Private health insurance: The key points to consider when signing up

Now is a good time to review your private health insurance needs.

Now is a good time to review your private health insurance needs. Photo: Getty

If you’ve got private health insurance, the new financial year is a good time to review your policy and see if it meets your needs and budget.

Reviewing the costs and benefits of private health could also be useful for those who don’t have it.

That’s because the government financially penalises Australians for not having private health insurance if they earn above a certain income.

Here’s what you need to know.

Penalties for not insuring

The federal government has been pushing people to get private health insurance for years using two measures.

The first is the Medicare levy surcharge. This hits people with annual incomes above $90,000 ($180,000 for couples) with a surcharge on top of the 2 per cent Medicare levy.

Depending on what they earn, Australians can be charged up to 1.5 per cent of their taxable income for failing to take out private health insurance – as outlined by the table below.

The second policy the government uses to nudge more people to take up private health cover is lifetime health cover loading.

Under this measure, Australians who fail to sign up to private health before their 31st birthday are charged an extra 2 per cent on premiums for each year that they remain uninsured after that age whenever they eventually sign up.

That means that if you signed up to private health at 40, you would be paying 20 per cent more in premiums than if you had joined up at 30.

The most you can be penalised is 70 per cent extra, but if you join late and stay insured for 10 years the penalty disappears.

What level of cover do I need?

This is the big question of private health cover and you need to think hard about your individual circumstances.

Health insurers are required to offer four policy levels – basic, bronze, silver and gold – after the government passed reforms in 2019 that helped ensure consumers could compare like-for-like offers across different companies.

If you’re just trying to avoid the government penalties for not joining, it might be best to sign up for basic cover.

Finder health insurance expert Tim Bennett recommends spending a bit more than that though, as basic policies won’t offer much for your money.

“I’d generally recommend that people join up to a basics plus, or a bronze policy, because for just a few extra dollars you get a lot more coverage,” Mr Bennett said.

Australians signing up for the first time should make sure they are covered for all the treatments they might need, he added.

And if you are reviewing your cover, then you should think about whether your circumstances have changed.

“Sometimes that could mean increasing coverage to include new things you are worried about as you grow older,” Mr Bennett said.

It could also mean decreasing your cover as your responsibilities change. For example, perhaps your children have grown up and you are no longer responsible for their health care.

Or perhaps you plan to have no more children and can therefore cancel your pregnancy cover.

Extras are extra

Australians who are taking out a policy should first consider what level of hospital cover they might need.

Higher-cost silver and gold-level policies will cover you for more procedures in private hospitals.

But basic and bronze-level policies will cover you for much less – typically excluding joint reconstruction, hernias, appendectomies and dental surgery.

For services provided by non-doctor health care specialists, you will have to pay for extras cover. These include things like chiropractic, physiotherapy and dental care.

There are many levels of extras cover, so look closely at what an insurer will include in different extras levels, how much they cost, and how much of those services you can claim for every year.

Private health cover costs have been growing much more quickly than wages in recent years so the burden is increasingly heavy for many Australians.

Average monthly costs for hospital cover range from $86 and $193 per month – and extras add between $32 and $116 per month on top of that.

You’ll get by without it

Australia has a world-class health system and just because you don’t have private cover doesn’t mean you won’t be treated.

But you will likely have to wait longer for treatment.

“Private health cover is an alternative to Medicare,” Mr Bennett said.

“Pretty much anything covered by a hospital policy that you would need done medically can be done in the public system under Medicare.

“You won’t get to choose your own doctor and you will have to use a public hospital, but it will be fine.”

Another thing to remember is that if you have private health cover, you can change insurers and retain the coverage you have.

Even waiting periods will be transferred to your new insurer if you decide to switch.

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