A millennials guide to understanding private health insurance

From landing your dream job to purchasing your first home, entering a new life stage can be an exciting time. But getting older can also mean adjusting priorities and having to consider new products like private health insurance. 

According to Private Healthcare Australia, over 13.5 million Aussies have private health insurance, that’s approximately 54% of the Australian population. But what is it exactly and is it something you should be considering?

What is private health insurance?

Our guess is that you’ve probably seen advertisements for private health insurance on TV or online in the past, but have absolutely no clue what they’re talking about. So let’s jump into it. 

Private health insurance is an insurance product that can give Aussies coverage across a wider range of health services. And if you ever need to be admitted to hospital, private health insurance allows you to be treated as a private patient. 

It also pays for costs that aren’t covered by Medicare, like physiotherapy or dental work. As a quick recap, Medicare is a publicly funded scheme that gives Aussies access to healthcare across a wide range of health and hospital services at no or little cost. 

According to the Australian Government Services website, you are able to enrol for your own Medicare card once you are over 15, so you may already have this card stuffed in your wallet.

What are the benefits of having private health insurance?

Other than receiving coverage for specific types of treatments, there are a number of reasons why someone would want to take out private health insurance. Some of the most common benefits are:

• More health cover and choice - Depending on the type of policy you take out, you’ll have the option to choose your doctor, regardless of if you’re being treated in a public or private hospital. And like we said, your policy will cover health services not covered under Medicare. 
• Pay less tax - Having private health insurance also means you won’t have to pay the Medicare levy surcharge. This is a levy of up to 2% on your taxable income if you earn over a certain amount every year. So if you like to keep to a strict budget, lowering the amount of tax you pay could help you save a bit of extra cash every year. 
• Gain a rebate - If your income is below a certain threshold or you opt for a policy that provides hospital cover or cover for general treatments, you are eligible for a rebate from the Australian Government. This is reflected as either a lower insurance premium or as an offset in your tax return, which reduces the amount of tax you’ll pay. 
• To avoid paying more for health care when you are older - If you choose to purchase private health insurance before 31, you will be eligible for Lifetime Health Cover (LHC). This is a government initiative that helps you avoid paying higher premiums for private health cover as you get older. Although thinking this way might seem silly, given things like retirement are a while away, it never hurts to think long term.

Where can I get private health insurance from?

According to the Australian Department of Health, private health insurance can only be purchased through registered health insurers by law. Some examples of registered health insurers are nib, Bupa, HCF and Medibank.

What are the types of cover offered through private health insurance?

Private health insurance covers private hospital cover and extras cover (general treatment). You are able to have both through a combined policy or personalising your cover by mixing and matching separate policies to meet your needs. 

You also have the option to take out ambulance cover if your state or territory doesn’t automatically cover you for it.

Hospital cover

This refers to cover for your accommodation costs, including meals or any theatre costs you may incur during your stay. However, depending on the policy you choose, there may be some exclusions. Although these exclusions generally affect older Australians, it’s still worth being aware of. 

Some common exclusions include:

• knee and hip replacements 
• cataract surgery.

Private health insurance reforms to hospital cover

Since April 2020, all hospital insurance policies are now under a tier-based system and are classified as either Gold, Silver, Bronze and Basic. This is to give customers an insight into the level of cover it provides. 

These reforms were brought into effect as many private health insurance customers didn’t understand what they were paying or covered for. And thanks to these recent reforms, private health insurers can now offer improved access to mental health treatment and discounts to younger Aussies aged between 18 and 29. 

In this case, you might want to take out a more basic policy to start off with. This can help keep your costs low while making sure you’re not paying for cover you might not need at this life stage. Once you get older, you can then switch policies or upgrade to your cover to something more suitable.

Extras cover

Extras cover, often referred to as general treatment cover, will cover the cost of treatments that aren’t covered under Medicare. 

This includes health treatments like:

• physiotherapy 
• chiropractic treatment 
• home nursing 
• dental treatment 
• orthodontics 
• speech therapy 
• glasses or contact lenses.

It’s important to keep in mind that like other insurances, you are only able to claim a portion of the cost. Depending on your policy, this could either be a percentage for each service or as a set amount for the same service each year.

Ambulance cover

This refers to covering the cost for emergency ambulance transport or other ambulance services. You can buy private ambulance cover from a private health insurer or from a state of territory authority if it’s available.

Private healthcare vs public healthcare: the real difference

Like anything, it’s always best to weigh up your options before signing the dotted line. So to keep things easy to understand, check out the table below.

How much does private health insurance cost?

There is no definitive answer to this question, as it will depend on the type of insurer you sign up to, the policy you purchase and the extras you want covered under your policy. 

According to researcher, Wonder, the average income for the Australian millennial in 2017 was $71,000, while private health insurance premiums can range between $1,000 to $2,000 annually. There are a few ways to reduce your premium, which can help keep your policy budget-friendly. 

Private health insurers give you the option to select your excess amount, which in return can increase or decrease your premium. Just like any other insurance product, the higher the excess, the lower your premium and vice versa. 

You might also have the option to choose the amount you can claim (either 25%, 50% or 75%) through your insurer, which can also determine whether your annual premium is on the lower or higher end. 

So when you’re shopping around on private health insurance policies, it’s important to find a balance between getting adequate cover and adjusting your excess to keep things within your budget.

Beware of the gap

Another thing to be wary of in terms of cost is ‘the gap’, this refers to the difference between what’s covered and the amount you are being charged for a treatment. In some cases, where your private insurance doesn’t cover the full amount, you will be responsible for paying the gap.

Can I have both Medicare and private health insurance?

Yes you can, however there are few things to be aware of. When you have both Medicare and private health insurance, a process called a coordination of benefits takes place whenever you require health or medical care. 

Put simply, a coordination of benefits determines which insurance provider will pay first for your required services, they are then referred to as the primary payer. 

Once the primary payer is established, they are responsible for paying any of the covered services until the cover limit has been reached. The secondary payer then pays for costs that aren’t covered by the primary payer, just keep in mind that this still may not cover the total cost of a treatment.

Is there anything else I need to know about private health insurance?

If you are thinking of taking out private health insurance, there are a few things to keep in mind. Once you sign up for private health insurance, you may have to wait for a period of time before you can make a claim. 

This is to prevent customers from signing up to a policy and immediately making an expensive claim and cancelling before they’re asked to pay. If enough customers did this, this would force insurers to increase premiums to compensate for their loss. So the waiting period is to ensure prices are fairer for customers. 

Typical waiting periods can range from two months to 36 months, depending on the type of care or treatment required. For instance, pregnancy and birth cover has a 12 month waiting period, so if you and your partner plan to have a baby in the near future, you will need to take out a policy before you fall pregnant.

So, do I need private health insurance?

This is ultimately up to you to decide, as it depends on your own personal circumstance and budget. Generally speaking, if you are fit and healthy you might not not see much benefit from having private health insurance. 

If you are also comfortable with the current level of care and services available to you through Medicare, then it might be best to stay put for now. 

On the other hand, if you suffer from an ailment or illness that sees you visit the physiotherapist or optometrist more than the average person, then it could be worth something looking into. Another reason to consider private health insurance is if you are planning on having a baby or currently have children you want covered. 

Want to learn more about managing your finances as a millennial? Then make your next stop our Life and Money hub!