Private health insurance has been in the spotlight recently, and has been dubbed as going into a "death spiral". Many young people ditched their private health insurance policies, which forced premiums up for those who remained, which caused more people to drop their insurance - and so on.
Research revealed younger people increasingly foot the bill for older Australians at a disproportionate level, under a rule dubbed the community rating. Thinktank the Grattan Institute has called on the government to dump the community rating.
Figures released by APRA showed 33,975 people aged between 20 and 29 ditched their private health cover over the year to December 2018, which marked a 6.9% fall - the biggest drop in 15 years.
To address this issue, young people were at the forefront of a variety of regulatory reforms by the Australian Government. For example, health insurers are now able to offer discounts for people aged between 18 to 29 years old. Also notably, the age of dependents was increased from 24 years old to 31 years old - which aimed to make it easier for young people to maintain private health insurance.
Since then, the number of young people holding onto and signing up to private health insurance has increased. Recent figures from APRA showed that 61,372 people aged between 20 to 49 years old signed up for a private health insurance premium over the year to December 2021.
But in a country where we already have access to largelt free or no-cost healthcare, is taking out private health insurance worth it?
- Public health insurance vs private health insurance
- Benefits of private health insurance
- Drawbacks of private health insurance
- Should you take out private health insurance?
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How does public health insurance compare to private health insurance?
You may be wondering whether private health insurance is worth it for you, or whether relying on the public system is enough. Unfortunately, I can't help with that one - it will completely depend on your personal situation. For some people, private health insurance is a necessity, while others can breeze through life without needing it.
In a nutshell, private health insurance is designed to cover your hospital and medical costs not covered by Medicare. Private health insurance is generally divided into three categories of coverage: hospital cover, general treatment (or extras) cover, and depending on which state or territory you live, ambulance cover. You could also opt for a combined hospital and extras policy.
There are some healthcare costs, such as visits to the GP, which may be covered (or partially covered) by Medicare through the public system. But there are some healthcare costs which aren’t covered by Medicare at all, which means some treatments could leave you with a huge medical bill if you don’t have private health insurance.
For example, hospital cover can come in handy if you are in for a long hospital stay, and would rather do it in a private hospital. Without hospital cover, you may be left with the bill - and it can be quite large. Extras cover can be helpful for health services like dental, optical, orthodontics, physiotherapy, and so on. Usually, your health insurer will cover some (if not all) of your costs when utilising these services. Always check your Product Disclosure Agreement (PDS) to know exactly what you're covered for.
What are the benefits of having private health insurance?
Now that we understand the basics of what private insurance is and when it can be used, let's discuss some of the benefits of having it. There are a number of pros to having private insurance and, depending on your circumstances, you may find some more appealing than others.
1. Skip the waiting list
One key benefit of private insurance is you can often skip the public waiting lists for certain treatments, like elective surgery. The public waiting list for surgeries like hip or knee replacements can be years, and you don't have much say in when it happens or who performs the surgery. With private health insurance, you can often decide when you're scheduled, which surgeon performs the surgery, and even where you'll stay afterwards (we'll get to that in a second).
Another bonus of going private is you lock in your date. When going through the public system, priority patient order can mean your surgery is pushed back so that the surgeon can operate on a more critical patient. Since your doctor is in private practice, this won't generally happen.
2. Choose your doctor
As we mentioned, you can pick which doctor or surgeon carries out your operation. If it's someone you have a preexisting relationship with, this may make you feel more comfortable going into your surgery. When going public, whichever doctor or surgeon is working at the time is who will perform the operation.
3. Private hospital rooms
If you're in for a hospital stay, with private health insurance, you can usually opt for a private room. With public hospital stays, you generally end up stuck with other people in the room with you, which can be uncomfortable or even disturbing (what if they snore?). While it's not always guaranteed, you usually have a much better chance than a public patient.
4. Avoid the Medicare Levy Surcharge
Private health insurance holders with a sufficient level of hospital cover are exempt from paying the Medicare Levy Surcharge. Most Australians pay the Medicare Levy of 2% of their taxable income as part of their tax, but if you’re on an income of over $90,000 as a single or $180,000 for families, you may be subject to a surcharge of at least 1% of your income on top of the basic Medicare levy. If you are on a higher income, it’s often cheaper to take out private health insurance than it is to pay the additional surcharge.
4. Extras covered can include dental work
Unfortunately, even the most basic dental work (like a checkup or general clean) isn't covered by Medicare. With private health insurance, you can be partly or fully covered for some dental work. So if you end up needing some fillings because you eat too much candy, it won't also burn a hole in your pocket.
While there are state-run dental clinics, access to them is usually strictly limited and eligibility criteria applies. Waiting lists can also be very lengthy.
5. Claim for other non-Medicare health services
There are also a number of other health services not covered by Medicare. For example, while some optical services are covered, some aren't. Getting your annual eye checkup is covered, but the cost of glasses or other products isn't. You could also add pregnancy (obstetrics) to your hospital or extras cover, which can mean having access to certain pregnancy-related services that wouldn’t otherwise be available through Medicare.
What are the drawbacks of private health insurance?
While there are a lot of pros to consider, you should also weigh up the potential cons of private health insurance.
1. The cost
The main drawback of private health insurance is that it can be expensive. Depending on your policy, you could be forking out thousands of dollars in premiums each year. The costs will also generally rise annually. For example, the Federal Government recently announced private insurance will rise 2.7% in 2022 - which is the lowest premium change in 21 years. Some providers have also delayed their price rises.
2. Doesn't always cover everything
Often, private health insurance policies will only cover part of the cost of your treatment/procedure. Meaning, you may still be left with a bill at the end - albeit less than you would have paid if you didn't have insurance. This is called an out-of-pocket expense, or gap. Depending on how much you're left to cover and the cost of your insurance premium each year, you may not be that much better off.
3. Excluded treatments
Some treatments may not be included in your policy by your health insurance provider. Sometimes even the most comprehensive policy won't cover every type of treatment or procedure.
4. It can be complex
The variety and complexity of products on offer can be overwhelming for some people to understand, which is why the government recently introduced the Private Health Insurance reforms to simplify the products on offer. This includes a tiered rating system, with bronze, silver, and gold-tiered ratings aimed at taking the complexity out of choosing a policy.
Should you take out private health insurance?
Private health insurance isn’t compulsory for Australians, which is why figuring out whether health insurance is right for you can be tricky. Whether or not you choose to take out private health insurance will mostly depend on your personal situation and budget.
If you’re young and otherwise fit and healthy, you may not benefit much from private health cover. It may also make sense to hold off on private health insurance if you’re happy with the public health system or if you wouldn’t end up receiving much money back for the occasional physio appointment.
However, if you’re older, have chronic health problems, or simply want the peace of mind - private health insurance may be worth considering.
I’m 31 – is it time to opt in?
You don’t have to get private health insurance once you're no longer dependent, but you will be hit with the Lifetime Health Cover (LHC) if you don’t. For every year you put off getting private health insurance after the age of 30, you’ll be charged a 2% loading on top of your premiums if you choose to take out a policy later down the track. Because the LHC loading lasts 10 years and goes up to a maximum of 70% (ouch), it’s an extra cost you may want to avoid altogether.
This doesn’t necessarily mean private health insurance is automatically worth it for everyone over the age of 30. If you decide to wait until the age of 35, an 8% LHC loading would apply to the cost of your cover for the next 10 years. However, from the age of 31 to 35, you could save $8,000 because you won’t be paying any premiums.
Whether the cost of LHC motivates you to take out private health insurance or not depends on your budget and needs.
When is private health insurance is worth considering?
To help sift through the potential reasons to be for or against getting private health insurance, we've listed a few potential situations when it may end up being worth it for you.
1. You’re planning on getting pregnant: You can have a baby through the public system – it’s free and you’re well looked after. But going through the private system definitely has its benefits; namely the fact you have access to a private room and you can choose your own obstetrician. You may also get a longer stay in the hospital to recover.
2. You have a chronic illness: If you’re living with a chronic illness like diabetes or heart disease, private health insurance may be worth it as you’re probably in and out of hospital quite a bit.
3. You’re a senior: It’s a sad fact but the older you are, the more health problems and complications you’re likely to encounter. Taking out private health insurance in your later years can be a sensible decision, especially considering there are government rebates for those over the age of 65 to keep it as an affordable option.
4. You need help with dental bills: If you know you’ve got major dental work that needs doing (like wisdom teeth removal or a root canal), Medicare won’t cover the cost. Dental bills can be a big source of financial pain for families, so extras cover can be a wise investment. Just make sure major dental work is included in your policy.
5. You want to avoid long waiting lists for elective surgery: If you have elective surgery coming up (like a hip replacement), waiting times in the public system are often much longer than for patients with private health insurance.
6. You want to choose your own doctor: Picky about who cuts you open? Fair enough. With private health cover, you can choose your own doctor and the hospital.
7. You want to receive a possible tax rebate: If your income is over $90,000 and you’re without private health cover, you’ll be hit with the Medicare Levy Surcharge. Depending on your income, you could be made to pay up to an extra 1.5% of your annual earnings to the ATO every year for not being covered.
8. You want ambulance cover: If you’re lucky enough to live in Queensland or Tasmania, ambulance services are free. For everyone else, it’s an out of pocket cost, and it ain’t always cheap. Thankfully, many health insurers include ambulance cover in their policies.
When might private health insurance be worth skipping?
While there are definitely situations when private health insurance can be worth it, there are also some instances when it may not be worth its weight in gold.
1. You’re young and healthy: If you’re young and generally healthy, private health insurance is probably not worth your while just yet. Having said that, there may be some instances where private health insurance is worth considering.
2. You’re comfortable relying on the public system: If you’re pretty happy with the level of care you’re already receiving through the public health system, private health insurance may be an unnecessary expense.
3. The cost of extras cover outweighs the annual benefits you receive: Forking out over $500 a year for extras cover but you’re barely claiming any more than $100 in benefits? Removing extras from your policy could be a wise move.
4. You’re feeling pressured into taking out cover you don’t need: You should never take out cover “just because” – remember you should receive excellent care for free in your nearest hospital if an emergency does happen.
Savings.com.au’s two cents
So, is taking out private health insurance worth it or not? The short answer is: it depends. It’s not easy to answer because it depends on what you need and want. It’s also hard to compare the public and private health systems because they operate differently.
Some people can certainly benefit from taking out private cover, while others may not need it for a while. If you do decide to take out private health insurance, don’t forget to review your policy every year to make sure it’s still suitable for your personal situation, chat with your health insurance fund about your changing needs, and learn ways to save money on your health insurance.
Originally published by Emma Duffy on 2 August 2019, updated by Rachel Horan on 15 May 2022