What is the Difference between Hospital vs Extras Cover?

When you need to shop for health insurance, the first thing to do is to determine whether you want Hospital cover, Extras cover or both.

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by Gary Andrews

Last update 15 Apr 2021

Overview

Medicare in Australia covers treatment at public hospitals, x-rays, pathology tests, and immunisations.

It does not provide treatment in private hospitals, nor does it cover out-of-hospital treatments like dental care and chiropractic services.

Most people purchase health insurance to supplement Medicare so they can receive broader cover for serious illnesses and won't have to pay out-of-pocket for many non-emergency expenses.

When purchasing additional insurance, there are two primary types: Hospital cover and Extras cover.

Key Points

A hospital policy (as the name suggests) covers you for in-hospital procedures, treatments and accommodation.
Extras cover provides rebates for routine check-ups, treatments and services like physio, dental, optical and psychology to name just a few.
The government provides incentives for Australians to take out cover in the form of a rebate and additional taxes, which are detailed below.
Each policy varies, so it's important to check with your chosen fund and read your policy disclosure statement (PDS) to ensure you're getting the cover you need.
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What is Hospital Cover?

Health funds providing Hospital cover may pay for:

Treatment in private hospitals.

The "Gap" created by Medicare.

Medicare pays some of the costs of hospital treatment as a private patient and you pay for the rest (the gap).

Depending upon the private health cover you select, you can eliminate some of the gap and reduce your out-of-pocket expenses.

Prescription medications not included as part of the Pharmaceutical Benefits Scheme.

Theatre fees, intensive care, drugs and consumables, and hospital accommodation not covered by Medicare.

Here's how costs will be divided for a procedure with a MBS payment amount of $100

Purchasing Hospital cover makes it possible for you to get more comprehensive care for serious medical illnesses.

You will have a broader choice of doctors and hospitals than if you have Medicare alone, and you may have significantly reduced costs when seeking treatment for serious illnesses.

If you only purchase Hospital cover, however, you will still need to pay out-of-pocket for almost all routine expenses.

What is Extras Cover?

Extras cover pays for some or all of the routine care you require in order to stay healthy.

Policies can include cover for:

  • Dental care, including preventative dental care, crowns, bridges and dentures
  • Orthodontics
  • Chiropractic care
  • Physiotherapy
  • Optical care
  • Osteopathy
  • Podiatry
  • Orthotics
  • Speech therapy
  • Eye therapy
  • Occupational therapy
  • Acupuncture
  • Medical massage
  • Naturopathy
  • Psychological treatment
  • Dietetics
  • Hearing aids

This does not mean that every Extras policy will offer all of these different kinds of cover.

Important Differences Between Hospital Cover and Extras Cover

Health funds differ in the types of services and treatments they cover.

There are a few other differences to consider, as well.

For example:

Consider purchasing hospital cover if your income exceeds $90,000 for individuals and $180,000 for families.

If you choose not to purchase hospital cover and you are a higher earner, you will pay a penalty equal to a percentage of your income.

Extras cover is optional to buy and you face no consequences if you decide not to purchase it.

Lifetime Health Cover loading makes Hospital cover more costly if you wait to buy it, but this doesn't apply to Extras cover.

If you are 31 or over, you will be charged an extra two percent for each year over age 31 when you buy Hospital cover for the first time.

This LHC loading is mandated by law.

There is no legal requirement that health funds charge LHC loading penalties if you wait to purchase Extras cover and LHC loading does not raise premiums if you wait to buy Extras cover.

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How Much Will LHC Cost You?

Portability rules make it easy to switch Hospital cover, but not necessarily to switch to a new Extras policy.

If you want to switch to a different health fund, the law says you cannot be required to re-serve waiting periods for Hospital cover as long as you don't upgrade your cover level or have a cover lapse.

Once you have Hospital cover, you will only be subject to a waiting period again if you want to buy better and broader coverage.

These portability rules do not apply to Extras cover, although most health funds are not going to require you to re-serve a waiting period if you move from one Extras policy to another.

You need to check carefully to determine if the Extras policy you are buying requires new waiting periods, but you do not need to worry about that for Hospital cover.

How Much will the premium rebate save you on hospital cover?

Waiting Periods & Benefit Limitation Periods for Hospital and Extra Cover

The Private Health Insurance Act set limits on waiting periods for hospital cover, mental health services, obstetric care, rehabilitation and palliative care.

The waiting period may be no more than 12 months for obstetrics care. It can be no longer than two months for psychiatric care, palliative care and rehabilitation.

There are no rules for waiting periods for Extras cover. You need to compare waiting periods from different health funds.

Benefit limitation periods are a characteristic of some health funds. Benefit limitation periods impose a limit on certain types of cover for a set period of time, usually between one and three years.

For instance, you may receive only $500 the first year you are eligible and then this could increase to $1,200 after three years with your health fund.

Benefit limitation periods apply to Hospital cover.

Are Rebates Available to Buy Insurance?

Rebates are available for the purchase of Hospital cover for those with incomes less than $140,000 as individuals or $280,000 as families.

The rebate depends upon age. This guide explains the rebates you can expect.

Are You Required to Buy Private Health Cover?

Purchasing hospital cover is a personal decision, but it's worth noting that if your income is $90,000 or higher, you'll need to pay a Medicare Levy Surcharge (MLS).

However, the MLS does not apply to Extras cover.

Can You Buy a Combined Policy?

Many health funds offer combined policies that provide you with both Hospital cover and Extras cover.

Buying one policy can be simpler since you only need to interact with one health fund.

It can also save you money to combine your policies.

However, you may be more limited if you shop for combined cover instead of shopping separately for Hospital cover and Extras cover.

Some Hospital policies are better than others in terms of covering the gap and providing other perks.

Some Extras policies are better than others in terms of what Extras are specially covered.

If you buy a combined policy, you may need to compromise on either your Hospital or Extras cover.

If you buy separate policies, you can get the best Hospital policy AND the best Extras cover that you need.

How to Shop for Hospital and Extras Cover

When you need to shop for health insurance, the first thing to do is to determine whether you want Hospital cover, Extras cover or both.

You should then look at different policies including both combined and independent policies to find the cover that is right for you.

Be sure to carefully compare Extras cover as there may be more variation from policy to policy for Extras versus Hospital cover.

Buying both Hospital and Extras cover allows you to plan ahead for family medical needs so you can rest easy and not worry that going to the doctor can lead to financial devastation.

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This guide is opinion only and should not be taken as medical or financial advice. Check with a financial professional before making any decisions.