Is hospital cover health insurance worth it in 2024?

Before deciding whether private health insurance for hospital cover is worth it for you, it's important for you to understand the different tiers of coverage.
doctor talking with patient recovering in hospital

The Short Version

Key Questions: Customers frequently ask about the best health insurance fund for hospital cover and what is actually covered, particularly regarding out-of-pocket expenses during hospital stays.

Rising Costs: The cost of medical care has increased significantly due to advances in medical technology, an aging population, and higher demand, leading to higher premiums.

Coverage Tiers: Australian health insurance policies were standardized in 2017, making it easier to compare coverage across tiers (Basic to Gold), but out-of-pocket costs can still arise if medical professionals charge above the Medicare Scheduled Fee.

GAP Cover Scheme: Your health funds medical GAP cover scheme helps bridge the cost gap between Medicare fees and actual charges, with “No Gap” and “Known Gap” options reducing financial burdens. The health insurer you choose can change the outcome here. 

Hospital Contracts: Confirming that a chosen hospital is contracted with your health fund is crucial, as changes in contracts can lead to significant out-of-pocket costs for accommodation and associated fees.

Get Advice: Speak to a helpful Fair Health Care Alliance health adviser so we help you find the right policy for your unique health needs at the lowest price.

When it comes to navigating the intricate world of private health insurance in Australia, two questions consistently pop up, sparking both curiosity and concern from customers seeking coverage: “Who is the best fund to go with?” and “What is actually covered, or, will I be out of pocket when I need to use my insurance?” These questions, while complex, are crucial to understand when evaluating your options, echoing in the minds of potential customers and seasoned policyholders alike.

As someone who has been immersed in the health insurance industry for nearly two decades, I can attest that these two inquiries have become a familiar daily conversation with those exploring private health cover for the first time, as well as with existing members who find themselves disheartened by their current policies limitations or lack of clarity regarding the actual coverage of what their insurance covers.


Rising Medical Costs Drive Health Insurance Prices

rising medical costs australia

Over the years, the private health insurance landscape has undergone a dramatic transformation. The escalating costs of medical care, which can be attributed to factors such as advances in medical technology, an aging population, and increased demand for healthcare services, have increased significantly, casting a long shadow, while Medicare’s contribution to the overall cost of hospital surgeries has seemingly diminished. Health insurance premiums were also at an all-time low and seemed far more manageable—a distant memory of when affordability and value reigned supreme.

Unfortunately, due to the increasing cost of medical care within and beyond the hospital walls, health insurers have been forced to raise their premiums, an often necessary but understandably unpopular measure, especially in today’s current financial climate and cost of living pressures. 

When it comes to our health insurance, we all share a common desire – to be assured that we are adequately covered when we need to seek medical care, especially during a hospital stay, without extreme out-of-pocket expenses. In an ideal world, if we asked, “What do you want from your health insurance,” the typical response would be “, I want to know that I am fully covered when I need to go to the hospital, with minimal out-of-pocket costs.”  

However, the harsh reality is that for most of us, financial limitations and obligations, such as providing for children and managing other expenses, force us to compromise on the level of health cover we can afford.

Over the years, in countless conversations with customers, I have witnessed firsthand the difficult choices they have had to make.  Frequently, individuals find themselves in the unenviable position of removing crucial elements from their health insurance coverage to alleviate the financial strain.  

Today’s cost-of-living crisis is further worsened due to other external pressures families face. The financial suffering that is still felt by those significantly impacted during COVID lockdown years is just one example. Many customers are forced to increase their hospital excess to levels that stretch their budgets to afford coverage and maintain peace of mind.

It’s a delicate balancing act, weighing the desire for comprehensive coverage against the realities of financial constraints. However, by making informed decisions about your private health insurance, you can navigate this act with confidence.  Despite the challenges, the underlying motivation remains the same – to have the security of knowing that when faced with a medical emergency or the need for hospital care, the financial burden will be manageable, and they can focus on their recovery without the added stress of mounting medical bills.


Different Levels of Private Hospital Cover Explained

What is covered when using your health insurance in Australia?  The level of coverage ultimately depends on the tier of hospital cover you have chosen, ranging from Basic to Gold, and the specific medical categories included in your policy. 

To simplify the process of comparing and selecting the appropriate level of healthcare for families, the Australian Government took a proactive step in 2017 by standardising health insurance policies across the industry. This standardisation ensures that all policies within a tier offer the same minimum level of coverage, making it easier for consumers to understand what they are getting and compare different policies. It also helps to prevent insurers from offering policies with limited coverage at high prices, promoting fairness and transparency in the industry.

However, a common misconception persists—the belief that having a Gold-level policy guarantees significantly lower out-of-pocket expenses for hospital stays compared to being covered for the same Medicare-approved procedure under a Bronze tier. This assumption is categorically incorrect.

The simple fact is that when you are admitted to a hospital, regardless of your level of coverage, you are entitled to 100% coverage of the Medicare Scheduled Fee for each medical procedure being performed. Medicare, a government-funded healthcare system, contributes 75% of this Scheduled Fee, while your private health fund tops up the remaining 25%, ensuring you are fully covered according to the Government’s predetermined rates.

Portability

Don’t re-serve waiting periods when you switch to a new health fund or policy

“John was immediately covered for a hip replacement in private hospital because he had already served his waiting periods for joint replacements on his old policy”


Medical Gap Cover Can Reduce Your Hospital Out-of-pocket Costs

However, the unfortunate reality is that any surgeon or medical professional you choose to engage with is not obligated to charge the Medicare Scheduled Fee for an operation or hospital treatment. This is where a significant source of confusion and frustration arises for many health insurance members. Medical professionals have autonomy and can charge what they deem to be reasonable based on their expenses, expertise, and the services provided to you. For instance, a specialist with more experience or a higher cost of running their practice may charge more than the Medicare Scheduled Fee, leading to a gap in your coverage.

At the heart of the health insurance issue, however, lies the fact that Medicare Scheduled Fees have not kept up with the rising medical expenses faced by hospitals and doctors when performing procedures. This disconnect can result in substantial out-of-pocket costs for patients, even those with top-tier Gold-level coverage, as the gap between the Scheduled Fee and the actual charges imposed by medical professionals can be significant and often very unexpected and unwelcome for health insurance members.

To help mitigate the financial pain that patients can face, private health insurers have introduced what is known as the medical GAP cover scheme. This program was introduced to bridge the gap between the Medicare Scheduled Fee and what your medical practitioner chooses to charge you for their services. In other words, it helps to cover the difference between the fee set by the government and the actual fee charged by the doctor, providing some relief from what could be large out of pocket costs.

“No Gap” vs“Known Gap” Cover and Private Hospital Surgery

The medical GAP cover scheme has two distinct forms: the “No Gap” and the “Known Gap” options. The “No Gap” approach offers the enticing prospect of zero out-of-pocket expenses for the patient, and the more common “Known Gap” scheme helps to significantly reduce the financial burden, even if a small out-of-pocket is still to be paid.

Over my years in the industry, I’ve observed that most health funds tend to operate under the “Known Gap” model, though a few funds still use the “No Gap” alternative. The critical factor is the medical practitioner’s willingness to participate in the scheme for each Medicare-covered procedure, including anesthesia.

When the practitioner does choose to participate in your chosen funds gap scheme, there may still be some out-of-pocket costs for the patient. However, these out-of-pocket costs are significantly reduced and are usually much lower than they would have been without the program. It’s a win-win situation, where patients can access the care they need without facing the full brunt of exorbitant medical fees.

Higher Tier Private Hospital Cover Doesn’t Mean Lower Hospital Bills

Customers must understand that while higher tiers of hospital cover may provide more comprehensive coverage for a broader range of medical categories, the potential for out-of-pocket expenses remains a reality, even for those with the most comprehensive policies. 

One key aspect of hospital stays is accommodation fees. If the medical category you are hospitalised for is fully covered and not a restricted or excluded item, your insurer will typically cover these costs, provided you receive treatment at a private hospital contracted with your health fund.

Most major insurance providers have an extensive network of partner private hospitals across Australia. However, I can not emphasise enough that these contracts are subject to change at any time, so it is not always a given that your chosen hospital is in partnership with your fund.  There’s always the possibility that your particular health fund may not have an agreement in place with a specific hospital when you need to visit. Not confirming this before a hospital admission can have serious financial consequences. If your chosen hospital is not part of your insurer’s contracted network, you could be liable for the entire accommodation bill and any associated theatre costs. This can quickly add up to thousands of dollars in unexpected out-of-pocket expenses.  A financial burden that no one wants to shoulder, especially when they’re already dealing with the stress of a medical procedure.

Conclusion

In conclusion, deciding to invest in private hospital insurance is complex, with significant advantages and important considerations to weigh carefully. For those seeking greater control, flexibility, and timely access to healthcare, private insurance can be a fantastic asset, allowing you and your family to maintain complete authority over the “who, what, when and where” of your medical treatment while avoiding the frustrating delays and lengthy waiting lists that often plague the public healthcare system.  However, it is crucial to understand that private hospital cover does not come without a price tag, and additional out-of-pocket medical expenses are usually highly likely.  This all must be factored into your decision-making process. To help mitigate these costs, I advise my clients to proactively engage with their health fund before any planned hospital stay, so that the insurer can work collaboratively with you to minimise the financial burden. 

Ultimately, private hospital insurance can be a worthwhile investment. Still, it requires a thorough assessment of your unique healthcare needs, which can be done with a comparison service, budget allowances, and priorities to ensure it is the right choice for you and your family.

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