Advantages And Disadvantages Of Private Health Insurance

Consider the advantages and disadvantages of private health insurance right here with Savvy. 

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, updated on July 10th, 2023       

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The benefits of private health insurance are enjoyed by just over 45% of the Australian population, with the latest APRA figures showing that Aussies holding hospital cover increased by 2.2% in 2022. The number of Aussies having extras cover is higher, with just over 55% of the population holding a policy. So, what are the advantages and disadvantages of private health insurance?  

You can take a look at the advantages and disadvantages of private health insurance in Australia with Savvy to help you make up your mind over whether it’s the right choice for you and your family. Consider the pros and cons of coverage through our informative guide before purchasing your policy. 

What are the advantages of private health insurance?

Private health insurance in Australia can provide assistance with the cost of your healthcare and can also give you more choice and flexibility about who provides your treatment and when you receive it. Some of the main advantages include:  

Coverage for areas not covered by Medicare 

Private health insurance covers services and treatments that may not be covered by Medicare, such as affordable access to elective surgery and auxiliary healthcare services such as dental, optical, physio and podiatry. This can provide you with more comprehensive cover and access to a wider range of treatments and services, crucially preventing you from having to pay the full cost for potentially very expensive treatments. 

Choice of healthcare providers and hospitals 

With private health insurance, you may have the flexibility to choose your own healthcare providers and the hospital where you receive treatment, depending on your policy and the facilities available in your area. Having private health insurance may also allow you to have a private room if you're admitted to hospital, although this will depend on the availability of private beds in your area. 

Shorter waiting times 

Private health insurance may offer shorter waiting times and allow you to skip long public hospital waiting lists, particularly for elective surgeries and specialist appointments. This can result in quicker access to care and reduced waiting times for non-emergency treatments. 

Choice of when to receive treatment 

Having private health insurance (particularly hospital cover) may also allow you to fit your health needs around your other work, family or sporting commitments. It can give you more choice about when you have an operation done, so you can schedule your surgery for a time most convenient for you and your family.  

This can be a vital consideration if you play sport or if your work is seasonal. For example, being able to schedule a knee reconstruction out-of-season may make all the difference for a keen sportsperson or someone working in the tourism industry who can’t afford to take time off during the peak season. 

What are the disadvantages of private health insurance?

The main disadvantages of private health insurance are: 

Cost 

The cost of private health insurance is a major consideration for many people, particularly those who are aged under 30 or young and fit with no chronic health issues. As people age, their health needs tend to become more complex, having private health insurance may become more important.  

Out-of-pocket expenses and gaps 

Even if you have private health insurance, it's rare to have the entire cost of your health treatment covered, so there may still be out-of-pocket expenses and gaps. These include the excess you may have to pay if you’re admitted to hospital and any co-payments which may be part of your policy’s details. 

Waiting periods prior to being able to claim 

Private health insurance policies have waiting periods which you have to serve before you’re able to make a claim on your new policy. This can range from a month or two right up to 12 months for some major procedures which can be covered by private health insurance, such as joint replacements or IVF treatment. These can extend beyond 12 months for certain extras treatments also, right up to two to three years. Waiting periods may be a serious disadvantage for those needing immediate treatment. 

Policy restrictions 

Private health insurance policies may come with restrictions, such as benefit limits and waiting periods for pre-existing conditions. Some health funds may require you to receive treatment only from their preferred providers, which can be a disadvantage if you have a favourite physio or dentist who isn’t on your fund’s preferred provider list. 

What are the tax disadvantages if I don’t have private health insurance?

There are several disadvantages and tax implications which may affect you if you don’t have private health insurance. They include: 

Medicare Levy Surcharge 

The Medicare Levy Surcharge (MLS) is an additional tax imposed by the Australian Government on high-income earners who don’t have private health insurance. It’s calculated based on the income of those earning above the threshold of $90,000 p.a.* and is designed to encourage Australians to take up private health insurance to reduce the Medicare burden. 

If you earn above the MLS income threshold and do not have private health insurance, you may be liable to pay it as part of your income tax. The amount you’ll have to pay varies between 1% and 1.5%, depending on your income*. 

By having an appropriate level of private health insurance, you can avoid paying the MLS. The cover required to avoid the MLS is a hospital cover policy with a maximum excess of $750 or singles, or $1,500 for couples and families. The hospital cover must be provided by a registered health insurer.  

Lifetime Health Cover (LHC) loading 

The LHC loading is an additional amount you may have to pay on top of the normal cost of health insurance premiums if you don’t get health insurance before you turn 31 and decide to buy it later on. It's a way to encourage people to get private health insurance early in life and to keep it continuously. If you don't have private hospital cover by July 1 in the year you turn 31, you may have to pay an additional 2% for each year you’re uninsured over 30 when you first get private health insurance.  

For example, if you get private health insurance at the age of 35, you'll pay an additional 10% (5 years x 2%) on top of your base premium. The maximum LHC loading is 70% and it’s removed after you have held private hospital cover for ten successive years. However, if you cancel your private health insurance for more than three years, you may have to pay LHC loading again if you decide to get private health insurance in the future.  

*Figures correct as of April 2023 but subject to change.  

More questions about the advantages and disadvantages of health insurance

Does private health insurance cover pre-existing conditions?

Yes – having a pre-existing condition will not exclude you from being able to have private health insurance. It's illegal in Australia to deny someone health cover based on age or pre-existing conditions. However, there may be additional waiting periods which apply to pre-existing conditions. 

Can I be treated under Medicare and also have private health insurance?

Yes – you can have both private health insurance and be treated under Medicare in Australia. Medicare is the public healthcare system which provides access to basic medical services and benefits for all Australian citizens and permanent residents.  

Private health insurance is an additional form of insurance which provides coverage for services beyond what is covered by Medicare. Having private health insurance does not replace or negate the need for Medicare, as both systems work alongside each other. 

Can I always choose my own healthcare provider and hospital if I have private health insurance?

No – it isn’t always possible to have total choice as to which doctor treats you, or which hospital you receive your treatment in. This will depend on factors such as: 

  • Regional availability – there may only be one specialist or private hospital of the type you need in your area or state. Having private health insurance does give you the option of travelling to another city or region to see specialists who may not work in your local area 
  • Which hospital your specialist works in – the specialist you need to see may have a contract or arrangement with one particular hospital, so if you want to see that specialist, you’ll have to use that designated hospital 
  • If you have a medical emergency – in which case you'll probably be transported by ambulance to the nearest public emergency department, regardless of whether you have private health insurance or not 
Are premiums for private health insurance tax-deductible in Australia?

The entire cost of private health insurance premiums aren't tax-deductible in Australia. However, the Australian Government provides a tax rebate, known as the Private Health Insurance Rebate, which can reduce the cost of your private health insurance premiums and make it more affordable. This can be claimed as a lump sum when filing your tax return or incorporated into your premiums to lower them each month. However, it's important to consult with a qualified tax professional to determine your eligibility and the amount of rebate you may be entitled to. 

Can I switch between private health insurance policies without serving more waiting periods?

If you switch between private health insurance policies and increase your level of cover, you may need to serve additional waiting periods for services which weren’t covered under your previous policy. However, if you switch providers and retain the same level of cover, no new waiting periods should apply. 

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