How Does Private Health Insurance Work?

Find out how private health insurance works in Australia and how Medicare fits in with your health cover with Savvy. 

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, updated on July 10th, 2023       

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Private health insurance is a form of insurance in Australia that provides cover for medical services and treatments that are not included under Medicare. It’s optional whether people buy private health insurance, with a wide range of different policies available to suit individuals, couples, single parents, families and even employers who can offer it as part of an employee benefits package. 

Find out all about how private health insurance works here with Savvy. Learn how it fits in with Australia’s Medicare system, and how it can help cover the cost of healthcare where there is no Medicare subsidies available. 

How does private health insurance work?

Private health insurance is a form of cover which helps Aussies with the cost of their healthcare. It’s offered by more than 35 private health funds in Australia, and can provide cover in areas where there are limited or no Medicare benefits available, such as dental and optical care. 

Policyholders can choose from a range of different levels of cover. These range from relatively inexpensive basic hospital policies to more comprehensive policies offering cover for almost every available health treatment such as gold cover (including joint replacements and expensive treatments like IVF). Such comprehensive policies can cost hundreds of dollars a month and provide a high level of coverage for those who can afford it. 

Community-rated 

In Australia, private health insurance is community-rated, which means that everyone pays the same premium for the same level of cover, regardless of their age, health status or previous medical history. Unlike other types of cover, such as life insurance, this system doesn’t take into consideration an individual's pre-existing health conditions or medical history when determining how much their insurance will cost. Instead, it spreads the risk across the entire community, resulting in a more equitable distribution of cost.  

Premiums 

If you decide to buy private health insurance, you’ll have to pay a premium, which covers the cost of the health insurance policy. This premium can either be paid weekly, monthly or annually. Some insurers offer discounts if you pay your health insurance annually or set up a direct debit to pay your premiums. 

All private health insurers offer different policies at different prices, so it is very important to compare policies to make sure you’re getting one that is just right for your personal healthcare needs. Competition between insurers is fierce, so there are usually special offers available which can offer great value for money. These can include things like waived waiting periods before the cover kicks in, free weeks or months of cover, and special offers relating to gym memberships, health and wellness packages such as weight loss courses, quit smoking programs or holistic diabetes management support.   

There are also financial incentives available to encourage people to get and maintain private health insurance. The Australian Government offers a private health insurance rebate which assists Aussies with the cost of private health insurance. This rebate increases with age, so older Australians can receive a greater rebate on the cost of their cover. In addition, there are age-related discounts available with certain insurers, so those younger Aussies under 30 may be able to get a discount on their premiums.

What private health insurance options are available?

You can choose between several different types of health insurance: 

Hospital cover 

This can cover costs associated with accommodation, medical procedures and other hospital-related expenses. There are four different levels of hospital cover, ranging from basic to bronze, silver and gold policies. The level of cover offered by each tier of health insurance is regulated by the Australian Government, so, for instance, each bronze level policy has to offer cover for the same clinical conditions as a minimum. This makes it easier for the public to compare policies, as they know they’ll be comparing apples with apples. 

Extras cover 

Also known as general or ancillary health insurance, this type of policy can cover the cost of outpatient services such as dental care, optical care, physiotherapy, chiropractic treatment, hearing aids and podiatry, plus other ancillary services which aren’t covered by Medicare. Extras cover can be added to hospital cover, or it can be purchased separately. 

Combined cover 

This combines hospital cover and extras cover into a single policy, potentially providing more comprehensive coverage for both in-hospital and outpatient services. 

Ambulance cover

This can cover the cost of ambulance services (transport to hospital by both road and air), which aren't covered by the public healthcare system in most states and territories. Not all Aussies will need to buy ambulance cover, however, as in Queensland and Tasmania, the state governments offer cover for the cost of ambulance cover for their residents. If you’re unsure whether you’re eligible to receive free ambulance cover, check your state or territory government’s website. 

How do I make a claim on my health insurance?

There are several ways to make a claim on your private health insurance policy: 

HICAPS 

Many healthcare providers will automatically charge your health fund when you go to pay using the HICAPS system. This stands for the Health Industry Claims and Payments Service. It's a system used in Australia for processing electronic health insurance claims and payments at the point of service. It’s a fast and convenient way for patients to claim their health insurance benefits and healthcare providers to receive payment directly from the insurance company. 

HICAPS allows healthcare providers, such as doctors, dentists and physiotherapists to process health insurance claims on behalf of their patients in real time. When a patient receives a service, the healthcare provider can swipe the patient's health insurance card through a HICAPS terminal, enter the details of the service provided and instantly receive information about the amount that will be covered by the insurance company. The patient then pays the remaining out-of-pocket expenses, if any, to the healthcare provider. 

Health insurance websites and apps 

Many health funds allow you to submit a claim either through their website or a phone app. This usually involves submitting a copy of the receipt for the health service you’ve received. Once the claim has been processed, the benefit amount will be paid directly into your nominated bank account. 

In person 

Some health funds still have physical offices where you can take your receipt for service and receive your benefit in cash. However, this method of claiming health insurance benefits is becoming less common as electronic processing of claims becomes the norm in Australia. 

How does the private health insurance rebate work?

The private health insurance rebate is a financial incentive provided by the Australian government to encourage individuals and families to take out and maintain private health cover. The rebate is designed to help offset the cost of private health insurance premiums and make it more affordable for Australians to access private healthcare services. 

The level of rebate depends on several factors, including the age and income of the policyholder. It’s only available to those who have hospital cover, not extras cover, and can either be claimed from your health fund as a reduction in premiums or as a tax offset when filling in your annual income tax return.  

The rebate is calculated as a percentage of the premium paid for the private health insurance policy. It ranges from 8.2% up to 32.8% for those aged over 70*. 

*Figures are accurate as of April 2023, but subject to change. 

Frequently asked questions about how private health insurance works

If I have private health insurance, do I receive less from Medicare?

No – Medicare and the private health insurance system work hand in hand, so your health insurance may help to cover the gap between what Medicare will pay for and what your health provider charges. In addition, private health insurance offers coverage for areas which aren’t covered by Medicare, such as many auxiliary healthcare services provided out of a hospital setting like optical, dental, chiropractic and podiatric services. 

Can I avoid the Medicare Levy Surcharge if I have adequate health insurance?

Yes – the Australian government imposes a Medicare Levy Surcharge on high-income earners who don't have adequate private hospital cover. Having even a basic level of hospital cover will help individuals avoid this surcharge, which is calculated based on incomes over $90,000 p.a. It can be a significant additional cost of between 1% and 1.5% of your earnings.  

What is the Lifetime Health Cover loading?

The Lifetime Health Cover (LHC) loading is a government initiative which applies a higher premium for individuals who take out private health insurance for the first time over the age of 30. It aims to encourage individuals to take out private health insurance earlier in life and maintain continuous coverage to avoid higher premiums in the future. The LHC loading is 2% per year that you’re uninsured and aged over 30, capped at 70%, and is payable for ten continuous years, after which it’s removed from your premiums. 

What is the age-related discount for young Australians?

In Australia, there’s a discount available on private health insurance premiums for individuals who are under 30 years old through some providers. This discount is called the Age-based Discount (ABD) and encourages young people to get private health insurance by offering them a reduced premium. The discount is 2% for each year the policyholder is aged under 30, capped at 10% for those aged 18-25. The age-based discount doesn't apply to people aged 18 to 29 years who are covered as a dependent on a family or single parent policy. However, the discount can stay in place until the policyholder reaches age 41, when it reduces at a rate of 2% per year until it reaches 0%.   

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