Pros and Cons of Private Health Insurance in Australia

What is Health Insurance? 

Private health insurance in Australia provides financial protection for policyholders by covering approved hospital expenses and some out-of-hospital health care treatments that Medicare does not include, such as physiotherapy and dental care.

Private health insurance includes two main types of coverage: hospital cover, which helps pay for approved treatments and accommodation in hospital, and extras cover, which covers non-hospital services like dental, optical, and physiotherapy. Health (hospital) insurance policies are typically available in different tiers – Basic, Bronze, Silver, and Gold – each offering varying levels of coverage and benefits. Once you purchase a policy from a registered health insurer, you’ll need to pay regular premiums to stay covered.

Benefits of Health Insurance

It’s important to fully understand all the health insurance pros and cons when considering a policy. There are several advantages of private health insurance, including access to a wider range of health services, potential tax savings, and financial security against unexpected medical costs.

1. More choice over your healthcare

• Private hospital cover typically allows you to choose your own doctor for hospital treatments. .

• It also usually allows you to skip lengthy public hospital waiting lists and secure non-emergency treatment you need faster in a private hospital

• Depending on your policy chosen, extras insurance can reduce the costs associated with out-of-hospital treatments that are not covered under Medicare, such as physiotherapy, dental, and optical.

2. Tax benefits of health insurance

• Private health insurance will help you avoid the Medicare Levy Surcharge, which applies to individuals earning more than $93,000 and couples earning over $186,000 who do not have private hospital cover.

• If you hold eligible private health insurance, you may qualify for the Private Health Insurance Rebate that reduces insurance costs either through lower premiums or as a tax offset.

• If you take out eligible hospital cover before you turn 31, you’ll avoid Lifetime Health Cover (LHC) Loading, which increases premiums if you purchase a policy after your 31st birthday.

3. Benefits of couples health insurance

• Couples can take out joint policies that may offer better value than two separate policies.

• Some policies provide maternity cover and other benefits suited for families planning children.

Drawbacks of Health Insurance

While private health insurance offers several benefits, it also comes with challenges such as high costs, policy complexity, and underutilisation of extras cover. Understanding the cons of health insurance can help in making an informed decision.

1. High costs

• Depending on your level of cover, health insurance premiums can be expensive. You may also need to account for annual premium increases.

• You may still face out-of-pocket expenses – such as gap fees and excess payments – even with a private health insurance policy.

2. Complexity

• Most health insurance have various inclusion and exclusions, so it can help to consult the experts when comparing policies.

• Likewise, health insurance policies may apply different waiting periods before you can claim for certain treatments. We can help you do your homework before you purchase a policy.

3. Underutilisation

• Some policyholders may not fully use their extras cover, which means you might end up paying for services you do not need.

• Beware of overspending on policies that bundle unnecessary extras that you’re not going to use. 

Key Considerations Before Buying Health Insurance

Before committing to a policy, it’s important to evaluate your budget, health needs, and government incentives to ensure you choose the right level of cover for your circumstances.

• Budget and affordability: Assess premium costs against potential benefits.

• Current and future health needs: Consider whether extras cover aligns with your health care needs – now and in the future.

• Government incentives and penalties: Factor in the Private Health Insurance Rebate, Medicare Levy Surcharge, and Lifetime Health Cover (LHC) Loading (if you’re over 31) to calculate the true cost of health insurance. 

How to Decide if Health Insurance is Right for You

Choosing whether to take out private health insurance depends on various factors, including your age, health needs, and the balance between public and private healthcare benefits.

• Age and life stage: Young singles, families, and retirees have different healthcare needs, and therefore different health insurance preferences. .

• Existing health conditions: Some health conditions may require specific coverage, so carefully compare policies to ensure any exclusions are not of concern to you.

• Public vs private healthcare: Compare the pros of health insurance against what Medicare already covers, and consider whether the benefits of health insurance –  such as choice of doctors and potentially faster access to hospital treatments – are important to you. 

Tips for Choosing the Right Health Insurance Policy

Selecting the right policy involves comparing different providers, understanding coverage details, and ensuring the policy aligns with your needs.

• Compare policies: Your healthcare needs may change over time, so regularly compare health insurance policies to ensure your policy is the best for you during different life stages.

• Check inclusions and exclusions: The experts at Compare Club can help you compare policy inclusions and exclusions to ensure you pick a policy that will cover any treatments you are likely to need.

• Understand waiting periods: Some treatments have waiting periods before benefits apply, and these tend to differ between policies and insurers. Compare Club can help you make sense of this too.

• Consider combined cover: Depending on your individual healthcare needs, bundling hospital and extras cover may be cost-effective.

Frequently Asked Questions

How does Lifetime Health Cover Loading work? If you do not take out eligible hospital cover before turning 31, a 2% loading is added to your premiums for every year you delay, up to a maximum of 70%. The loading applies for 10 continuous years before being removed.

What is the difference between hospital and extras cover? Hospital policies typically cover approved  in-hospital treatments as a private patient, hospital stay costs, and some specialist fees. Extras cover includes non-hospital services like dental, optical, and physiotherapy that are not typically covered by Medicare. 

Are there any government rebates for private health insurance? Yes, the Private Health Insurance Rebate can be used to reduce the cost of premiums. It is available based on income thresholds and can be claimed as a reduced premium or as a tax offset.

Additional Resources

• Calculate your Medicare Levy

• Calculate your Private Health Insurance Rebate

• Calculate your Lifetime Health Cover loading

Sources

Department of Health and Aged Care

Services AustraliaMoneySmart

Australian Taxation Office

Chris Stanley is the sales & operations manager of health insurance at Compare Club. With extensive experience and expertise, Chris is a trusted leader known for his deep understanding of health insurance markets, policies, and coverage options. As the sales & operations manager of health insurance, Chris leads a team of dedicated professionals committed to helping individuals and families make informed decisions about their health insurance needs.

Meet our health insurance expert, Chris Stanley

Chris's top health insurance tips:

• 1

  Australia’s public health system is world-class, but wait times for public hospitals can be long, inconvenient - and leave you living in constant pain while you wait.

• 2

  An appropriate private health insurance policy can speed up your surgery, relieving your pain sooner.

• 3

  Family health cover means your children are covered under the same policy as you.

• 4

  Many health insurance policies come with a 12-month waiting period for pregnancy-related cover, so it’s a good idea to get a family policy organized well before starting your family. This means your child will be covered from birth until at least their early twenties (depending on which health fund you select).