Private health insurance: Is it worth it in the age of coronavirus?
With costs continuing to rise and more young workers opting out, is private health still worth it? Photo: TND
The end of the financial year is prime time for Australians to initiate new cost-cutting measures for the next 12 months.
One area increasingly under scrutiny is private health insurance – and with the pandemic fuelling financial distress, more workers are ripping off the Band-Aid.
According to a nationally representative survey from iSelect, 41 per cent of policyholders are currently reviewing their existing premiums and 7 per cent plan to cancel their cover entirely.
Of those pondering cancellation, more than two-thirds cited a recent drop in income.
As money gets tighter and public health concerns remain high, The New Daily weighs up the pros and cons of taking on private health cover.
Australia has a public health system, so why does private health cover exist?
Government-funded Medicare allows Australians to receive universal health care without the discharge bills that often impoverish our American counterparts.
Grattan Institute health program director Stephen Duckett told The New Daily that Australia’s public health system ranks as “very good” by international standards.
With the most sophisticated surgeries occurring in publicly funded hospitals, including the Royal Melbourne Hospital and Sydney’s Royal Prince Alfred Hospital, the incidence of needing a private facility is generally low, he said.
“If you have an accident, you get essentially 99 per cent of the cases taken to a public hospital, especially in instances with major trauma,” Dr Duckett said.
However, the private sector has some scope to supplement public health.
Canstar group executive Steve Mickenbecker told The New Daily that long-term patients – including expectant mothers, mental health inpatients and people with chronic diseases – may prefer private health.
“Having the same obstetrician throughout pregnancy or continuity in doctors for people with chronic issues over a period of months or even a lifetime is valuable to some people,” Mr Mickenbecker said.
Can private health cover be good value for money?
Figuring out if private health is worthwhile hinges on three concerns: The amount you earn, your age, and elective surgery requirements.
If your income is above $90,000, chances are that private health insurance will save you money.
Individuals without private cover who earn more than $90,000 a year – or households with a combined income above $180,000 – pay an additional Medicare Levy Surcharge, equivalent to 1, 1.25 or 1.5 per cent of their taxable income.
So for higher-income workers, private health coverage could cost less than the extra tax paid for using the public health system.
And the sooner higher-income workers make the switch, the more money they will save.
This is because Australians who turned 31 in the past financial year must pay Lifetime Health Cover Loading (LHCL) if they are not a member of a private health policy.
Relying on the public system can be cheaper for some – and more expensive for others. Photo: Getty
The LHCL adds an extra 2 per cent to the cost of private health policies for every year Australians go without them beyond the age of 31 – up to a maximum of 70 per cent at 65 years of age.
Dr Duckett say the LHCL has the potential to discourage middle-aged workers from acquiring health insurance altogether.
“But once you turn roughly 55 and your expectation of drawing on your health insurance is above what you actually pay in tax, that’s when [private health] can become better value for money,” Dr Duckett said.
The likelihood of requiring elective surgeries like hip replacements and cataract removals increases with age, he said.
But the combined effect of an ageing population and declining take-up among younger people is driving up premiums.
“It’s adverse selection, where the people most likely to take out cover are also those in the risk pool – which is why young people abandoning the system is such a concern for insurers,” Dr Duckett said.
With four tiers of cover, which one is right for me?
Mr Mickenbecker said individuals should pay close attention to the list of inclusions on policies to ensure their health issues are covered.
“You’ve got to think what you’ll likely need and what stage of life you’re at, because affordability is such a big issue,” Mr Mickenbecker said.
“You need to know if you have a condition … and then assess whether you can save money by buying a silver product that covers it, rather than a gold.”
Products are filtered into gold, silver, bronze and basic classifications, but can also contain ‘plus’ variations.
Although the Australian government’s tiered system rolled out last year, it has created some unintended confusion.
Consumer advocate Choice found that some ‘plus’ policies can even cost more than higher-tiered alternatives.
Dr Duckett said basic policies can cover things like rehabilitation and mental health, yet still have a narrow scope of coverage that leaves policyholders dependent on public hospitals.