What is the best health insurance to have?

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We’re glad you asked. The good news is, if you’re a permanent Australian resident then you already have health insurance, it’s called Medicare. For most of us, our Medicare health insurance premiums cost two per cent of our annual salary for ‘free or subsidised’ access to doctors, specialists, optometrists and treatment and accommodation in public hospitals, plus a few other perks.

Do I need health insurance?

Good question – we’re glad you asked. But we’d like you to break that question down a bit more because there’s really no such thing as “private health insurance”: there’s private hospital insurance, and there’s extras insurance. And we’re not just being sticklers here – a lot of people waste good money on one of these insurance types without using it. We don’t want you to be one of those people.

No private hospital insurance

You already have Medicare so why should you take out private hospital insurance?

  • If you earn less than $90k a year (double that for couples and families) the only financial incentive to get hospital cover is that you will have to pay the Lifetime Health Cover (LHC) loading if you take out hospital cover after you’re 31.
  • The public hospital system serves people who require emergency surgery well.
  • If you are admitted to public hospital as a public patient, Medicare will foot the doctor’s bills.
  • But if you’re admitted to a private or public hospital as a private patient, you may end up paying a ‘gap fee’ to your doctor or sometimes even to the hospital. That’s the gap between what Medicare and your health fund pays, and what the actual doctor’s fee is, and it can run into thousands of dollars.

What you should think about before getting private hospital insurance.

  • For elective surgery you’ll end up on a waiting list.
  • You won’t be able to choose your own doctor.
  • You’ll be in public hospitals instead of private hospitals (which generally have better conditions and service staff).
  • If you earn over $90k a year (double that for couples and family), you’ll be charged the Medicare levy surcharge of at least 1% of your income, it steps up to 1.25% and then 1.5% for higher income levels. It’s on top of the two percent Medicare Levy everyone pays.
  • If you’re over 31, and you do eventually decide to get private hospital insurance, then you’ll pay more for it in the form of the Lifetime Health Cover loading.

What about extras cover?

Theoretically, the whole idea of paying insurance premiums is to put a financial cap on how much money comes out of your pocket when the unexpected occurs. Rear-ended a Porsche? No problem, pay your $500 excess and the insurer will pay the rest. House burnt down? Pay the excess and the insurer will re-build. Need a new hip? Pay the excess and your insurer will pay the hospital costs, and maybe some of the doctor’s fees. OK, in reality it’s never as easy as this – but we did say theoretically.

Need to go to the dentist? Your extras insurance will pay the first $200 (for example) and you’ll pay the rest. Do you see the difference? The insurer’s liability is capped, yours isn’t.

For that reason, extras ‘insurance’ really isn’t insurance at all, it’s a budget management tool.

If you’re buying health insurance purely for tax reasons, then no. Not having private hospital insurance can mean you pay extra tax and higher premiums should you take it up again, but these penalties don’t apply to extras (ancillary) cover.

This type of insurance rarely covers the full cost of your treatment. On average (12 months to March 2017) health funds paid about:

  • just over half (55%) the cost for the dentist
  • 60% of the cost at the optometrist
  • half (52%) of physiotherapy treatments
  • over a third (39%) for medicines not covered by the Pharmaceutical Benefits Scheme (PBS)
  • a quarter for hearing aids and audiology.

And there are wide variations between funds and policies, too. The most generous health insurance fund for all extras services, for example, refunded 59% on average in 2015–16, while the most miserly health fund covered just 37%. For dental the differences are even greater: the most generous fund pays on average 70% of the costs, the least generous one pays 34%.

According to APRA, average extras benefits during the year to March 2017 were $398 per person. But there are two groups of people who benefit most from extras insurance:

Combined cover?

This is simply hospital and extras combined into one policy. It can be convenient because you only deal with one health fund for both types of insurance. It can also be useful for the health funds because they’ve just sold you two insurance policies in one go.

Ask yourself these questions before buying a combined policy:

  • Do you need both hospital and extras?
  • Do you need to get them from the same fund?

It’s worth pointing out again: private hospital and private extras insurance are separate types of insurance and a lot of people waste good money on one of these insurance types without using it.

While there are some good combined policies available, you can often get a better deal by buying the best value extras and hospital insurance from separate funds, so shop around to make sure you’re getting the best deal.

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