Key Points
- Private health insurance reduces the burden on our public health system.
- Private cover means shorter waiting times for hospitals and specialists, and rebates for specific health services.
- The government offers incentives to join private health funds.
Australia has one of the better public healthcare systems in the world, with Medicare and public hospitals providing free or low-cost health services.
However, it sometimes struggles to meet demands and works alongside the private health system.
Tim Bennett, Insurance Expert at Finders (a comparison website), says Medicare will keep us alive, but it does struggle to cover everything.
“What private health insurance tries to do is take some of the burden off Medicare by letting people who can afford it opt in.”
Private health insurance (PHI) gives access to more comprehensive health services outside the public system, such as dental work, optical care, physiotherapy, and ambulance, for a fee.
There are no gap fees if you’re treated in a public hospital; however, you might encounter additional expenses on your bill. Source: iStockphoto / mediaphotos/Getty Images
What are ‘Hospital’ and ‘Extras’?
Hospital cover pays for hospital admission as a private patient. For example, under private care you can choose your own surgeon and the date of your procedure.
Extras cover is used for other health services, such as dental, physiotherapy, and optical treatments. By law, it can’t cover a visit to the GP or imaging and tests outside the hospital.
Hospital and Extras cover can be bought separately or together as a comprehensive insurance package.
Visitors to Australia and certain visa holders must take out Overseas Visitors Health Cover.
CEO of Private Healthcare Australia, Dr Rachel David, says once you become a permanent resident, you can elect to rely solely on Medicare. However, permanent residents tend to continue with private health insurance, particularly at the skilled migration level.
The COVID-19 pandemic has contributed to the enormous strain our public hospital system is experiencing.
“Its ability to offer timely elective or planned surgery has really deteriorated,” Dr David says.
“For a lot of jobs that the migrant workforce is coming and doing, they can't afford to take weeks off waiting for surgery.”
Private healthcare offers shorter waiting times for surgery and mental healthcare, so people with greater financial flexibility pay more for private cover.
This also reduces the pressure on the public system so that struggling people can access healthcare.
'Extras' covers additional specific health services such as dental, physiotherapy, and optical care. Credit: Luis Alvarez/Getty Images
Are public and private patients treated differently?
Health providers work under ethical principles, and your care is their priority, regardless of whether you use the public or private health system.
You should never be treated differently as a private or public patient.
Incentives
The government provides three incentives to take out PHI.
1. The private health insurance rebate
This is a government contribution to help eligible policyholders with the cost of private hospital coverage. Its purpose is to support lower-income people, particularly those with more complex health needs.
The rebate is about 25 per cent of the premium (the cost of the insurance policy), paid to you through your tax return.
Eligibility depends on your policy type, your age and your income.
2. Medicare levy
You can avoid the Medicare Levy Surcharge by taking out private health insurance.
This is an additional tax imposed on high-income earners who don’t have private hospital coverage.
“Everybody that's working pays a Medicare Levy to support Medicare, which is part of their income tax, but for people without private health insurance whose income for a family is above about $183,000 per year, they will pay an extra Medicare Levy if they don't have insurance,” Dr David explains.
3. Lifetime health cover loading
Policyholders over 30 are charged slightly higher premiums when they first take out health insurance. This prevents someone taking out a policy for the first time at 85—when they might have multiple health issues—from paying the same premium as a 25-year-old.
“That stops a huge financial burden being transferred to younger people,” Dr David says.
What are gap fees?
You’ll hear ‘gap fees’ or ‘out-of-pocket’ expenses. This is the difference between the cost of treatment and what your health fund gives back to you.
When you receive care from a GP, specialist, or hospital, Medicare or your private health fund will cover most of the cost.
“The health practitioner or the doctor can charge an amount above that, and this is what you call the ‘gap’,” General Practitioner Chris Moy explains.
“The reason is over time Medicare, for example, has not kept up with inflation.”
If you’re admitted to the hospital as a private patient, you’ll also pay an ‘excess’ contribution, similar to when you make any other insurance claim.
By law, private health insurance (PHI) can’t pay for outpatient care such as a visit to the GP or imaging and tests outside hospital. Credit: PixelCatchers/Getty Images
Which PHI is right for you?
Choosing health insurance is about balancing what’s on offer against what you need. This means gathering as much information as possible.
Premiums vary depending on levels of coverage and whether you want to cover one person or a family.
And over time, your needs will change, Tim Bennett says.
“Just because you've taken out one policy it doesn't mean that you shouldn't check again in one or two years to see if you're still getting the best possible price.”
You can weigh up your options via the government website or on comparison sites such as , and .
