As an Australian, it's important to understand the differences between private health insurance and Medicare. While both provide health coverage, they also have distinct differences that can impact your healthcare costs and access to services.
If you're unsure about how these two types of health cover differ, you can explore the benefits, inclusions and costs associated with each of them right here with Savvy in our helpful guide.
What are the key differences between private health insurance and Medicare?
When it comes to health cover in Australia, there are two options available: private health insurance and Medicare. Both options have their advantages and disadvantages and offer different levels of cover. Understanding the differences between them is crucial for making an informed decision about your healthcare needs.
As of December 2022, approximately 46% of Australians have private hospital cover, according to Australian Prudential Regulation Authority (APRA). The percentage of Australians with private health cover varies and changes over time, but has grown by more than 2% per year in 2021 and 2022.
Private health insurance
Private health insurance in Australia is offered by more than 35 health funds, with four of the top funds (Medibank Private and ahm, BUPA, HCF and NIB) accounting for more than 72% of the market share of private health policies.
These insurers provide cover for healthcare treatments beyond what’s provided by Medicare and allow their customers to be treated in the private health system, relieving some of the pressure on the Medicare public system.
Some key benefits of private health insurance include:
- Choice of doctor and hospital: with private hospital insurance, you may have the flexibility to choose your preferred doctor and hospital (depending on availability of services in your area), giving you more control over your healthcare decisions.
- Shorter waiting times: it can also help you avoid long waiting times for elective surgeries and other medical procedures, as you can choose to be treated as a private patient in a private hospital.
- Additional coverage: extras cover, another form of private health insurance, may cover services such as dental, optical and physiotherapy which aren’t included under Medicare coverage.
- Access to private hospital rooms: hospital cover may provide you with the option to have a private room in a hospital, giving you more comfort and privacy during your stay (subject to availability)
- Ambulance cover: it may also include ambulance cover, which isn’t covered by Medicare in most cases.
- Incentives and discounts: some private health insurance policies may offer discounts and further incentives such as for health and lifestyle programs, gym memberships, weight loss programs, quit smoking programs and other preventative and holistic health and wellness initiatives.
Medicare is Australia’s public healthcare insurance system which provides access to free medical care for all Australian citizens and eligible permanent residents. It’s funded by the Australian government partly through the Medicare Levy, which is paid by all eligible working Australians.
Under Medicare, Australians have free access to a wide range of essential healthcare services, including:
- emergency care through public accident and emergency departments
- admission to a public hospital
- surgeries and procedures performed in a public hospital
- subsidised visits to doctors and specialists,
- subsidised diagnostic tests and imaging and scans
- subsidised prescription medications and pharmaceuticals
If you have an accident, serious injury or emergency health crisis such as a stroke or heart attack, you can be taken by ambulance to your nearest public hospital emergency department and receive free treatment under the Medicare system.
However, there are areas that aren’t covered by Medicare, or are only partially funded. For example:
- Optical – Medicare will cover the cost of one eye test every three years for those aged under 65 years of age, but doesn’t cover the cost of glasses or contact lenses
- Dental – children and pensioners may be able to get free dental care, but Medicare generally doesn't cover dental treatment
- Ancillary care – Medicare also doesn’t cover the cost of most ancillary health services such as physiotherapy, occupational therapy, speech therapy, eye therapy, chiropractic services, podiatry or psychology services
In addition, Medicare won’t cover or subsidise any of the costs of:
- any procedure which isn’t considered medically necessary (such as tattoo removal or cosmetic surgery)
- ambulance services
- hearing aids
- home nursing
- many ‘alternative’ or naturopathic treatments
- any medicine which isn’t listed under the Pharmaceutical Benefits Scheme (PBS)
Medicare operates on a bulk-billing system, where doctors and other healthcare providers can choose to bill the government directly for their services, leaving little or no out-of-pocket costs for patients.
However, some providers may charge above the Medicare fee, resulting in a gap which patients need to cover themselves. This is where private health insurance has an important role to play, as policies can cover some or all of this gap. In addition to covering gap payments, private health insurance can also help you avoid public health waiting lists and give you more choice about the when and where you receive treatment.
How does private health insurance work?
In Australia, private health insurance policies are categorised into four tiers of hospital cover: gold, silver, bronze, and basic. Each tier offers a different level of coverage and cost, allowing individuals to choose a policy that best suits their needs and budget.
- Gold: gold hospital cover provides the highest level of coverage, including a wide range of services such as pregnancy and birth-related care, joint replacements, cataract surgery, and more. As a result of its comprehensive coverage, it also typically has the highest premiums.
- Silver: silver hospital cover provides a more moderate level of coverage, including services such as heart and vascular system procedures, assisted reproductive services and more. It generally has lower premiums compared to gold cover, but offers more coverage (and is more expensive) than bronze and basic cover.
- Bronze: bronze hospital cover offers a basic level of coverage, including services such as appendix removal, tonsil removal and more. It has lower premiums compared to gold and silver policies, but offers less coverage.
- Basic: basic hospital cover provides a very limited level of coverage, including just three clinical areas (rehabilitation, psychiatric care, and palliative care). It generally has the lowest premiums among the four tiers, but offers the least coverage.
Hospital cover policies must meet minimum requirements set by the Australian Government. These requirements ensure that certain basic services (such as treatment in a private hospital) are covered by all policies, while additional cover for clinical categories will vary depending on the tier of cover chosen.
In addition to hospital cover, Australians can also choose to take out extras cover, which is also known as general or ancillary cover. This provides benefits for services which aren’t covered by the public health system, such as dental, optical, physiotherapy, and more. Extras cover is typically also available in different levels, ranging from the cheapest basic policy to more expensive ones, which may offer a greater number of benefits and inclusions and higher claim limits.
The cheapest extras cover policies provide limited benefits for essential services such as general dental, optical, and physiotherapy. Medium-priced extras cover policies offer a higher level of benefits than cheaper policies, including additional services such as major dental, orthodontics, and more. The highest cost extras policies provide the widest level of benefits, including services such as:
- hearing aids
- remedial massage
- healthy lifestyle and wellness services
The cost of extras cover depends on the level of coverage chosen, with higher levels of cover generally having higher premiums. Individuals can choose to have extras cover as a standalone policy or combine it with their hospital cover into one comprehensive health insurance policy.
How do I compare health insurance policies?
Whether you choose a hospital policy, extras cover or a combined health insurance policy, some of the areas you should think about when comparing policies are:
- Consider the health services you may need: think about the health services you have used recently or may need in the future. For example, if you have a foot problem, you may want to prioritise coverage for podiatry services.
- Determine what you can afford: think about how much you can afford to pay for health insurance premiums each month. Keep in mind that hospital insurance costs vary depending on the level of coverage you choose, from basic to gold. Even with top-level coverage, you may still have to pay gap fees, so it's important to find the right balance between cost and coverage. Gap fees are the difference between the Medicare Benefit Schedule fee and what your health practitioner charges.
- Match your needs with the level of coverage: once you know what type of health cover you need and what you can afford, compare the coverage offered at different levels. This includes choosing between basic, bronze, silver, or gold policies for hospital cover and looking at the benefit limits per year for various forms of treatment for extras cover.
- Understand waiting periods: When you first get health insurance, you may need to wait for a certain period before you can make a claim for certain treatments or services. Waiting periods can range from two months to a year for hospital cover. However, some insurers may offer reduced or waived waiting periods for extras policies to attract new customers, so it's worth checking for these options if you are new to health insurance.
- Understand excesses and co-payments: Your policy excess is the amount you have to pay when you make a claim on your hospital cover policy. Some insurers may not require an excess, while others may allow you to choose a specific amount ranging from $250 up to $750 (for single policies) or $1,500 for couples or families. Choosing a higher excess will likely result in lower premiums. Co-payments are the amount you agree to contribute towards your hospital stay. Some insurers may require a co-payment from the first day of hospitalisation, others may only require it if you have been in the hospital for five days or more, and some may not require it at all.
Frequently asked questions about private health insurance vs. Medicare
Helpful health insurance guides
Compare health insurance policies online
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