Navigating private health insurance.
Depending on your circumstances, private health insurance can be a very expensive proposition. Decisions about whether or not you should have it, and if you do have it what type and level of cover you should have, can be complicated.
Here are some tips to help you navigate the decisions.
Should I have private health insurance?
The answer to this question will ultimately depend on your personal circumstances. Here are some of the key things to consider.
Medicare – the universal public health system.
- All Australians (and even some overseas visitors) have their essential health and medical costs covered in the universal, public health system known as Medicare.
- Medicare doesn’t cover things like transport by ambulance, treatment by your own doctor or in a private hospital, elective surgery or “extras” such as physiotherapy. For most people, it doesn’t cover dental treatment or optical services such as glasses or contact lenses.
- Many of the services not covered by Medicare might be expensive if you don’t have insurance and you have to pay them out of your own pocket or be placed on a potentially long waiting list to have elective surgery.
Private Health Insurance Rebate.
- The government provides a Private Health Insurance Rebate to encourage private health insurance.
- To be eligible for the rebate, you must have a complying health insurance policy, be eligible for Medicare, be the beneficiary of a health insurance policy and have an income less than the maximum threshold. The maximum income thresholds for the 2024/25 year are $151,001 for singles and $302,001 for families (2023/24 - $144,001 for singles and $288,001 for families).
- The rebate is claimed either through your health insurance provider (by reducing your premiums) or when you lodge your tax return.
Medicare Levy Surcharge.
- If you don’t have private health insurance, you may also have to pay the Medicare Levy Surcharge (MLS).
- In simple terms, for the 2024/25 year, MLS is paid by singles with an income over $97,000 and by families with an income over $194,000 plus $1,500 for each dependent child. The MLS is tiered, so depending on your income, you’ll pay 0%, 1%, 1.25% or 1.5% of your income. You can get all the details about MLS from the ATO website.
Lifetime health cover loading (LHC).
- LHC was introduced to encourage people to take out private hospital cover earlier in life and maintain it.
- For most people, if you take out private hospital cover after 1 July following your 31st birthday, you will pay the LHC loading.
- The LHC loading is 2% of your hospital premium for every year you are aged over 30.
- The maximum LHC loading is 70%.
- LHC loadings stop after 10 continuous years of private hospital cover.
Age-based discount.
- Private health insurers are allowed to offer age-based discounts to members aged 18-29 who have their own policy.
- The discount is 2% for each year that a person is aged under 30, up to a maximum of 10%.
- The discount is retained until a member turns 41 when it reduces by 2% each year.
In summary, whether you should have private health insurance will depend on your personal circumstances – particularly factors such as the likelihood you’ll need services only covered by private health insurance, whether you qualify for the Private Health Insurance Rebate and if you are likely to have to pay the Medicare Levy Surcharge.
What type of Private Health Insurance should I have?
Again, this is a complicated question to answer, and it will depend on your circumstances. Here are some of the key things to consider.
Avoiding the Medicare Levy Surcharge.
- To avoid paying MLS you need an appropriate level of private patient hospital cover. This is cover provided by a registered health insurer in an Australian hospital or day hospital with an excess of $750 or less for singles and $1,500 or less for families.
- Travel Insurance is not considered to be private patient hospital cover so if you are travelling overseas, you may still need to keep your private health insurance in place to avoid paying MLS.
Levels and levels of cover.
- There are generally 3 types of health insurance policies – ambulance, hospital and extras. Ambulance cover is the most basic and covers the cost of emergency transport by ambulance. Hospital cover helps with the costs of staying in a private hospital.
- Ambulance cover is the most basic and covers the cost of emergency transport by ambulance. Hospital cover helps with the costs of staying in a private hospital. This type of cover is the one that attracts government rebates and levies designed to encourage people to have it, or penalise people for not having it. Extras cover helps with the cost of services such as physiotherapy, optical and dental.
- Health Insurance policies are tiered – Basic, Bronze, Silver, Gold etc and each tier provides a greater level of cover for a broader range of conditions and costs more. Policies can also have optional extras.
Selecting the right policy and cover.
Health insurance policies are inherently complex and comparing policies can be difficult. By law, all private health insurance policies sold in Australia must have a Private Health Insurance Statement. These are designed to help you review your existing policy, if you have one, and compare it to other policies.
There are a range of comparison services that may help. These include both commercial services and government-run services. Commercial services can be really helpful, but keep in mind that most of them won’t compare all health insurance options available to you, and their suggestions may be influenced by commissions or revenue arrangements with health insurance providers.
It’s worth checking out the federal government’s comparison site PrivateHealth.gov.au. It provides a comparison service and a lot of helpful background information about health insurance.
The ASIC-operated moneysmart website also contains helpful information about health insurance.
The bottom line.
All Australians have access to the universal public health system known as Medicare, but it doesn’t cover all health services, and it doesn’t provide for treatment in a private hospital or treatment by your doctor.
Aged-based discounts and the Private Health Insurance Rebate make private health insurance more affordable for some Australians. Lifetime Health Cover loading and the Medicare Levy Surcharge make it more expensive for some Australians to delay taking out private health insurance or not have it at all.
You’ll have to consider your own personal circumstances when deciding whether private health insurance makes financial sense for you, including your income, existing, possible and likely health issues and what you can afford.
If you decide to hold private health insurance, make sure you are getting good value for money by regularly considering your needs and circumstances and comparing different policies and levels of cover.
If you decide not to hold private health insurance, think about putting aside some of what you don’t spend on health insurance to increase your savings buffer to pay for any unexpected health care costs that aren’t covered by Medicare.
