Benefits and disadvantages of private health insurance

You may be able to choose your own doctor, specialist, and hospital, allowing you to have a greater degree of control over your care. You can also be treated as a private patient in a private hospital, which can lead to a more personalised healthcare experience.

You can take out Extras cover that helps pay for services not covered by Medicare. This can include dental care, optical services, physiotherapy, chiropractic treatments, and more, reducing your out-of-pocket expenses.

You usually face shorter waiting times for medical treatments and surgeries. This is especially beneficial for elective procedures, allowing you to receive timely care without the delays often found in the public healthcare system.

To give you an idea, the Australian Institute of Health and Welfare (AIHW) reported that in 2022-23, the waiting times for common elective surgeries were 175 days for total hip replacement and 283 days for myringoplasty/tympanoplasty (eardrum surgery).

Taking out Hospital cover can lead to tax savings by allowing you to avoid the Medicare Levy Surcharge (MLS) if your income exceeds a certain threshold. This means you won’t have to pay additional taxes if you’re in a higher income bracket.

For the 2023-24 financial year, there is no MLS surcharge for individuals earning $97,000 or less and for families earning $194,000 or less. But for incomes above that, the MLS is tiered based on income thresholds, ranging from 1% to 1.5%, according to the Australian Taxation Office (ATO).

Most Australians with private health insurance receive a rebate from the Federal Government to help reduce their premium costs. The Private Health Insurance Rebate is determined by both income and age, with savings of between 8.095% and 32.385% for individuals earning less than $158,001 or up to $316,000 for families.

Insurers can also offer discounts of up to 10% on hospital premiums for individuals aged 18 to 29. This discount remains in place until you turn 41, at which point it will be gradually phased out, according to PrivateHealth.gov.au. The age-based discount is 2% for each year under 30, reaching a maximum of 10% for those aged 18 to 25.

Getting health insurance before the age of 31 also means you won’t be stung by the Lifetime Health Cover (LHC) loading. This loading imposes an extra 2% on your premiums for each year you go without coverage after turning 31, making it beneficial to get in early.

Private health insurance provides peace of mind and security knowing that you have timely access to necessary medical care when you need it. It allows you to manage potential health issues proactively, knowing that you can choose your healthcare providers, avoid long waiting times, and receive treatment in comfortable, private settings.

Cost is by far the main barrier to people taking out cover, our health insurance data shows. Health insurance can be expensive, with monthly premiums adding pressure to already tight household budgets, particularly for comprehensive coverage.

The cost of health insurance premiums can vary depending on several factors. This includes the type of coverage you choose (Hospital, Extras, or both), whether you're looking for a singles policy, or getting covered as a couple, family, or single-parent family. Your age, and where you live are also factors. So too is your household income, as it affects your eligibility for the Private Health Insurance Rebate.

Additionally, keep in mind that premiums typically increase each year on April 1.

Analysis by Money.com.au shows that premiums for Extras cover can range from $20 to $295 per month; Hospital cover could cost from $80 to $550 per month, while combined Hospital and Extras cover could set you back anywhere between $90 to $850 per month.

Even with private health insurance, you may still face out-of-pocket expenses for certain services, including co-payments and excess fees.

A co-payment is a fixed amount you pay out-of-pocket for certain services or treatments, in addition to what your health insurance covers. For example, if you’re a private patient in a hospital, your insurer might pay part of the cost, but you’ll need to cover the rest. Hospital co-payments typically range from $50 to $100 per night.

Excess fees are amounts that you agree to pay when making a claim before your insurer covers the rest of the costs. For example, if you have Hospital cover with a $750 excess and you undergo a surgery that costs $3,000, you would pay $750 and the insurer would pay the remaining $2,250. Choosing a higher excess usually results in lower premium costs, while a lower excess can lead to higher premiums.

The fineprint on your policy can be complicated and difficult to understand. It’s easy to overlook important details, such as exclusions or waiting periods for specific treatments. This can lead to potential misunderstandings about what the policy actually covers.

Each insurance policy includes a Product Disclosure Statement (PDS), which typically ranges from two to 10 pages. The PDS outlines what’s covered and what isn’t under your specific level of cover. It also details any co-payments and excess fees, along with waiting periods.

The information is often accompanied by lengthy disclaimers in small print, which can be overwhelming, especially when comparing multiple policies. This complexity may make it difficult to identify which plan best suits your needs.

Some policies may have restrictions on coverage, meaning certain services or treatments may not be included or may come with limits. This is particularly the case if you choose a basic level of cover.

For example, on a Basic Tier Hospital policy, certain treatments may be included but as “restricted cover” only. That could mean, for example, that only shared room accommodation in a public hospital is covered. Under that level of cover you could incur significant out-of-pocket costs if you receive treatment in a private hospital or choose a private room in a public hospital. This won’t necessarily align with some people’s expectations of what they will get with even a basic level of private health insurance.

Health insurance policies generally have waiting periods for specific treatments or services. For example, with Hospital cover, you’ll usually need to wait up to two months for most services before you can claim any benefits, or up to 12 months for pre-existing conditions and pregnancy and birth-related insurance.

With Extras cover, waiting periods also apply. For instance, you might face a six-month wait for optical and 12 months for major dental.

Keep an eye out providers offering health insurance with no waiting period on selected Extras.

If you don’t maintain continuous coverage, you may face higher premiums later due to the LHC loading, which can penalise you if you take breaks in your insurance.

According to Queensland Country Health, you can drop your Hospital cover for a total of up to two years and 364 days throughout your life without affecting your loading. However, if you go without coverage for more than that, your loading will increase by 2% for each additional year.

Some insurance funds require you to use specific hospitals or providers to receive full benefits, limiting your choice of care.

For example, if you’re with Medibank and they don’t have an agreement with a specific private hospital or medical practice, you may face higher costs for treatment. This can be a major drawback, especially if you live in a regional area with fewer healthcare options.