Benefits and disadvantages of private health insurance

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 the best health insurance to suit 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.