The ins and outs of private health cover

The ins and outs of private health cover

With premiums often running to thousands of dollars per year, whether or not to take out private health insurance is a major financial decision. Here are some of the key issues you need to consider in making that decision.

Why go private?

There are two main types of private health insurance: hospital cover, and general treatment (or extras) cover. In some states you may also need to take out ambulance cover.

  • Many common treatments, including physiotherapy, optical and dentistry, are not covered by Medicare. Taking out extras insurance can cover these.
  • Private hospital insurance allows you to choose your own doctor.
  • Waiting times for elective surgery may be considerably shorter in the private system, and you may have more choice as to when you are admitted.
  • You may be accommodated in a private room, if available.

Finding the right policy

As with most insurance, choosing the right health insurance policy involves finding a balance between costs and potential benefits.

To make comparison of the hospital insurance offered by different insurers simpler (though not necessarily ‘simple’), all hospital policies must be classified as Basic, Bronze, Silver or Gold, and insurers need to state what is and isn’t covered by each policy. For example, a policy may cover chemotherapy but not treatment of cardiovascular disease.

In deciding which level of cover to opt for, some key questions are:

  • What are your health care needs? How old are you and how is your age likely to influence your needs?
  • What are the waiting periods when initially taking out health insurance or upgrading your cover?
  • Does a policy provide full cover, or will there be out of pocket costs?
  • To reduce your premiums, should you opt for an excess on your hospital insurance?
  • What extras are you most likely to use? What are the annual caps you can claim for each type of treatment? What level of benefits are payable on common claims such as dental check ups or spectacles?

Incentives to go private

An effective private health insurance system helps to take a lot of strain off the public health system, so the government offers a range of incentives to take out and maintain private cover.

  • Private Health Insurance Rebate. This is essentially a refund from the government of a portion of the premiums for hospital, extras and ambulance insurance. The amount depends on age and income, and is up to 25% for under-65s or up to 33.4% for the over-70s. It can be claimed as a reduction in premiums or via your annual tax return.
  • Age-based Discount. This is an incentive for younger people to take out insurance. It gives insurers the option to offer a discount of up to 10% of hospital premiums. The discount drops by 2% for each year over 25, but once in place it continues until age 40, then decreases by 2% per year.
  • Medicare Levy Surcharge. Most taxpayers pay the Medicare levy of 2%. If higher-income earners don’t have private hospital insurance, they may be up for the Medicare Levy surcharge. This ranges from 1% to 1.5% of income. It may be cheaper to take out a basic eligible policy rather than pay the surcharge.
  • Lifetime Health Cover (LHC). This is a disincentive for delaying taking out hospital cover until later in life when it might be most needed. For each year over the age of 30 that you delay taking out hospital cover your premium will increase by 2%. The maximum LHC loading is 70%, and the increased premiums stop after 10 years of continuous cover.

Complex as it is, taking control of your private health insurance will help you ensure that you aren’t spending money on cover you don’t need, or, more importantly, that you do have adequate cover should you need it.

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