In Australia, we are fortunate enough to have an extremely efficient public health care system in the form of Medicare. This entitles all eligible citizens to free treatment in a public hospital and free access to diagnostic tests but is largely restricted to in-hospital services.
Around half of Australians choose to buy private health insurance to avoid big out-of-pocket costs for the services that Medicare doesn’t cover. Health insurance in Australia is divided into three categories: hospital cover, extras/ancillary cover, or combined cover.
The range of policy options that are available within these can make it daunting to choose the right option for your needs, especially if you are not clued-up on what hospital, extras and combined policies actually cover you for.
Hospital Cover: An Overview
Hospital cover will protect against the costs of being admitted to hospital for medically necessary treatment, which almost always excludes cosmetic surgery.
Generally, hospital cover is available in various tiers:
- Top – This is the most comprehensive cover level and includes all services for which Medicare pays benefits
- Medium – Some restrictions and exclusions will be included, such as pregnancy/birth-related services, assisted reproductive services, cataract and eye lens procedures, joint replacements, dialysis and sterilisation.
- Basic– This is the least comprehensive cover level and is likely to exclude or restrict at least some of the following: cardiac-related services, rehabilitation, psychiatric services and palliative care.
- Public – This type of cover only includes default benefits for public hospital treatment
The main advantages of having hospital cover are numerous: you can choose the doctor who treats you, along with the hospital that you are admitted to. In the public hospital system, you do not have this freedom of choice. Waiting times for elective surgery in private hospitals are also greatly reduced compared to the public hospital system. Many patients wait up to a year (or even longer) for non-urgent surgery in public hospitals whereas private patients can expect to be admitted much sooner than this.
Hospital cover will extend to some or all of the costs of being a private patient (whether the admission takes place in a public or private hospital), including doctor’s fees and hospital accommodation. Depending on your policy, you may still have some out-of-pocket costs to take care of.
If you are arranging hospital cover for the first time, bear in mind that there are some waiting periods that you need to be aware of. This includes a 12-month waiting period for pre-existing conditions and pregnancy/birth-related cover.
Buying hospital cover with a registered health fund also allows you to avoid paying the Medicare Levy Surcharge (MLS) if you earn above the relevant income threshold. Those who are eligible for the MLS will be obliged to pay between 1 and 1.5 per cent on top of the mandatory Medicare Levy if they do not have applicable hospital cover. This initiative is designed to encourage more Australians to arrange hospital cover to ease the pressure on the public health care system.
Extras Cover: An Overview
Medicare is limited to in-hospital services and does not extend to everyday health needs. Extras policies can cover popular benefits such as general and major dental, optical, physiotherapy, chiro, podiatry and natural therapies. Most health funds offer varying degrees of extras cover – ranging from the basic to the comprehensive. Generally speaking, the more basic policies will cover less extras and will usually have lower annual limits for benefits. This increases the potential for out-of-pocket costs if you go over the annual limit.
There are several levels of extras cover:
- Comprehensive – This is the broadest cover level and will rarely have any exclusions.
- Medium – Not all extras will be included with this cover level but it will usually include general and major dental and some other popular extras such as optical, physiotherapy, chiro and podiatry.
- Basic – Some popular extras will be included with this cover level.
As with hospital cover, there are waiting periods attached to extras cover. These are set by the health funds but it is relatively typical to wait 12 months for major dental, 6 months for optical, and 2 months for general dental and physiotherapy. Health funds will sometimes waive waiting periods for particular extras as a sign-up incentive.
By itself, extras cover does not provide exemption from the Medicare Levy Surcharge. You will also need hospital cover for this to be the case.
Combined Cover: An Overview
A combination of hospital and extras cover offers the broadest protection. Many health funds offer pre-packaged packages to suit particular budgets and lifestyles, or you can choose stand-alone hospital and extras policies to “mix and match” for a more appropriate option for your needs. For example, a medium level hospital policy can be chosen along with a comprehensive extras policy. These policies do not necessarily need to be with the same health fund and you can get better value for money by buying policies with different providers.
Your situation will dictate whether you should choose hospital, extras or combined cover. For some people, it may be enough to buy basic hospital cover to avoid the Medicare Levy Surcharge while others will only feel comfortable with broad hospital and extras cover. Think about the level of cover that you will need before you start to compare health insurance policies and use this as a platform by which to assess your options.