Should you self-fund your own health care?
With the rising cost of living and health insurance premiums that go up every year, there are plenty of everyday Australians who are questioning the value of keeping their private health insurance. For some, the solution is self-funded healthcare – where they set aside money to pay for medical procedures as needed instead of paying monthly premiums.
But is it really cheaper to not have health insurance and cover all your medical expenses out-of-pocket? Let’s dive into the pros and cons of self-funding your healthcare versus protecting yourself with private health insurance.
What is self-funded healthcare?
As the name suggests, self-funded healthcare is simply the act of setting aside funds in a dedicated savings account to cover all your future medical expenses, rather than paying regular health insurance premiums.
It’s not for everyone. In fact, it requires plenty of discipline and good financial planning. However, if you’re committed to the idea you could potentially save money if you have very few health issues and don’t anticipate having to pay for large medical bills anytime soon.
Pros of self-funding
- Cost savings: Without monthly premiums, you might save money if you rarely need medical care.
- Control over funds: The money saved remains under your control and can accrue interest over time.
- No unused cover: You won’t pay for insured services that you never use anyway.
Cons of self-funding
- Risk of huge bills: Unexpected medical emergencies can quickly deplete your savings – or even run you into the red.
- No private hospital cover: Without insurance, you will face longer wait times in the public system for certain procedures.
- Zero extras: Services like dental, optical and physiotherapy would be entirely out-of-pocket expenses.
Case study: Paying for cataract surgery out-of-pocket
Cataract surgery is one of the most common elective surgeries in Australia, especially among older adults. Public hospital wait times for cataract surgery can be huge, sometimes exceeding a year depending on where you are around the country. At the same time, private health insurers tend to only cover this procedure under their top-tier policies, which can be expensive.
Cost comparison
- Private health insurance:
- Annual premiums for a top-level Gold policy: Approximately $4,000.
- Out-of-pocket costs for surgery (including excess): Around $1,250.
- Total annual cost: $5,250.
- Self-funded healthcare:
- Average cost of cataract surgery without insurance: Approximately $3,910 after Medicare rebates.
- Total cost: $3,910.
In this scenario, self-funding the procedure is cheaper than maintaining a high-level insurance policy for a year and paying the associated out-of-pocket costs. However, that’s assuming you wouldn’t use your private health cover for anything else, which is unlikely to be the case for most Australians.
So, what situations are there where self-funding might actually be cheaper?
1. If you have minimal health needs
If you’re young, healthy and rarely visit the doctor, the cumulative cost of premiums might outweigh your medical expenses. Setting aside money for the occasional check-up or minor treatments could be more economical.
2. If you only need one-off procedures
For certain elective surgeries with predictable costs, like cataract surgery or minor orthopaedic procedures, self-funding might save you money, especially if you have to pay high premiums for a Silver or Gold policy.
3. When you are happy with the public system
Medicare covers emergency treatments in public hospitals. If you’re comfortable relying on the public system for emergencies and plan to self-fund elective procedures, this could be a financially viable strategy.
Top risks and other considerations
- Unexpected medical emergencies: Serious accidents or sudden illnesses can result in substantial medical bills. Without insurance, you will have to bear the burden of all the financial strain. For example, a private hospital stay for a complex surgery can cost tens of thousands of dollars, far exceeding what you might have saved without insurance.
- Public system wait times: Elective surgeries in the public system have long waiting lists. If you can’t afford to self-fund and don’t have insurance, you will likely have to deal with delays that could impact your quality of life.
- Lifetime Health Cover loading: If you don’t take out private hospital cover by July 1 following your 31st birthday, you will be stung with a Lifetime Health Cover (LHC) loading of 2% on your premiums for every year you stay uninsured, up to a maximum of 70%. This means that even if you do decide to take out insurance later, it will be much more expensive.
- Medicare Levy Surcharge: High-income earners without private hospital insurance are subject to the Medicare Levy Surcharge, which is an additional 1% to 1.5% tax on their income.
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”
Alternative strategies to reduce health insurance costs
Before making the big decision to drop your private health insurance entirely, consider a few alternatives:
1. Review and adjust your policy
- Downgrade cover: Choose a lower-tier policy that still covers the most essential services you need.
- Increase excess: Agree to a higher excess payment to lower your premiums.
- Remove extras: If you don’t use extras like dental or optical, change your combined hospital and extras cover to a hospital-only policy.
2. Shop around
Use online comparison tools to find the best deal for you. Insurers are highly competitive with their offers, so switching providers might save you money while you get to retain the necessary level of cover.
3. Consider a basic hospital policy
If avoiding the Medicare Levy Surcharge is your biggest concern, a basic hospital policy might be good enough for your current circumstances. It will give you private hospital cover for lower premiums while at the same time helping you dodge the surcharge – without the expense of a more comprehensive plan.
Case study: Self-funding for pregnancy and birth
Private maternity care includes benefits like choosing your obstetrician and enjoying private hospital amenities. However, private health insurance with maternity cover can be expensive and comes with a 12-month waiting period – so you need to plan ahead.
Cost comparison
- Private health insurance:
- Two years of premiums before giving birth (to cover waiting periods and pregnancy): Approximately $8,000.
- Out-of-pocket costs for your obstetrician and hospital fees: Varies widely, but usually runs into several thousands of dollars.
- Total estimated cost: $10,000–$15,000
- Self-funded healthcare:
- Paying for private maternity care without insurance: Between $8,250 and $12,000, depending on the type of birth and hospital.
- Total cost: Similar to or slightly higher than with insurance, but without paying premiums over time.
In this case, the cost difference is minimal, so it will depend on your circumstances and how willing you are to pay for private services without any insurance to cover you.
Is self-funding right for you?
Self-funding is a strategy that requires plenty of careful financial planning beforehand, as well as the ability to cover any unexpected costs as they arise. Think about the following before making a decision:
- Your current health status: Do you have any chronic conditions or a family history of health issues?
- Your financial stability: Can you comfortably set aside funds and handle large expenses without warning?
- Your risk tolerance: Are you willing to accept the potential financial risk of big
Conclusion
While it can be cheaper to not have health insurance in a few very specific situations, the big takeaway is that self-funded healthcare won’t be suitable for lots of Australians. What’s most important is that you weigh up the potential savings against the risks of unexpected medical expenses. For some, a hybrid approach (i.e. basic hospital cover to avoid tax penalties while self-funding extras) might be the best balance, while for others the cost of premiums will be well worth it for all the benefits and year-round protection.
Ready to find the right policy for your needs?
Compare and save on private health insurance with Fair Health Care Alliance today.
