Well over 14 million Aussies have some form of private health insurance in addition to the standard Medicare. Perhaps you are one of them, or perhaps you are considering getting some. Either way, you probably have a few questions about what it is and how it all works.
What Does Private Health Insurance Cover That Medicare Doesn’t?
As Australia’s universal healthcare system, Medicare covers a variety of different things, from hospital and GP visits and prescription medicines to surgical services and most types of tests and scans.
Private health insurance, however, covers far more. Depending on the policy you choose, it can include:
- Dental treatment
- Orthodontics
- Glasses and contact lenses
- Ambulance services
- Physiotherapy
- Chiropractic care
- Remedial massage
- Home nursing
- Podiatry
- Speech therapy
- Hearing aids
However, there are two types of private healthcare insurance available in Australia.
The first is hospital cover which covers you for being treated at a private hospital or, alternatively, as a private patient at a public hospital. The second is extras cover which typically covers most of the list outlined above. Both of these may, or may not, include ambulance cover depending on the policy.
You can take out hospital and extras cover together as combined cover, which gives you much greater coverage.
How Does Private Health Insurance Work?
In many ways, private health insurance works in the exact same way as most other types of insurance you may have, you pay each month/year and use in the event you need to pay for any of the above things not covered by Medicare.
However, it works very differently in many other regards.
For starters, private health insurance is far more regulated than some other types of insurance. For example, a private health insurer cannot legally refuse to sell you cover if you wish to purchase it and if you switch insurers you don’t have to re-serve waiting periods.
Similarly, except in the case of lifetime health cover or certain age-related hospital cover, private health insurance is community rated, which means everyone pays the same price for a particular policy regardless of age, gender or health status.
As mentioned above, private health insurance policies come in two main forms: hospital and extras cover, which can be sold together as part of a combined policy or separately, on either a singles, couples or family plan, based on your needs and personal circumstances.
This then affects what you’re covered for, how you can claim, and what other benefits you can get.
What Is The Private Health Insurance Rebate?
With the Australian public healthcare system under enormous strain, successive governments have attempted to reduce waiting periods and improve services through a series of incentives that encourages and helps people to take out private health cover.
One such incentive is the private health insurance rebate.
Assuming you’re eligible for it, the private health insurance rebate means that the government will pay a portion of your premiums. Eligibility is means-tested, meaning that as you earn more, the percentage of your premiums the government will pay, decreases.
At present, the rebate percentage ranges from 24.608% for those earning under $90,000 as a single-parent household ($180,000 for a two-parent household), to 8.202% for those earning between $105,001-$140,000/$210,001-$280,000.
Much like income tax thresholds, the rebate thresholds and percentages change each tax year, generally in line with metrics such as inflation and wage growth.
All rebates are made based on your family and income situation as of June 30th of each year.
How Much Tax Do You Save With Private Health Insurance?
Like most nationalised healthcare systems, Medicare is funded by taxes. At present, the Australian Tax Office (ATO)’s Medicare Levy is charged at 2% of your taxable income, which is paid as a part of your taxes, assuming you’re an Australian resident for tax purposes.
However, those earning over $90,000 as a single-parent household, or $180,000 as a two-parent household, are required to pay an additional Medicare levy surcharge (MLS).
This can range from 1% for those households earning more than $90,000 and $180,000 respectively to 1.25% for those households earning more than $105,001/$210,001, to 1.5% for those households earning more than $140,001/$280,001.
However, by taking out a private hospital insurance policy, you are exempt from paying the MLS (only private hospital cover exempts you from the MLS).
Imagine now, that your two-parent household had a combined household income of $200,000. Your Medicare Levy Surcharge would be $2,500. However, many hospital insurance policies can be taken out for well below $2,000 for the year.
As such, by taking out private health cover, you actually pay less tax to the tune of at least $500 each year (at least in this example, anyway).
What Is Excess in Health Insurance?
When searching for a health insurance policy, you’ll find that each private health insurer will offer a range of options for different “excess”, typically ranging from $50 to about $500.
Much like excess on the other types of insurance that you may have (car, travel, house etc.), a health insurance excess is basically the amount of money the insurer expects you to put up when you make a claim.
Say, for example, you received medical treatment that cost $5,000 and you had an excess of $500. You would be expected to pay the first $500, whilst your insurer pays the remaining $4,500.
As a general rule, the higher your excess, the lower premiums you should have. As of April 2019, private health insurers have been able to offer products with new higher excesses.
The maximum excess you can have under current Australian law is $750 for singles, and $1,500 for family policies, regardless of which state you live in.
What Happens If I Don’t Have Private Health Insurance Cover?
Thanks to the Australian government and its universal health care system, Medicare, private health insurance is not mandatory in Australia. So even if you don’t have it, you’ll still be able to access health services at a public hospital should you ever need it.
If you don’t have private health insurance, you won’t get as much of a say over where you’re treated and which medical professional you’re treated by. It’s also likely you’ll experience longer waiting periods and may be less likely to have a private room.
You may also have to pay for any ambulance call-outs too.
What Is the Gap in Private Health Insurance?
When you have your medical procedure that’s being covered by your private health insurance, sometimes, what the Medicare Benefits Schedule (MBS) and your insurer pay out is less than what your hospital or specialist doctors charge.
This is known as the gap and is essentially your out-of-pocket costs. These are different to your excess and is your responsibility as the patient (or rather, the policyholder) to pay.
The amount you pay can vary wildly from nothing to as little as $20 or $30, to over $5,000 depending on what the specialist chooses to charge.
While most private cover includes Access Gap Cover, designed to bridge that gap, it’s always wise to check with your insurer to see if they will cover the full cost of your treatment. Before you choose a surgeon, check with your health fund that they participate in their access gap cover scheme. This way you can avoid having to find the money to pay huge out-of-pocket expenses whilst you’re still recovering.
It’s worth noting that you have the right to get an estimate of costs from your healthcare provider and you must give informed financial consent for them to proceed with your treatment.
Since you have the right to choose your own healthcare professionals, it’s always a good idea to shop around and compare prices, so you can minimise your out-of-pocket costs. Tools like HealthShare, Whitecoat and The Medical Costs Finder can also be of great assistance. And remember, price has no bearing on quality and it is okay to negotiate with your healthcare provider.
Hopefully, that’s all your burning questions answered, but if not, feel free to reach out and ask. And if you’re interested in getting a private health insurance policy, explore our Members Health funds to find one that’s right for you.