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How to decide if you should have private health insurance

Written by

Shaun McGowan

Every year the cost of private health insurance goes up…

  • the media make a big deal of it…
  • those who have it, moan louder…
  • those who don’t, don’t care…
  • the insurers go into defensive mode…
  • and the government justifies approving the increase.

So does private health insurance make financial sense for you?

If it does, why and when does it make sense?

It could be an age thing.

  • An 18-year-old male thinks he’s invincible, so he’s sure he doesn’t need health insurance!
  • At 45 years old, you may need glasses and need to see your GP more often.
  • At 60 your joints aren’t quite what they used to be……….

Health insurance may seem more appealing as time goes on!

But why do you actually need private health insurance?

Is it a taxation consideration? If you earn over a certain amount per annum, it could be. I’ll get to that in a minute.

Is it because you want freedom of choice when it comes to a specialist, the hospital and the timing of your treatment if you fall ill?

If so, be careful.

Insurance may not guarantee those things. Many providers have their own preferred providers and if you may not have cover if you choose your own.

Be aware of waiting lists for procedures. In Australia the gap between private and public for some things is minimal – and in emergencies you don’t have a wait time.

Maybe you’re an adrenalin junkie and want to cover yourself in case of an accident. But in an emergency, its highly likely you will go straight to the Emergency Department of a public hospital, no questions asked.

We are very lucky in Australia – our public health system is of a very high standard and public hospitals around the country have a good reputation. You could be in hospital sharing a ward with others, but if it doesn’t cost you, is that so bad?

All the same, you may still want it, just to make sure you’re protected no matter what. If so, make sure you know what you’re buying.

Research the private health insurance options

Choice published a useful article in June 2017 and the situation hasn’t changed since then. The article Health insurance isn't right for everyone makes the point that between 2009 and 2016, premiums rose by 54.6%.

That is huge.

Do you know of anything else increasing at that rate over five years?

The article also has a link to a free tool at doineedhealthinsurance.com.au. It’s well worth taking the quiz to check your situation.

Be careful with comparison sites, by the way. There are some for-profit sites which get a kick back from providers, so they are not objective and won’t necessarily point you in the best direction.

Choice and the Australian government have sites where you can compare the options available depending on what you want, without worrying about who is getting a cut. Now, let’s talk tax.

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Taxation and private health insurance

This is probably the biggest reason you might want to take out insurance – the tax implications.

If you are single and earn more than $90,000 per annum, or if you’re part of a family that earns more than $180,000, and you don’t have private hospital cover, your tax increases by another one to 1.5 per cent because of the Medicare Levy Surcharge.

That’s on top of the Medicare Levy most of us already pay.

If you earn less than that, you won’t pay the surcharge, just the standard two per cent, regardless of whether or not you have private cover.

Depending on your circumstances, it could make sense to take out budget or low-cost private hospital insurance just to get the tax break. This makes financial sense.

If you do take out insurance, you could also be eligible for the Private Health Insurance Rebate, which can lower your insurance rebate or be used as a refundable tax offset when you lodge your annual return.

It’s income tested though – so high-fliers, you may not qualify.

Let’s take a quick look at the numbers.

With a taxable income over $90,000 you’ll pay another $900 in surcharge if you don’t have ‘an appropriate level’ of health cover.

Your tax goes up to 1.25 per cent if you make over $105,000 – another $1,300 in tax.

If you make over $140,000, the rate is 1.5 per cent, or an additional $2,100 in tax. Remember, that’s on top of the Medicare Levy.

For families, think double those figures.

But you can buy private hospital cover for a lot less than that per year, and can eliminate the surcharge. This too makes financial sense.

Then there is the Lifetime Health Care (LHC) loading. If you reach the grand old age of 31 and you still don’t have private health insurance, you will pay an extra charge of two per cent of your premium for every year you waited, when you eventually take out the insurance.

This can increase to a maximum of 70% extra! Thankfully, it’s removed once you clock up 10 consecutive years’ membership.

BUT there isn’t a charge if you don’t ever take out private health insurance!

Yep, so why would you ever take out insurance?!

Restricted membership health funds

These health funds could also make financial sense.

They are ‘restricted’ as they are usually there for members of a specific industry or public service, such as police, nurses, the defence force etc. They mostly have generous family membership options and can include not only your family unit but also your siblings, your grand-parents and your children’s partners – but probably not your second cousins or your dog.

The premiums for these health funds tend to be much lower and they haven’t increased at the same rate as other funds.

Even if you leave the industry group, you can usually still maintain your insurance.

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Other good financial reasons to take out private health insurance

If you suffer from a chronic illness and need regular medical treatment or more frequent hospital stays it could make sense to have private cover, as you’d actually get more benefit from your insurance than you’re paying out.

If you are planning a family and you want your choice of obstetrician and hospital, it could also make sense. Make sure, though, that the fund you choose doesn’t have restrictions in these areas.

If you have regular allied medical treatments like massage, chiropractic or podiatry then you could benefit from taking out ‘extras’ cover. Some naturopathic services have recently been removed from the benefits scheme though, so you need to check this if you’re planning to rely on your health insurance to cover them.

What level of health insurance should you get?

Let’s face it, comparing health insurance policies is a bit of a nightmare.

The good news is that this is all changing.

The government has introduced a tiered scheme for health insurance which being rolled out right now and will be fully in place with all providers by April 2020.

The tiers are Gold, Silver, Bronze and Basic.

The reforms are meant to make things simpler and make comparisons easier. The Department of Health has more information on what the reforms mean for us.

Conclusion

To figure out ‘for and against’ when you think about private health insurance, you need to do your homework:

  • What is your attitude regarding public or private?
  • What is your budget?
  • What sort of cover do you need?
  • What do each of the funds and policies offer you?
  • What are the inclusions and exclusions?
  • Are you clear on your ‘out of pocket’ costs?
  • What are the waiting periods?
  • How will YOU benefit?

Only a thorough assessment of your situation can help you decide if it makes financial sense to take out private health insurance – and if so, when. Your assessment and the tools you can use to help you weigh it up may show that, for now, it doesn’t make sense.

Circumstances can and will change though – so it pays to revisit the health insurance issue regularly.

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About the Author

Shaun McGowan from money.com.au

Shaun

McGowan

Shaun McGowan

Shaun is the founder of Money.com.au and is determined to help people pay as little as possible for financial products. Through education and building world class technology. Previously Shaun co-founded CarLoans.com.au and Lend.

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