A Closer Look at Australia's Health Insurance System

When it comes to budgeting, health insurance often lands on the chopping block for many. Insurance expert Tim from Finder helps us grasp the fundamentals of Australia's health insurance framework, and shares insights into his own personal insurance position to highlight the nuances of health insurance decisions.

When the cost of living bites, the budget-savvy individual looks at what to cut. Should health insurance be on the chopping block?

Straight up, health insurance isn’t worth it for everyone. Look at me — I’m a health insurance expert, but I don’t have hospital cover. I’ll explain why in a bit, but first, remember that what’s right for me almost certainly isn’t right for you. And honestly, it probably isn’t right for me either.

My point is, don’t listen to me. Except for ambulances, which I’m right about. I think some background info will help.

How health insurance works in Australia

Lots of countries have both public and private healthcare, but the specifics vary. Here’s a quick rundown of the Australian situation.

Medicare: Our public healthcare system, Medicare will keep you alive and relatively healthy for free. This includes GP visits to doctors that bulk bill, treatment in public hospitals, surgery costs, and some specialist fees. There are some key things missing though, including dental care, glasses, hearing aids, ambulance rides, and treatment in private hospitals. You may also need to wait months or years for some surgeries.

Private health: Australia’s private healthcare system is a network of private hospitals and specialists that offer services not covered by Medicare. The main benefits include faster treatment, your choice of surgeon, and nicer facilities. Nice things are always expensive though, so pretty much everyone who uses private healthcare has private health insurance.

Three types of private health insurance

There are three different types of health insurance as I see it. Whether they are worth it for you depends very much on your circumstances. Let’s start with the most interesting one, hospital cover.

Private hospital cover

Private hospital cover helps pay for treatment in a private hospital. It’ll cover your accommodation costs, plus a portion of your other fees, e.g. anesthetist and surgeon’s fees. It doesn’t cover everything though — you’ll often still pay a gap, which can be expensive. For example, private childbirth can still land you with a gap of around $5,000.

Hospital cover is divided into tiers: Basic, Bronze, Silver and Gold. Each one covers more stuff than the one before. A word of warning — a lot of Basic policies only exist for tax reasons, explained below, but are basically junk. If you’re going to get hospital cover, I would consider starting from Bronze at a minimum.

Is it worth it? Hospital cover is worth it if you want the added perks of a private hospital, like your choice of surgeon, shorter surgery waiting lists and your own room when you get treatment. Shorter waiting lists for surgery are particularly important, especially if you engage in risky activities or are getting a bit older.

Hospital cover may also be worth it if you earn over $93,000 a year ($186,000 as a couple) as you’ll be slugged with extra tax for not having it. This tax, the Medicare Levy Surcharge, is the government’s not-so-subtle way of bullying you into holding private cover. If you earn exactly $93k, the tax starts at 1%, or $930. You can get a bronze policy for about that much.

Let’s talk about turning 30, and the Lifetime Health Cover loading. For every year you don’t have cover after 30, the cost of premiums goes up 2%. The maximum loading is 70%. The loading resets once you’ve held cover for ten years. I know 70% is a lot of cash, but not paying premiums throughout your 30s tends to make up for those more expensive ten years. That said, if you are definitely going to get private health coverage, this could be a reason to get it sooner.

Extras cover

Extras cover pays for out-of-hospital care that Medicare should cover, but doesn’t — things like the dentist, prescription glasses, and physio. It gives you either a dollar or percentage benefit (e.g. $30 or 30%) on services like these. It can sometimes even get you free stuff, like a free dental checkup each year.

Extras cover is only worth it if you use it enough to get your money back. Consider it like a paid book of coupons. If you can claim back more benefits each year than your cover costs you, then you’re set. Otherwise, you’re better off canceling your cover and paying out of pocket.

Ambulance cover

Ambulance isn’t covered by Medicare. It’s dumb, I know. Ambulance insurance pays for emergency transport when you need it, so you’re not hit with an unexpected bill. If you live in Tassie or Queensland, the state government offers some cover, but the rest of us are on the hook.

There are a few ways to get ambo cover: With an extras or hospital policy, as a stand-alone ambulance policy, or through a subscription with the ambulance provider in your state. If you don’t have ambulance cover already, it is 100% worth getting it. Stand-alone ambulance cover is around $5 a month, which is more than worth it to prevent the $1,000+ price you can be slugged with if you need a lift to the hospital. If you live in a remote area, it’s even more valuable!

My insurance situation

I promised I would use myself as a case study, so here’s my current situation. 

Extras: I have extras because I get more benefits than I pay. I max out my limits for optical and physio and see the dentist twice a year. That alone pays for my policy. That said, I switch my policy every few years if another suits me better. It’s dead easy, and most funds respect your old waiting periods if you’re moving to equivalent cover.

Ambulance: I will always have stand-alone ambulance cover. It’s not covered under every extras policy, but it’s too important to not always have cover. This covers me for emergency ambulance rides across the country, whether I’m at work in the Sydney CBD, camping in the Dandenongs, or road-tripping across the Nullarbor. 

Hospital: I’m in my mid-30s, so I’m affected by the Lifetime Health Cover loading, and I earn more than the Medicare Levy Surcharge threshold. So I have a lot of good reasons to have hospital cover. But I don’t. Why not?

Truthfully, it’s because I am young, in relatively good health, have no concerning family history, and am confident Medicare will be enough if something goes wrong. Yes, I run the risk of having to wait on a public waiting list if I get a hernia or some more serious condition, but I think I can manage. Also, Aussie hospital cover includes pre-existing conditions after a 12-month wait period, so I can get hospital cover if something goes wrong, and I’ll only need to wait 12 months.

As for the Medicare Levy Surcharge, it’s hitting me with over $1,000 a year in extra tax that I could be spending on private health insurance. However, I wouldn’t be getting an especially comprehensive policy for the amount of tax I pay, and I think I would rather make a contribution to Medicare each year than have a junk policy. Also, claiming on private insurance would open me up to gap payments, so it’s not a sure thing that I save money in the long run.

Why you shouldn’t listen to me

Unlike a mortgage, credit card, or car insurance, I can’t tell you whether health insurance is worth it to you. It depends on your risk appetite, but also the literal luck of the draw. My decision to not have private cover right now could turn out to be the worst decision I ever made if I’m unlucky enough to have a condition that could really benefit from private treatment. Most people I tell this story to decide that my decision is a bad one, and they decide to go and get hospital cover. You’ll probably do that too, based on my track record.

So, I don’t want you to listen to me. But if you can understand why I made my decision, it might help you to understand how some of the variables might apply to you.

One exception. Get ambulance cover. Do listen to me on that one. Thank me later.

Tim Bennett is a health insurance expert at Finder. He’s a regular commentator on TV, radio, and news talking about how to save money and make better financial decisions.

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