Last Updated on 12 February 2020

Do I need health insurance? Australian health cover buying guide

Health cover buying guide

Do I need health insurance? It’s a fair question.

Medicare covers a range of healthcare services for Australian citizens, reducing out-of-pocket costs and making medically necessary health care much more affordable.

But when you consider the ‘Gap’, along with taxes like the Medicare Levy Surcharge (MLS) and Lifetime Health Cover Loading (LHC) for those who don’t have an eligible private health insurance policy, it’s natural to question whether Medicare is enough. There’s no one-size-fits-all answer, as everyone’s needs differ depending on factors like:

  • Your age and life stage
  • Your health needs and family history
  • Your lifestyle, diet and routine
  • Your budget and income

In this guide, we’ll cover everything you need to know about private health insurance in Australia so you can decide for yourself.

Key Points
  • Private health insurance has many benefits, including avoiding gap fees, taxes and loadings like the MLS and LHC
  • Those who do not have an eligible private health insurance policy by 31 and make over $90,000 per year may face the Medicare Levy Surcharge and eventually, Lifetime Health Cover loading
  • Health (hospital) insurance falls into four product tiers: Basic, Bronze, Silver, and Gold


The Argument Against Private Health Insurance

If you’re young and healthy, it can be difficult to see the benefit in private health cover, especially when your premiums are expensive and you don’t seem to be getting much out of your cover.

In addition, those who can’t afford private health insurance still receive some benefits through Medicare, and we are fortunate in Australia to be supported by a decent public healthcare system. Some of the benefits of Medicare include:

  • No cost medically necessary and emergency surgeries as a public patient in a public hospital.
  • Save money by not paying for private health insurance premiums.
  • Those who make less than $90,000 per year don’t have to pay the Medicare Levy Surcharge (more on this below).
  • Other healthcare benefits, such as the Pharmaceutical Benefits Scheme (PBS), which provides discounts for certain medications.


The Argument for Private Health Insurance

You might be asking, “With Medicare in place, do I really need health insurance?”

For many Australians, health insurance is invaluable. The downfall to relying on Medicare alone is that you can still incur gap fees—the difference between what Medicare can cover and what you’ll end up paying for in-hospital medical services. Unfortunately, Medicare can only cover so much; if it covered all services in all cases, the system would become heavily overloaded.

The benefits of having private hospital cover include but are not limited to:

  • Choice of being admitted as a private patient in a private OR public hospital
  • Greater flexibility in choosing your own doctor and a private hospital room, both of which can be incredibly comforting in times of distress
  • Avoid long public hospital waiting lists for ‘elective’ surgery—which includes a surprising number of procedures—many of which discount the fact that you could be suffering or in significant pain
  • Avoid paying the Medicare Levy Surcharge if you have a taxable income over $90,000 per year and hold an eligible hospital policy
  • Avoid loading fees from the Lifetime Health Cover if you’re older than 31 and hold an eligible hospital policy

Loading Fees and the Medicare Levy Surcharge

For many Aussies, LHC loading fees and the Medicare Levy surcharge are two very good reasons (alone) to purchase hospital cover. By purchasing an eligible hospital policy, you can actually end up saving money in the long-run, plus you have the added benefit of additional health cover.

The Medicare system is most efficient if everyone who can afford private health insurance purchases it. The more people who rely on the Medicare system, the more strained the system becomes, meaning longer wait times for everyone.

Let’s quickly discuss LHC loading fees since they apply to almost everyone:

  • Loading fees begin to accumulate once you turn 31 if you haven’t purchased an eligible hospital policy
  • These fees accumulate at 2% per year for every year you do not purchase health insurance after your 31st birthday
  • The fees are added to your hospital insurance premiums when you eventually buy private health insurance
  • You are allowed a total of 1094 days without hospital insurance through your lifetime before loading fees begin accumulating again
  • Example: A person who buys health insurance for the first time at 40 will pay 20% more in premiums than someone who purchased the same policy at 30

The LHC loading is in place to encourage younger Australians who can afford to take out private hospital cover to do so.

The Medicare Levy Surcharge (MLS) is another way the government pushes people into private health insurance. People who have a taxable income of more than $90,000 and choose not to buy eligible health insurance need to pay this surcharge (or tax). Those who make under $90,000 per year—or $180,000 as a family—don’t have to pay this surcharge.

The Medicare Levy Surcharge should not be confused with the Medicare Levy. The latter is paid by everyone, and the former is only paid by those who make over $90,000 per year and don’t buy private hospital insurance. For those who choose not to buy health insurance, the Medicare Levy Surcharge increases as their income increases.

Here’s a breakdown of the MLS to further illustrate how much you might have to pay.

Private Health Insurance Rebate

The government isn’t all about penalising people who don’t buy private health insurance. They also reward those who choose to opt into the system with a private health insurance rebate. That means the Government might pay for as much as a third of your health insurance premiums, depending on your income.

The following table gives you an idea of how much you can expect to receive as a rebate. Note that the financial tiers from the above table are the same for this one.

Private Health Insurance Rebate

The health insurance reforms that went into effect in April 2019 have changed the way health funds offer their health insurance to customers. Now, each hospital insurance policy available in Australia is placed into one of the following categories or product tiers:

Each policy needs to meet certain guidelines to fall into a category.

Basic, as the name suggests, is the least comprehensive coverage that covers you for palliative care, psychiatric services, and rehabilitation. This is the lowest level of coverage you can buy while still avoiding LHC loading fees and the MLS.

Each tier of health insurance goes up from there until you reach Gold—which covers you for pregnancy and birth-related services in addition to all other services offered in the lower tiers.

Funds also offer “Plus” categories. For example, “Bronze Plus” policies will typically cover services covered within the Bronze tier plus some elements of Silver.

Take a look at our full guide on the new health insurance tiers to learn more about each product tier.

Extras Cover

Extras policies cover you for health services that you use regularly, like dental check-ups, glasses, contact lenses, physio treatments, and more. Extras cover is great for maintaining general health and wellbeing and preventing illnesses and injuries from occurring.

Like hospital cover, extras also come with different levels of coverage and benefit amounts. A simple extras policy, for instance, might cover you for vision and dental only, up to the $200 annual limit. More comprehensive extras policies may cover major dental (crowns, dental surgery etc.) or even orthodontics.

Extras policies also cover you for things like psychology, physiotherapy, chiro, some medications that aren’t covered by the Pharmaceutical Benefits Scheme (PBS), hearing aids, and more.

The great thing about extras is that you can find a policy tailored to your unique needs—speaking to a Health Insurance Comparison adviser can help you compare your options based on the services that are important to you. An adviser will help you find a policy (hospital alone, or extras included) that suits you, at an affordable price.

As mentioned earlier, hospital policies are now regulated by tiers, making comparison easier. Extras policies don’t have this regulation, which means insurance policies will vary greatly depending on who you pick.

Should I Buy Extras Cover?

If your sole reason for buying health insurance is to avoid taxes like the MLS and LHC, then extras cover won’t be of use. You’ll need to look into purchasing an eligible hospital policy. If, however, you’re looking to save money on the services you use regularly, like dental, optical, or physio, it’s worth considering extras cover.

Keep in mind that extras policies have limits—not excess. In other words, they pay your benefits up to a limit; then you pay the rest.

If you think you’ll use the entirety of the extras policy to its full potential, then it’s worth purchasing.

Are you ready to review policies and secure the right health cover for you and your family? Compare now.


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