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With record numbers of young Australians ditching private health insurance as costs climb, is private health insurance worth having?
On this page:
- Public health insurance vs private health insurance
- Benefits of private health insurance
- Drawbacks of private health insurance
- Should you take out private health insurance?
As private health insurance premiums become increasingly unaffordable, the number of young people taking out private health insurance for hospital treatment dropped by nearly 7% in 2018, in a continuation of what’s been dubbed a “death spiral” for the industry.
Figures released by the Australian Prudential Regulatory Authority (APRA) showed 33,975 Australians aged between 20 and 29 ditched their private health cover in the year to December 2018, marking a 6.9% fall – the biggest in 15 years.
The figures come as a paper from the Grattan Institute suggested the private health industry fears it’s in a “death spiral” and that politicians need to rethink whether taxpayers should continue to subsidise the industry. The paper noted that Australians are becoming “increasingly dissatisfied with private health insurance” and premiums are rising faster than wages or inflation, causing people to drop their cover altogether.
“Premiums are rising much faster than wages or inflation. People are dropping their cover, especially the young and the healthy. Those who are left are more likely to get sick and go to hospital, driving insurance costs up further,” the report’s authors Stephen Duckett and Kristina Nemet said.
Australian Medical Association (AMA) president Tony Bartone said Australians wouldn’t be ditching their cover if private health insurance was good value for money.
“Australians are very clever. They certainly realise when they are being sold a dud and that’s why they are dropping out,” he told the National Press Club earlier this month.
The Grattan paper found that insurance premiums have risen 30% since 2010/11 – compared with an 8% real rise in wages. Despite the fact people are paying more, their coverage hasn’t increased.
In a country where we already have access to free healthcare, is taking out private health insurance worth it?
Public health insurance vs private health insurance
The question of whether to take out a private health insurance policy or rely on the public system isn’t always an easy one to answer because it depends on your personal situation. For some people, private health insurance is a necessity. Other people can breeze through life without really needing it.
Essentially, private health insurance is designed to cover policyholders for hospital and medical costs not covered by Medicare, or for health problems that need to be treated in the private system.
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.
Private health insurance is generally divided into two main areas: hospital cover and general (extras) treatment. Depending on which state or territory you live in, ambulance cover may also be a third area of cover.
Benefits of private health insurance
- Skip the waiting list: One of the biggest benefits of private health insurance is that you can often skip the waiting list for treatment, which is especially helpful if you’re receiving elective surgery (like a hip or knee replacement) which can often involve long waiting times. Private health insurance members can sometimes even decide when they’re admitted to hospital. On the flip side, priority patient order in the public system can mean a patient’s operation is pushed back to allow the surgeon to operate on a more critical patient, whereas those with private health insurance can effectively ‘lock-in’ a date.
- Choose your doctor: Many private health policies allow members to choose a preferred doctor or surgeon to carry out their operation (subject to availability). In the public system, the doctor or surgeon who will perform the operation is the one that happens to be on duty at the time.
- Private hospital rooms: Another big benefit of private health insurance is the option of being treated in a private room. In the public system, you can often find yourself in a hospital room with four to six other people (in various conditions!), which can make for an unpleasant stay. Private members can request a private hospital room (subject to availability). If you’re giving birth, you may have a better chance of scoring a private room with your partner.
- Avoid 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. Private health insurance members with a sufficient level of hospital cover are exempt from paying the Medicare Levy Surcharge. 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.
- Dental work can be covered by extras cover: Even the most basic dental work, such as a clean or check-up, isn’t covered by Medicare. Without private health insurance with extras cover, you need to either pay outright or visit a state-run dental clinic. Access to these is usually limited and eligibility can vary. Waiting lists for these can also be lengthy.
- Claim money back on non-Medicare health services: A lot of people sign up for health insurance to receive a rebate on health services that aren’t covered by Medicare. Extras cover often covers you for services like dental, optical, chiropractic and physio, for example. If you don’t have private health insurance with extras cover, getting a filling or having physio can be quite expensive. Private health insurance members can also add pregnancy (obstetrics) to their hospital or extras cover, which can mean having access to certain pregnancy-related services that wouldn’t otherwise be available through Medicare.
Drawbacks of private health insurance
- The cost: Private health insurance can be expensive. Depending on the policy, you could be forking out thousands of dollars in premiums each year, with costs generally rising every year. For example, the federal government recently announced a price hike of 3.25% for 2019, and that was actually the lowest annual increase in 18 years.
- Out of pocket expenses: Often, private health insurance policies only cover part of the cost of a treatment or procedure, so you may still have to pay a substantial amount – albeit less than you probably would have paid if you didn’t have insurance.
- Excluded treatments: Depending on the policy, some treatments may not be included. In some cases, even the most comprehensive policies may not cover every type of treatment or procedure.
- Complex products: 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.
Should you take out private health insurance?
Private health insurance isn’t compulsory for Australians, as all permanent residents already have access to Medicare, which is why figuring out whether health insurance is right for you can be tricky. The question of whether or not to take out private health insurance will mostly depend on your personal situation and budget.
If you’re young and otherwise fit and healthy, it’s unlikely you would 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 over the age of 31 – don’t I have to get private health insurance?
You don’t have to, 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 31, 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 31. If you decide to wait until the age of 35 before taking out private health insurance, 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’ll 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 private health insurance is worth considering
- If you’re planning on getting pregnant: It’s true that 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.
- If 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.
- If you just want the peace of mind: Medical and financial reasons aside, some people can just sleep easier at night knowing they’re covered for any scenario.
- If you’re a senior: It’s a sad fact, but the older you are, the more health problems and complications you’re likely to develop. 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 cover an affordable option.
- If you need help with dental bills: If you know you’ve got major dental work that needs doing (like wisdom teeth removal or braces), Medicare won’t cover the cost but private health insurance with extras cover can. 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 and orthodontic work is included in your policy.
- If 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.
- If 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.
- If 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.
- If you’re active and/or want extras cover: Fitspo life and physio for days? You could probably get good value out of your extras cover.
- If 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 cheap. Thankfully, many health insurers include ambulance cover with their policies.
When private health insurance is probably not worth it
- If you’re young and healthy: If you’re in your early twenties and you can’t remember the last time you had a cold, 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 (such as being able to see a psychologist – hello extras cover!).
- If 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 and aren’t overly fussed about who cuts you open or sharing a hospital room with fifty other people, private health insurance may be an unnecessary expense.
- If 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 would be a wise move.
- If you’re feeling pressured into taking out cover you don’t need: You should never take out cover “just because” – remember you will 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 do different things.
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 read on for ways to save money on your health insurance.
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