insurance company – the wait limits do not apply.
Policies have different annual limits on treatment categories. Dental is commonly needed: half of all extras claims relate to dental. Check what the annual limit is on dental – it could be anywhere from $200 to unlimited.
Extras policies are often sold as a bundle, but it is possible to get individual hospital and extras policies from different funds if preferred. For example, it is possible to buy hospital cover from one insurer and extras cover from another, or to only purchase extras cover without hospital cover. Consider which extras are most likely to be needed – you may not be an age range where hearing aids are likely, for instance. Should you get a remedial massage every month, it may be a cost saving to choose a policy with a generous extras provision for massage.
Making a claim after having a health issue arise can be stressful, so it’s important to choose a fund that provides excellent customer services and quick and convenient processing of claims.
The 2021 State of the Health Funds Report by the Private Health Insurance Ombudsman provides consumers with information to compare the performance of their insurer with others in Australia. It is useful for first-time policy holders to compare the services available and their performance before choosing a fund.
The private health fund will pay back around 50% to 60% of the bill: it will not cover everything as a general rule. Some corporate policies may be exceptionally generous, however, and will pay close to 100% of certain bills.
Once the annual limit is reached, there will be no further payments from the insurer until the clock starts again on a new 12-month period. For example, the annual limit on remedial massages may be $800 per year – once a person has spent that amount on getting massages, no further ‘discounts’ will be given by the private health insurer until the following year.
Some funds do advertise policies with no wait times on extras, but these may be more expensive or have other conditions attached. Make sure it’s not too good to be true.
After downgrading cover and then wanting to upgrade it at a later point, a waiting period will apply before a benefit can be paid again.
This is a tricky question that ultimately only you can answer. However, there are a variety of things to consider, including your age, income and allied health needs. For example, if you’re under 30, how often do you use extras? Is the cost of monthly premiums worth it or or is it better to put your own money aside each month to contribute towards extras, such as dental and optometry? With a bit of research and budgeting you can get a sense of whether or not it’s worth your while at this stage in your life. And remember: even if health insurance is not worth it at the moment, as you age and your habits change, you may find it becomes more helpful in years to come.
The government contributes towards the cost of private health insurance premiums. This is known as the private health insurance rebate, and it is income tested – the higher the income, the lower the rebate. The rebate can be claimed via the private health insurance provider, with an adjusted premium to pay, or when a tax return is lodged.
Before the health fund will pay out its benefits, a lump sum known as an excess must be paid by the health insurance policy holder. This amount is pre-agreed. If the excess is very high, it may be better value to skip paying premiums and pay upfront if or when the treatment is needed.
The Commonwealth Ombudsman is a free independent complaint handling service. It is independent and impartial and does not represent any particular group, whether it be consumers, insurers or hospitals. Prior to lodging the complaint, a checklist must be completed, along with a consent form for medical information to be released to the ombudsman. For a complaint to be investigated, it must concern a health insurance arrangement. It does look into complaints about the quality of a particular service or treatment – those should be directed to the relevant complaints body.
The Federal Government has introduced the Lifetime Health Cover (LHC) loading that applies to anyone who has not taken out and maintained private patient hospital cover from the year you turn 31. This is to encourage Australians into private healthcare earlier. So, if you take out private health insurance later in life, for each year after the age of 30 you will pay a 2% LHC loading on top of your premium. For example, if you take out private patient hospital cover aged 40 you could pay an extra 20% on the cost of this cover per year for the 10 years since you turned 30. The government does not provide the Government Private Healthcare Rebate on the lifetime health cover loading component of a policy.