Balancing the cost of living and private health cover
There’s no getting away from the fact that we are currently experiencing a cost-of-living crisis in Australia – and indeed around the world. As such, households are having to re-evaluate every aspect of their budget, including whether private health insurance is still worth the cost.
While our public healthcare system, Medicare, can still give you the essential medical care you need, private health insurance is the only way to get complete cover and access to numerous benefits. But when every dollar matters, some Australians are starting to wonder if private health insurance is still worth it.
For most of us, the answer will still be “yes”, but it will all come down to your personal circumstances, your current financial situation and your ongoing healthcare needs. Here’s a closer look at how private health insurance works and whether it makes financial sense to keep or cancel your policy during tough economic times.
The basics of private health insurance in Australia
Having a universal healthcare system means citizens and permanent residents get free or low-cost healthcare for the essentials. Medicare covers services like doctors’ visits, public hospital treatment and some prescription medications. But it has its limitations, including long waiting times for elective surgeries and limited cover for dental, optical and physiotherapy.
Private health insurance fills these gaps through:
- Hospital cover: You can be treated as a private patient, choose your doctor or specialist and undergo treatment in private hospitals.
- Extras cover: Helps with costs for services like dental, physiotherapy, optical and chiro, which Medicare doesn’t cover.
- Combined cover: Insurance packages including both hospital and extras cover.
Why private health insurance might be worth it
1. Avoid public hospital waiting lists
Arguably the biggest advantage is the reduced waiting times for elective surgeries and non-urgent treatments. While Medicare will still get you in for emergency care, less-critical procedures can result in months – or even years – of waiting. With private hospital cover, you can get these procedures done faster, potentially saving you from discomfort and improving your quality of life.
2. Greater control over your healthcare choices
Private health insurance lets you choose your doctor, your hospital and even the timing of your treatment. Having this much control is especially appealing for surgeries or maternity care, where continuity with a trusted specialist is priceless.
3. Financial incentives
The government encourages Australians to take out private health insurance through a few different financial incentives and penalties:
- Medicare levy surcharge (MLS): High-income earners (singles earning over $97,000 or families earning over $194,000) without private hospital cover will pay an extra tax of 1% to 1.5% of their income. But if you have even the most basic private hospital cover, you’ll avoid the surcharge.
- Lifetime Health Cover (LHC) loading: If you don’t take out hospital cover by 1 July following your 31st birthday, you’ll be slapped with a 2% premium hike for every year you delay, up to a maximum of 70%. And the loading lasts for 10 years even after you eventually do take out private health cover.
- Private health insurance rebate: The government offers a rebate of between 8.202% and 32.812% on premiums, depending on your age and income tier.
The challenges of affording private health insurance
1. Rising premiums
Private health insurance premiums tend to increase every year (on 1 April), with the average rise outpacing inflation in many years. While some insurers delayed increases during the COVID-19 pandemic, premiums are climbing yet again and adding even more strain on household budgets.
2. Out-of-pocket expenses
Having private health insurance doesn’t mean all your medical expenses are covered. You’ll still have to deal with:
- Excess fees: A predetermined amount you agree to pay when admitted to the hospital.
- Gap fees: The difference between what your insurer covers and what the provider charges. This can apply to hospital stays, surgeries, extras like dental care and more.
3. Underutilised benefits
Most people won’t use all the services included in their policy, especially with extras cover. If you don’t regularly visit the optometrist or physiotherapist, for example, then you might end up paying for benefits you don’t actually need.
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”
When private health insurance is worth it
The value of private health insurance depends on your personal circumstances, so here’s when it might be worth keeping or taking out a policy:
- High-income earners: If your income exceeds $97,000 (or $194,000 for families), having private hospital cover means you won’t be slugged with the MLS, which could be higher than the cost of a basic policy.
- Growing families: Private health insurance is worth it for couples planning to have kids. It covers private maternity care, including the ability to choose your obstetrician and use private hospital facilities. Just bear in mind there’s a 12-month waiting period before you can claim benefits.
- Chronic conditions or ongoing health needs: If you have a chronic health condition that requires regular treatment or specialist care, private health insurance can help you avoid long public waiting lists and give you continuity of care.
- Preparing for the future: While you might not need extensive cover in your 20s or 30s, taking out insurance early can help you avoid LHC loading and lock in lower premiums for the future.
Strategies to reduce the cost of your private health insurance
If private health insurance feels like a financial stretch, there are ways to make it more affordable.
First, make sure you’re regularly reviewing your policy so that it’s still meeting your needs. You might save money by:
- Dropping extras you don’t use.
- Choosing a higher excess to lower your premiums.
- Switching to a basic hospital cover if you’re only looking to avoid the MLS.
Also use comparison tools to shop around for the best value. Insurers sometimes offer discounts or perks for new customers, so it’s worth comparing at least once a year. Finally, think about paying your premiums annually rather than monthly to lock in rates before the year increases.
When to reconsider private health insurance
If you’re struggling with the cost of living and don’t fall into the categories where private health insurance gives you clear value, it might make sense to reconsider your policy. But before cancelling, weigh up the potential consequences:
- Losing MLS exemption: If you’re a high-income earner, cancelling your hospital cover will mean higher tax obligations.
- Re-serving waiting periods: If you cancel and later decide to rejoin, you’ll need to re-serve waiting periods for a lot of different services.
- Facing LHC loading: Delaying hospital cover past the age of 31 can lead to higher premiums later in life, making it more expensive to get insured when you need it most.
Conclusion
So, is private health insurance worth it?
Unfortunately, it’s a question that doesn’t have a one-size-fits-all answer. It will depend on your income, healthcare needs, current life stage, the size of your family and more. For some, the peace of mind and speedier access to care makes private health insurance invaluable. For others, the costs simply outweigh the benefits.
If you’re unsure, take the time to compare private health insurance policies with Fair Health Care Alliance. We take the best approach to help you find balance between managing the rising cost of living and finding a policy that will support your ongoing health and financial wellbeing.
