Private health insurance: Should you have it, and what are the benefits?

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Everything you need to know to understand Australia's private health insurance system, personalised for you.

Are you wondering whether you should sign up for private health insurance? Or questioning whether it's worth the expense?

We can't make up your mind for you — but these three case studies can help you understand the decision and exactly what's at stake.

Hey, you're missing out... There's a fully personalised, interactive version of this article that allows you to find out exactly what the private health insurance system means for you. Tell us a little about yourself, and we'll explain what private health would cost you — and what it offers you. Check it out now.

The young single

First, let's look at the example of a young single person earning a taxable income of $70,000.

Let's assume they turned 31 in February this year and are thinking about getting private health insurance because they heard "you need to get it when you turn 31".

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If our young single did not take out hospital cover by July 1, they would pay an extra 2 per cent on any premium they take out in this financial year.

And they would pay another 2 per cent for each year of delay beyond that — for another 10 years.

This is what's called the Lifetime Health Cover loading.

It kicks in after you turn 31, and means costs will go up by 2 per cent for every year you delay taking out hospital insurance, up to a maximum of 70 per cent.

The chart below shows what happens if our young single delays taking out hospital insurance by one, five and 10 years, compared to not delaying.

By delaying 10 years, they save $14,510 on hospital insurance over the next 20 years.

Of course, this saving means they only have hospital cover for half of that period — and needs to be seen in the context of their health and their attitude to risk.

They also need to consider how they might be affected by the Medicare Levy Surcharge.

In a bid to reduce pressure on the public hospital system, the Government aims to increase the number of people with private health insurance.

To do this, they charge the Medicare Levy Surcharge (MLS) on taxpayers who don't have private hospital cover, based on their income.

In our case study, the young single does not have to pay the MLS now because they are under the income threshold for singles.

But they would need to weigh up the savings of delaying cover against the cost of the levy, which would depend on their income over that 20-year time period.

A common operation for a 31-year-old man is a knee reconstruction, with a median waiting time in the public hospital system of 11 weeks. According to Medibank, the equal largest health insurer in Australia, that operation costs $8,400 with average out-of-pocket costs of $420. A common operation for a 31-year-old woman is a laparoscopy, a procedure to look at the abdomen. It has a median waiting time in the public system of seven weeks. According to Medibank, that operation costs $5,100 with average out-of-pocket costs of $500.

Keep in mind, throughout this article, we are talking only about the "hospital" part of private health insurance. The government policies on health insurance don't affect the other part of private health insurance — the "extras" that cover things like buying glasses and having physiotherapy and dental work.

The family

Next, let's consider a 38-year-old woman and 40-year-old man with two children aged two and four. They have top-level family cover.

They have a combined taxable income of $260,000, which for the purposes of calculating the MLS, goes down to $258,500 with their second child

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This puts them in the second top income tier and their Medicare Levy is 1.25 per cent of their taxable income, or $3,231.

That's a lot more than they would pay on average for basic family hospital cover ($2,715) but less than the top hospital cover ($3,747) they already have.

The most common hospital insurance claims for children are to remove tonsils or adenoids, or to insert grommets to relieve ear infections. The waiting times in the public system for these operations are 13 weeks and 24 weeks, respectively.

This family's Private Health Insurance Rebate of 8.471 per cent brings their premiums down to $2,485 for basic cover, $3,133 for medium cover and $3,430 for top cover.

If the couple is planning to have more children and they want the baby to be delivered in a private hospital, they will need to keep top cover.

They need to decide whether a small extra outlay is worth paying for that choice, and to avoid the levy.

The retirees

A retired couple, both 69 years old, have a taxable income of $60,000 a year.

They have both had private health insurance continuously since the Lifetime Health Cover loading was introduced in 2000, so they do not have any extra loading.

Their income puts them below the threshold to pay the Medicare Levy Surcharge and they have private health insurance but wonder whether it is worth keeping it.

For retirees, one of the most common claims on private hospital insurance is for knee replacements. The operation costs $22,700 with out-of-pocket costs of $520. The waiting time in the public hospital system is seven months.



Both being over 65, they are eligible for a Private Health Insurance Rebate of 29.651 per cent, bringing their premium for basic cover down to $1,830 and for top cover down to $2,630.

Around 54 per cent of people aged 69 have private hospital cover, one of the highest of any age group.

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Their age also puts them in one of the top user age groups for private hospital cover.

If the couple decided to have a break from hospital cover for three years or more, they would have to pay a 2 per cent loading when they re-joined, which goes up by 2 per cent for every additional year they are not covered.

About the data

Private health insurance premiums for budget, medium and top hospital cover, for singles, single-parent families, couples and families, were provided by financial comparison website Canstar and represent an average across all states.

Medicare Levy Surcharge, private health insurance rebate and Lifetime Health Cover loading calculations are based on policies detailed on the privatehealth.gov.au website.

Amounts saved or spent on hospital cover in the Lifetime Health Cover loading section are based on a 5 per cent increase in medium singles premiums per year, and actual increases in past years back to 2000.

Ambulance costs and cover are taken from state ambulance websites.

Public hospital waiting times are taken from the AIHW's Elective surgery waiting times 2016-17: Australian hospital statistics report and are 2014-15 data for "intended surgical procedures".

Top procedures covered by private health insurance are taken from Medibank Private 'People Like You' data and represent total fees for procedures and median out-of-pocket costs, derived from the most common claims in 2016.

Average private hospital benefit payments by age are taken from APRA's membership and benefits data, March 2018 quarter, and represent benefits paid as a proportion of the number of people insured for each age group.

Proportions of different age groups with private hospital cover are taken from APRA's Operations of private health insurers annual report 2016/17

Reasons for having and not having private health insurance is taken from the ABS report Health service usage and health related actions, Australia, 2014-15.

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Topics: health, health-insurance, health-policy, federal-government, australia