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Health Insurance FAQ

Do I need Private Health Insurance?

If you’re unsure of how it all works, have a read of this article and we’ll get you up to scratch. About 45% of Australians have private health insurance and even then it can be confusing for the average Australian consumer. Private health insurance is a complex and perplexing industry, which is enough for a lot of people to put it in the ‘too hard basket’. So take a deep breath of relief knowing that you’re not the only one, and read on.


Medicare and the Public Health System

All Australian residents and citizens (and some eligible VISA holders) have access to our free, public healthcare system known as Medicare. Medicare gives us access to public hospitals for our personal medical needs and surgery’s, which is also known as an ‘in-patient’ service. Medicare also gives us access to a spectrum of ‘out-patient’ services such as visiting a GP, specialist or diagnostics (imaging, tests, pathology, etc.). Medicare is funded by all tax-payers in Australia; we all pitch in to afford our public health system through the Medicare Levy tax.

When someone who is entitled to full Medicare benefits goes to a public hospital for treatment, it is often completely cost-free with little or no out-of-pocket expenses. You are assigned a public doctor through a referral from your GP or, if an emergency, whoever might be on duty at the time. Public Hospital stays generally include accommodation in a shared room with other patients.

The public hospital system is also subject to availability and waiting lists. In short, some medical procedures or services have a waiting list before you can receive treatment. This is due to the heavy load of Australians using the public health system and our public hospitals. Some procedures can have waiting-list of up to 2 to 3 years! Another contributing factor is that Medicare uses a category system that prioritizes patients that require more immediate treatment, broken down into Category’s 1, 2 and 3. Category 1 is urgent, followed by 2 as being semi-urgent and 3 not so urgent (to put it simply). This logic behind this system is sound at first look, but it is far from perfect. Being in a lower risk category does not mean the patient is not in pain or discomfort, and being in an urgent category does not automatically remove all waiting lists. There are some high-demand procedures that even a Category 1 could have to wait for. This can cause an already stressful time in one’s life to be drawn out unnecessarily.


Public Vs Private

Private Hospitals are privately owned medical facilities not funded on a local, state or federal level, and Australia has over 600 Private Hospitals housing over 33,000 beds. One of the most attractive benefits of a Private Hospital stay is your own private room (some say the food is better too). On a more holistic and functional level, a major benefit of the private hospital system is that it takes pressure off the public system by freeing up public beds and doctors. A doctor or surgeon that performs in-patient services in a Private hospital is known as a Private Doctor.

Medicare does not cover the full cost for accommodation in a private hospital or for a private doctor’s fees for surgery. Simply put, you will incur very significant out-of-pocket costs for private medical treatment without any Private Hospital cover.

The public system also does not cover lifestyle health services such as Dental, Physiotherapy, Chiropractor or Osteopath, Remedial Massage, Podiatry, Glasses, and Contacts (Optical) plus a multitude more. These are the kind of services an Extras policy will cover. It can be said that private health insurance is a product that steps in where Medicare and the public health system ends. It’s not a case of one or the other, but more so that Medicare and private health insurance can complement and work in conjunction with each other.


Some Benefits of Health Insurance

There are a variety of reasons that someone may benefit from taking out a private health insurance policy:

  • the option to choose your own private doctor
  • the option to attend a private hospital or facility
  • avoid the public waiting lists for surgery
  • accommodation in a private room
  • extras cover for things like dental, optical, physio, etc.
  • ambulance cover
  • tax benefits: avoid the Medicare Levy Surcharge
  • avoid Lifetime Health Cover Loading penalties

Extras cover explained

Extras health insurance (also known as Ancillaries) covers you for a multitude of lifestyle and health services that generally don’t fall under Medicare. Considering it is covered by your policy, your health fund will contribute a set amount towards your out-of-pocket expenses related to the maintenance of your health and wellbeing.

What sort of thing does an Extras policy cover?

• General & Preventative Dental
• Major Dental
• Optical
• Physiotherapy (includes Exercise Physiology)
• Chiropractic & Osteopath
• Myotherapy
• Acupuncture
• Remedial Massage
• Non-PBS Pharmaceuticals
• Speech, Eye and Occupational Therapy
• Podiatry & Orthotics
• Medical Aids & Appliances
• Psychology
• Health Management programs
• Dietitian & Nutritionist
• Ambulance

How does Extras Cover work?

When looking at an Extras policy you will find that each service is broken down into an Annual Limit and a Rebate.
An extras Rebate is how much the fund will pay for the service or consultation when you make a claim, and the Annual Limit is a dollar figure cap of which a fund will stop paying out on a service each year. Example: each time you go to the Physiotherapist your health fund may contribute $40 of the consultation (rebate) until you reach a cap of $500 in Physio payouts total for that calendar or financial year (annual limit).

Do I need Extras health insurance?

You do not need to require all of the items in the list above to make good use of an extras policy. Just like with private hospital cover, Extras come in different levels of cover that include and exclude different things. A Basic Extras policy generally includes basic dental, optical and some therapies, whereas a Comprehensive Extras policy (also known as Top extras) can include the whole spread. Most funds also offer mid-range covers that can include any combination of services, there’s no universal yardstick when it comes to comparing health insurance funds.

No two extras policies or funds are the same, all offering different degrees of cover and payouts when you claim. This is why comparing health funds is so popular in Australia. Services such as Cut the Cost can help you identify what your extras needs are and then help you compare some health funds and match you to a policy that has great payouts for the services you will use, but at a low premium.

Private hospital cover explained

Let’s start with a very common scenario: you go to the GP for an ailment or medical issue and your doctor refers you to a specialist. You call the specialist and book a consultation and before you know it you’re sat in a consultation room being told you need surgery. It could as simple as a colonoscopy, or as complex as brain surgery. In fact, there are over 2,500 registered medical procedures with Medicare. You’re told that the public waiting list for the required procedure is approximately 3-6 months (or anything up to 2 years), unless, of course, you have the correct level of private health insurance and have served your waiting periods. If so, the procedure can be done straight away in a private hospital, more often than not with your own private room.

Some doctors and specialists will only perform surgery in a private hospital, therefore patients without the correct level of cover must either find another doctor or fork out thousands of dollars to have the procedure done without insurance.

Holding a private hospital cover policy can also cover you as a private patient in a public hospital. This should only ever really be required if the public hospital has private rooms (which is very rare), or if your choice of private doctor is willing to do the surgery in a public bed. However, this does not help you avoid public waiting lists for the procedure.

Out of Pocket Expenses

Even with health insurance private surgery is rarely cost-free. The most common out-of-pocket expenses related to a stint in a private hospital is your excess, the doctors’ gap and sometimes some other medical services related to your stay.

Private Hospital cover almost always comes with some excess options. An excess on your health insurance is very similar to an excess on car insurance, being an agreed amount you will have to pay if you make a claim. Having an excess on your hospital cover lowers the premiums – the higher the excess, the lower the cost. The most common excess options that a health fund offers on their policies are a $500 excess, $250 excess and Nil. (Please note: this is generalized information and may differ from product to product between funds).

Your doctor and anesthetist can also charge a gap for the procedure. Health insurance covers you to 100% of the Medicare Benefit Schedule (MBS) fee, however,  your private doctors can charge whatever they like above this fee which you will need to pay. It’s important to discuss any gaps with your doctor/s before going ahead with any procedures. You can also ask them for a Financial Consent Form to sign before booking in any surgery to help avoid any unwanted surprise doctor’s bills.

Finally, some other medical services as part of your private hospital stay may incur out of pocket expenses including (but not limited to) pathology tests, pharmaceuticals, imaging, diagnostics and/or Emergency room fees. It can all depend on which fund you are with and which hospital you go to. Nothing is set in stone, so the absolute best thing can do is ask questions to your doctor and health fund before the surgery is done.

Levels of hospital cover

Private Hospital cover comes in different levels of cover which all health funds must categorize into Basic, Bronze, Bronze Plus, Silver, Silver Plus and Gold. The difference between these levels of cover is whether-or-not a category of procedures are included or excluded from your cover. It’s really important you ensure that your policy includes the procedures you want or need cover for. Here is a list of the clinical categories that a private hospital insurance policy may include or exclude:

  • Accidents
  • Back, neck & spine
  • Blood
  • Bone, joints & muscles
  • Brain & nervous system
  • Breast surgery*
  • Cataract surgery
  • Chemotherapy, radiotherapy & immunotherapy for cancer
  • Cochlear hearing devices/implants
  • Dental surgery
  • Diabetes management (excl. prosthesis/implants)
  • Dialysis/Chronic renal failure
  • Ear, nose & throat
  • Elective cosmetic surgery
  • Eye (excl. Cataracts)
  • Gastrointestinal endoscopy
  • Gynaecology
  • Heart & vascular
  • Hernia & appendix
  • Insulin pumps
  • IVF/Assisted reproductive services
  • Joint reconstructions
  • Joint replacements
  • Kidney & bladder
  • Lung & Chest
  • Male reproductive system
  • Miscarriage & termination of pregnancy
  • Pain management
  • Pain management w/ device
  • Palliative care
  • Plastic & reconstructive surgery*
  • Podiatric surgery by an accredited podiatrist
  • Pregnancy & birth
  • Psychiatric services
  • Rehabilitation
  • Skin
  • Sleep studies
  • Tonsils, grommets, & adenoids

*Medically necessary

Benefits of private hospital cover

A Private Hospital cover policy can benefit you by:

1) covering you for accommodation and other associated medical costs as a private patient in a private or public hospital;
2) allowing you to choose your own private doctor or specialist;
3) has tax benefits if you have a taxable income of above $90,000 per annum as a single person or $180,000 as a couple/family; or
4) help you avoid accruing Lifetime Health Cover Loading (LHC) if you are 31 years old or above.

For all the reasons above, it is strongly recommended you make good use of an experienced health insurance adviser to assist you in your health fund comparison. You can call the Fair Health Care Alliance on 1300 955 691 for some hands-on help comparing hospital cover health insurance policies.

Health insurance & tax (the Medicare Levy Surcharge)

Summary

All Australian’s contribute 1% of their income to support Medicare and our public health system through a tax called the Medicare Levy. If you earn over the income thresholds listed below you will have to pay an additional tax for the financial year called the Medicare Levy Surcharge. You can avoid this additional tax surcharge if you hold at least a private hospital cover policy during the same financial year. For every day you have private hospital cover, you avoid the Medicare Levy Surcharge for that day come tax time.

What is the Medicare Levy Surcharge?

In private health insurance, the Government giveth and the Government taketh away. With one hand they give us the health insurance Government Rebate as a contribution towards our health insurance premiums and yet, in the other hand, they may tax some higher-earning Australians an additional 1 to 1.5% of their taxable income in the form of the Medicare Levy Surcharge (MLS). This is not to be mistaken with the Medicare Levy which all Australian’s must pay, after all, it supports our wonderful (albeit flawed) public health care system. The Medicare Levy Surcharge is an additional tax on top of the Medicare Levy. This was done so as to encourage more people to take out private hospital cover if they are in an income bracket that should be able to afford it, or if not, to contribute more towards Medicare than low-income earners. The end result is less pressure on our public health system because more Australian’s have the option to use a private doctor and private hospital accommodation for their medical treatments.

MLS and Income Tiers

Use this table to first find which income tier you’re in based on your single or combined gross annual income, and then use the table at the bottom to find which surcharge you might have to pay.

Status ► Single Couple Single Parent/Family
Base Tier $90,000 or below $180,000 or below $180,000 or below
Tier 1 Above $90,000 Above $180,000 Above $180,000
Tier 2 Above $105,000 Above $210,000 Above $210,000
Tier 3 Above $140,000 Above $280,000 Above $280,000

(Disclaimer! this pertains to your total taxable income from all sources. If you are unsure, please consult your accountant or financial adviser before purchasing any health insurance.)

Medicare Levy Surcharge %

Base Tier Tier 1 Tier 2 Tier 3
0% 1.0% 1.25% 1.5%

This tax can be completely or partially avoided for the financial year only by holding at least a Basic private hospital cover policy.

 

Things You Need to Know

• If you do not earn above these listed income thresholds you will not have to pay the additional surcharge and will not need to take out a private hospital cover policy for tax purposes. Despite this, many Australians who earn below these thresholds still hold a private hospital cover policy so that they can avoid public waiting lists, choose their own private doctor and opt for a private room in a private hospital for any medical, in-patient procedures.

• You may have only held private hospital cover for a portion of the financial year or perhaps it may have lapsed for a period during the year. The financial year is broken down into 365 days; for every day you held private hospital cover you will avoid the MLS for those days.

• Your health fund will send you a tax statement at the end of the financial year to give to your accountant or to provide to the Australian Tax Office. If you submit your own tax returns and are unsure about how the Medicare Levy Surcharge may have affected you this year, please seek financial advice.

Government rebate for health insurance

Summary

The Australian Government contributes towards your private health insurance costs, which is means-tested based on your single or household income. The rebate can be deducted from your premiums or you can claim it as a lump sum at tax time. Most health funds advertise their policy prices with the full rebate included so it is very important you make sure your rebate is correct before you apply.

How Does the Government Rebate Work?

The Government contributes towards our private health insurance costs in the form of a rebate. Most Australians simply pay their health insurance premiums with the rebate already subtracted from the cost, however, there are some people who opt to pay the full un-rebated amount and then claim the rebate back in full at tax time – either way, you end up paying the same amount for the policy.

The rebate on health insurance is increased when you turn 65 and then again when you turn 70. This helps retirees and pensioners afford top hospital cover at a time in life when it may be needed most. The Government Rebate is also means tested meaning that if you earn above a particular amount of taxable income in any financial year then the rebate will be reduced or not available to you at all. The following table describes the income threshold tiers for a Single, Couple, Single Parent and Family in relation to which government rebate you are entitled to:

Rebate Tiers

Use this table to find which rebate tier you are entitled to based on your single or combined annual income bracket.

Status ► Single Couple Single Parent/Family
Base Tier $90,000 or below $180,000 or below $180,000 or below
Tier 1 Above $90,000 Above $180,000 Above $180,000
Tier 2 Above $105,000 Above $210,000 Above $210,000
Tier 3 Above $140,000 Above $280,000 Above $280,000

 

Now use this table to see which health insurance rebate % you will receive based on your age bracket:

Age ▼ Base Tier Tier 1 Tier 2 Tier 3
Under 65 25.059% 16.706% 8.352% No Rebate
65-69 29.236% 20.883% 12.529% No Rebate
70+ 33.413% 25.059% 16.706% No Rebate

 

Things You Need To Know

• The income thresholds described in the above table are based on your total taxable income for the current financial year. If you are unsure about what this is you may need to ask your accountant.

• If you claim the incorrect rebate on your health insurance premiums it will simply be adjusted on your tax return. For example, if you claimed a Base Tier rebate for the year and ended up earning more than expected and end up falling into Tier 1, then the difference is taken from your tax return (and vice versa).

• At the end of the financial year your private health fund will send you a letter describing your total paid premiums for the financial year including any rebated amounts. This is to be provided to your accountant. If you complete your own tax returns and are unsure about your private health insurance rebate, please seek financial advice.

• The income threshold for single parents and families is increased by $1,500 per child after the first child.

• De-Facto relationships are considered as a Couple/Family relationship in regard to the rebate.

Lifetime Healthcover Loading (LHC)

Lifetime Health Cover loading (LHC) is a Government imposed penalty on private health insurance premiums that seeks to penalize people who wait to take out private hospital cover until later in life. It is very important to know if you have any LHC before signing up for a policy (especially online) because it will affect the price – sometimes considerably. LHC can be so utterly complex that it is highly recommended that you speak to an experienced health insurance adviser to help you calculate any loading before comparing health insurance.

How Does LHC Work?

Strap yourself in. If mathematics or problem solving ain’t your jam, it’s probably best you skip all this and call us for an accurate health insurance quote. Read on if you’re interested though.

On July 1st, 2000 the Australian government introduced Lifetime Health Cover loading to encourage people to take out private hospital cover earlier in life. LHC potentially increases the cost of private hospital cover for anyone over the age of 30 who have not held private hospital cover. LHC only affects the cost of private hospital cover, the cost for extras/ancillaries are not affected whatsoever.

The Lifetime Health Cover loading penalty is a 2% increase on premiums for every year over the age of 30 that someone has not held an eligible health insurance policy (or something equivalent to). Uninsured Australian citizens and residents receive their first 2% age penalty at age 31. It then accumulates at 2% for every year not covered thereafter. If you’re over 31 and you’ve never held private hospital cover, one simple way to estimate your LHC penalty is to use the following formula:

(Current Age – 30 years) x 2 = LHC% (maximum 70%)

For example, a 40-year-old would have a 20% LHC loading if they had never previously held hospital cover in Australia. This is because the person was not covered for 10 years after the age of 30. 10 years at 2% per year is 20% LHC. In this example, the cost of a private hospital cover for this person would be 20% more expensive than the base price of the policy.

Having fun yet? We wish it were as simple as that… read on.

Things That Will Affect Your Loading

There are a lot of ins-and-outs with Lifetime Health Cover loading that need to be taken into consideration before estimating if you have LHC and what your loading percentage might be. This is why comparing health insurance can be so unbelievably perplexing for most Australians and why we offer to help one-on-one.

1.  LHC caps at 70%.
Once you hit 65 years of age without ever having an eligible hospital cover you will have incurred a maximum 70% LHC penalty. This is where it stops accumulating at 2% per year. No matter how old you are past 65 years your LHC would be capped at 70%.

2. LHC stops accumulating the moment you take out private hospital cover.
Your loading % will lock-in when you insure yourself with an eligible policy. It will not go up by another 2% every year as long as you are holding cover.

3. LHC is removed after 10 years of continuous cover.
Once you hit 10 years of continuous hospital cover (even if you switched between different health funds during that time) your Lifetime Health Cover loading will be reset back to 0%. Once accrued, LHC can only be removed with tenure.

4. Each 2% of LHC is added on July 1st of each year, not on your birthday.
This is one of the reasons there is a lot of health funds and health insurance comparison services advertising about “taking out health insurance by June 30” and similar urgent messages around the middle of the year. Once it hits midnight on the evening of June 30, all bets are off.

5. People born before July 1st, 1934 are exempt from ever having LHC penalties.
Enough said. If you’re born before this date you are completely exempt.

6. Previously lapsed hospital cover may impact what your loading is today.
If you previously held a private hospital cover policy for any number of years since July 1st, 2000, you may have a lower LHC loading today. To prove this, you can call your old health fund/s and ask for a Clearance Certificate to provide to your new health fund. Any previous years where a private hospital cover was held will be taken into consideration when calculating your current LHC. This is where calculating loading can be real tricky and a degree in applied mathematics might be required, especially for customers who have an ‘on-again, off-again’ relationship with health insurance.

7. Everyone is given a Grace Period to lapse cover.
The Government gives each person 1094 days (three years) of grace to drop their health insurance before imposing LHC onto them. In essence, this means you can cancel your policy for a time without running the risk of incurring penalties. The health insurance grace period is a consumable total, so whatever used from the 1094 days before hospital cover is taken up again does not refresh. You will keep the balance of any unused days though, so it is always advised to use them only when sorely required. If you have held private hospital cover for any amount of time since July 1st 2000, you may have already used all or some of your grace period and may have a lower loading than you might think. It’s important to note that some funds will allow you to suspend your cover for shorter periods of time without affecting your grace period (such as for holidays or brief trips abroad).

8. New Migrants to Australia are given some breathing room – but not a lot.
Any new Australian residents or citizens are given 12 months from the date they receive full Medicare Entitlements to take up private hospital cover before incurring any LHC penalties. If private hospital cover is not taken out on or before the first-year anniversary from the date of receiving Medicare entitlements, the subject will receive full LHC for each year they are over 30.

9. Being overseas is considered the equivalent to holding private hospital cover.
For LHC purposes, any Australian’s who have been living or working overseas are considered equivalent to having held hospital cover for that time abroad. If you were overseas when you turned 31, you will not incur any LHC until returning to Australia. A returning Australian is given 12 months from the anniversary of the date they got back to take up hospital cover to avoid full LHC calculated based on your age. Those working or living abroad can return to Australia to visit or holiday for up to 90 days before it is considered ‘returning to Australia’.
If you have recently been living or working overseas and are looking to take up health insurance, you’ll want to organize a Movement Statement from the Department of Home Affairs to provide to your health fund as proof. This is officially known as a ‘Form 1359: Request for international movement records’.

10. The LHC amount on a Couples or Family cover is the average of the two adults combined.
This is common sense. Eg. if one adult has 26% loading and the other adult has 20% loading, then the couples/family hospital cover policy would have a 23% loading applied (the average of the two). It would cost exactly the same as being on two separate singles policies, so there’s no good reason to worry about this one. Just an FYI.

11. Serving in the Australian Defence Force or holding a DVA Gold card is considered the equivalent to holding private hospital cover.
The ADF provides currently serving Australians with private health services, and likewise with ex-serving Australians on a DVA Gold card. Anyone who is discharged from service or has their DVA Gold Card benefits revoked will need to take up private hospital cover to avoid accruing any new LHC penalties going forward. If unused, the 1094 day grace period will be taken into consideration. Your new health fund will let you know what information they require you to provide if you fall into this category.

 

In Conclusion:

We got to the end of possibly the most mind-bending aspect of private health insurance. Even then, this information is just a snapshot of all things considered when a health fund calculates your Lifetime Health Cover loading for quoting purposes. Be wary that most health fund websites and online health insurance comparison services tend to advertise policy prices without any LHC loading applied. If you’re unsure or just want some help comparing health funds, please contact us on 1300 955 691.