What is private health insurance and do I need it?

All Australian residents get access to Medicare, but many still opt for additional coverage under private health insurance. But what is it? And do you really need it? 

In Australia, there are two options for health insurance. Private health insurance, and Medicare, the publicly funded universal healthcare scheme that gives citizens access to healthcare regardless of income or background. 

Obtaining private health insurance means you’ll be treated as a private hospital patient, and thus have more control in choosing your doctor, wait less time for elective surgery, and minimise out-of-pocket costs. 

There are three types of private health insurance: 

• Ambulance cover, which is the most basic level, covers the cost of transport in an ambulance in an emergency.
• Hospital cover helps with some or all of the fees associated with staying in hospital.
• Extras cover takes care of some or all of the costs associated with services like dental, optical, and physiotherapy.

Most private health insurers offer each level of cover as an individual product, or a combination of hospital and extras cover (which tends to include some form of ambulance cover as well).

Every health insurer offers policies with different levels of cover. As of 2020, there are four levels of hospital insurance cover – Gold, Silver, Bronze, and Basic, each with varying levels of inclusions and covered services. Essentially, the higher your level of cover, the higher the premium you pay.

Paying for private health insurance means you won't have to pay for the Medicare levy surcharge, which was put in place to encourage higher-income earners to take out private hospital cover. You can also save long-term by obtaining private health cover before the age of 31, which prevents you from being charged Lifetime Health Cover (LHC) loading, another initiative to reduce stress on the public health system. 

Unlike other types of insurance that are charged based on your level of risk (like car or house insurance), private health insurance is community-rated. This means that everybody pays the same amount for a particular policy. 

The cost of your private health insurance will be dependent on what health fund and policy you choose, the number of people on your family insurance plan, and what state you live in. The average annual cost of private health insurance according to Canstar researchers can be found below. 

Combined hospital and extras health insurance for singles:

• $3,017 for those under 36
• $3,456 for those aged 36-59
• $3,829 for those aged 60+

Hospital-only health insurance for singles:

• $2,257 for those under 36
• $2,713 for those aged 36-59
• $3,076 for those aged 60+

Extras only health insurance for singles: 

• $877 for low-level coverage
• $1,046 for mid-level coverage
• $1,157 for high-level coverage

The private health insurance rebate is the amount contributed by the Australian government to make private healthcare more affordable. The rebate pays for a portion of your insurance premiums, and can be paid upfront as a reduction of your premium, or at tax time. 

The rebate is calculated based on your policy, income, age, and family status, as well as the CPI, or Consumer Price Index. 

To claim the private health insurance rebate, you must meet the following requirements:

• Be eligible for Medicare 
• Have a complying health insurance policy with a registered Australian insurer
• Have an income for surcharge purposes less than Tier 3 on the income threshold ($144,001 as a single or $288,001 as a family)
• Be a private health insurance incentive beneficiary

While Australian residents are covered for most hospital-related costs under Medicare, many prefer to take out additional coverage in the form of private health insurance. Medicare covers a portion of your bill when seeing a GP or specialist, and any medications under the Pharmaceutical Benefits Scheme (PBS). It also provides free treatment and accommodation in hospitals.

Private health insurance essentially fills in the gaps in Medicare’s coverage. It covers services not covered by Medicare, like dental, optical, speech pathology, and physiotherapy, and can cover the cost of ambulances, and prostheses like hearing aids.

Medicare is paid for by taxpayers through the Medicare levy and levy surcharge, while private health insurance is paid by you, to your health fund. You can still take advantage of Medicare as someone who has private health insurance, but you might be subject to out-of-pocket expenses if you choose to be seen as a private patient in a public hospital. 

Now you know what private health insurance is, how much it'll cost you, and how it's different from the healthcare you likely already have. 

But what's the verdict? Do you really need health insurance? We recommend assessing what services or aspects of private insurance you find attractive and consulting our pros and cons list.

The only way you can work out if private health insurance is right for you is to assess you and your family's needs. Do you need dental? Optical? Physio? How much do you earn? What level of extras do you need? Or do you only need hospital cover? There are plenty of policies to reflect your needs and what you value, so you and your family can make the right choice.