Is private health insurance worth it?

Here's when it makes sense to get private health cover - and when it doesn't

In a country with free public healthcare, why on earth would you fork out to pay for private health insurance?

The answer to this depends on your personal situation. For some, health insurance is pretty much essential, but others are able to get by without it.

So, where do you fit?

When health insurance is worth considering

Private health insurance can make sense in many different situations, including:

PregnancyIf you’re planning on getting pregnant. There’s no reason why you can’t have a baby in the public hospital system – it’s free, and the level of pre- and post-natal care is usually of a high standard. However, there are several advantages to having private hospital cover for pregnancy, including access to a private room and your choice of obstetrician throughout your pregnancy. This continuity of care is an important selling point for many parents. Just remember that there’s a 12-month waiting period for pregnancy on most policies, so you’ll need to plan ahead and take out cover well in advance.

IllnessIf you’re managing a chronic illness. If you’re living with a chronic illness like diabetes, arthritis or heart disease, you’ll probably spend a lot of time in and around hospitals and receiving treatment from any manner of specialists. Private health insurers offer a number of benefits that could make your life easier, including your choice of doctor and hospital, hospital-substitute services so you can receive treatment in a more comfortable setting, and support programs to help you understand and manage your condition.

SeniorsIf you’re a senior. The older you are, the more health problems and complications you’re likely to have – it’s sad but true. Once you’ve reached your 65th birthday, you’re entering the time of life when having private health insurance can be an extremely sensible choice. There are also larger government rebates offered to people 65 and over, helping to keep cover at a more affordable level. Check out our guide to seniors health insurance for more info.

Own doctorIf you want the freedom to choose your own doctor. Picky about who checks your vitals, diagnoses your ailments and cuts you open? With private health cover, you can choose your own doctor and hospital.

Elective surgeryIf you want to avoid long waiting lists for elective surgery. If you need to undergo elective surgery (i.e. surgery for a condition that is not immediately life-threatening), waiting times in the public system can be much longer than for private patients. As an example, the median elective surgery wait time in NSW in 2014-15 was 54 days, though this figure was shorter in Victoria (29 days) and Queensland (27 days). Remember, these are only median figures, so you could need to endure a long and painful wait if you choose to be treated in a public hospital.

EarningIf you want a possible tax rebate. If your income is over $90,000 and you don’t have any private hospital cover, you’ll pay extra tax in the form of the Medicare Levy Surcharge. Depending on your income level, you could be forced to pay an extra 1-1.5% of your annual earnings to the ATO each year. This surcharge starts at $900 for singles, so taking out budget hospital cover for less than this amount will see you come out on top financially. If you earn less than $90,000, you could be eligible for a tax rebate too - it depends on your age, income and whether you're single or have a family.

BillsIf you want help with dental bills. Need to have your wisdom teeth removed? Got kids who need braces? Medicare can’t help cover the cost, but private health insurance can. Dental bills can be a source of financial pain for many, particularly for families with young or teenage kids, so private health insurance extras cover can be a wise investment. Just make sure any policy you choose provides a sufficient level of major dental and orthodontics cover for your needs.

SportyIf you’re sporty. Do you love playing footy or netball, running marathons or generally staying as active as possible? The more sport you play and the more extreme the sport, the higher your chances of suffering an injury. A visit to your physio or a chiropractor can be expensive, especially if you need ongoing treatment, but extras cover can help pay your bills.

HealthIf you’re proactive about your health. Monday: Physio. Tuesday: Acupuncture. Wednesday: Chiro. Thursday: Remedial massage. Friday: Naturopath. If your calendar looks like this, your body is a temple and you’ll do just about anything to look after it as best you can, which means you should be able to get good value from your extras cover.

Overseas visitorIf you’re an overseas visitor. If you’re an overseas visitor coming to Australia to work or study, you will usually need some form of health insurance (either overseas visitor health cover or overseas student health cover) to qualify for a visa. However, you may be exempt from this requirement if you’re visiting from a country that has a Reciprocal Health Care Agreement (RHCA) with Australia.

PeaceIf you want peace of mind. Leaving all the financial and medical reasons to one side, some people simply don’t feel comfortable unless they’ve got more health insurance than Ned Kelly had armour. If this sounds like you, health insurance is worth it no matter what your personal situation might be.

Ambulance If you want ambulance cover in case of an emergency. There’s a widespread misconception that the cost of an ambulance ride in Australia is covered by Medicare. Unfortunately, it isn’t. If you live in Queensland or Tasmania, ambulance services are free. For everyone else, the cost of ambulance transport needs to be paid for out of your own pocket – and it’s not cheap. Take NSW, for example, where the ambulance service charges a fee of $372 plus $3.35 per kilometre travelled, or try Ambulance Victoria’s flat $1,204 (metropolitan) or $1,776 (regional and rural) emergency road transport fee on for size. That’s a lot of money in anyone’s language. Happily, many health insurers include ambulance cover with their hospital or extras policies.

When health insurance is probably not worth it

There are some circumstances where health insurance might not be great value for money, such as:

Young and healthyIf you’re young and healthy. If you’re in your early 20s, in perfect health, and can’t remember the last time you went to the doctor, the cost of health insurance may not be worth it at this stage of your life. However, there are still a few good reasons why you should consider getting health insurance in your 20s, including the ability to see a dentist or psychologist (hello, extras cover!) and the Government’s recently announced plans to offer premium discounts to young Australians aged between 19 and 29 (although this hasn't been finalised yet).

Public systemIf you’re comfortable relying on the public system. If you’re satisfied that you’ll receive high-quality care in Australia’s public hospital system, and as long as you’re not worried about not being able to choose your doctor or get a private room, private health cover could be an unnecessary expense. Find out how private and public hospitals compare.

Cover you don't needIf you’re feeling pressured into buying cover you don’t need. As health insurance premiums rise each year, so too does the incidence of fear-based marketing implying that if you don’t take out cover, you could face extreme financial or medical consequences. Remember that if you ever experience a medical emergency, you’ll receive a high level of emergency care for free in your nearest public hospital. Figure out what makes sense for you, and don't buy cover "just because". Even more, make sure you do your own research, and don't just go for the fund that your parents had, or the one that has the quirky ads.

ExtrasIf the cost of extras cover is more than the annual benefits you receive. If you’re paying $500 a year for extras cover but you rarely claim any more than $200 in benefits annually, you’re better off removing extras from your policy.

If I'm over 31, don't I have to get health insurance?

The Federal Government offers a few financial incentives (or punitive measures, depending on how you look at it) to encourage Australians to take out hospital cover, the best known of which is Lifetime Health Cover (LHC). LHC is an age-based levy that increases the cost of health insurance for people who don’t take out cover before their 31st birthday.

This is how it works: for each year you don’t have cover after turning 31, your premium when you do finally take out a policy will be increased by 2% (up to a maximum of 70% - ouch). Once you’ve held cover for 10 consecutive years, the loading is removed.

So, does LHC mean that private health insurance is worth it for everyone over 31? Not necessarily. While cover will undoubtedly be cheaper if you become a health fund member before blowing out the candles on your 31st birthday cake, you could potentially come out better off if you wait until well after turning 31 to take out cover.

Let’s say you decide to wait until the age of 35 to join a health fund. This means an 8% premium loading will apply to the cost of cover for the next 10 years, so if your annual premium is $3,000, you’ll pay an extra $240 a year (a total of $2,400 over 10 years). However, remember that from the age of 31 to 35 you’ll save $8,000 because you won’t be paying any health insurance premiums – so which option do you think represents the best value for money?

Whether the financial impact of LHC should motivate you to take out health insurance is entirely up to you. You’ll need to consider your budget and your cover needs before deciding which option is the right one.

LHC discount

In October 2017, the Government also flagged the introduction of an LHC discount that will allow young Australians to save up to 10% on the cost of health insurance. Under the change, people who take out cover between the age of 19 and 29 will get a 2% discount on their premiums every year they hold cover, with the discount capped at 10% and applying only until you turn 40. However, it’s not yet known when (or if) this discount will come into effect.

Should I ditch or switch?

From 2010 to 2017, Australian private health fund premiums rose by an average of 44.81%. There are several reasons behind these increases, but the main contributing factor has been the increase in the number of claims made compared to prior years. Combined with the rising cost of healthcare services, this has seen premiums skyrocket in recent times.

Health insurance premium increases take effect on April 1 each year. For example, in 1 April 2017, premiums jumped by a weighted average of 4.84% which, for the average Australian family, means the annual cost of cover rose by $208. If you're thinking of ditching

If you're thinking of ditching your cover, you might want to assess whether the health insurance policy you have in place is still worth it. While it may have provided OK value for money a year or two ago, the most recent price increases may mean you could be better off switching to another fund.

Should I get hospital or extras cover?

How to find the right health insurance policy

If you’ve decided that health insurance is in fact worth it, here’s how to find a policy that’s the best fit for you:

  • Ask yourself what cover you need. Take some time to think about the cover you and your family need. For example, if you’re in your 50s, you won’t need a policy that covers pregnancy. On the flipside, someone in their 20s won’t have much use for a policy that covers hearing aids and hip replacements.
  • Consider your budget. For most of us, cost will always be a factor that determines the policy we choose. Keep your budget in mind when determining the level of cover you want to buy, and check out
  • Check the waiting periods. Read the fine print closely to make sure you’re aware of any waiting periods you must serve before you can claim a benefit.
  • Check the list of restrictions and exclusions. If a policy offers ‘restricted’ cover for a specific service or treatment, this means it will only pay limited benefits and you could still have substantial out-of-pocket costs. Other services may be excluded altogether, so make sure you’re fully aware of everything your fund will and won’t cover.
  • Watch out for ‘junk’ policies. If you’re taking out cover purely to minimise your tax bill, be wary of what are known as ‘junk’ policies. Although relatively cheap, these policies restrict or exclude cover for a wide range of services and are often a waste of money.
  • Compare your options. Don’t choose a health fund just because it has a slick marketing campaign or because it seems pretty affordable; compare health insurance funds online to find a policy that offers all the cover you need.
  • Pay in advance. Finally, to save yourself a few extra bucks, pay your premium annually in March, before the April 1 price rise kicks in.

Tips for people who don’t need health insurance

Decided you don’t need cover? That’s fine, but make sure you remember to review your cover needs regularly.

You may not need cover now, but your health insurance needs can change pretty quickly. From starting a family to getting a pay rise, there are several factors that can have a big impact on whether or not you need cover, so remember to consider your options whenever your circumstances change. This is the best way to ensure that you can always access the medical care you need, whenever you need it.

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