Private health coverage: Is it worth it in Australia?

Almost one in five Aussies are choosing to go without private health insurance and pay the Medicare Levy Surcharge – but is it worth it?

Private health coverage is leaving some out of pocket.

Almost one in five Aussies are choosing to go without private health insurance and pay the Medicare Levy Surcharge, with experts torn on whether taking out a policy is really worth it.

New research from comparison site Finder revealed 18 per cent of Australians who earn the national average wage of $100,000 or more do not have private health insurance.

This means they are forced to pay the Medicare Levy Surcharge of at least $970, and upwards of $2265 depending on their income.

Finder health insurance expert Tim Bennett said many Australians chose to pay the MLS rather than obtain private health insurance due to financial considerations.

“For some, the cost of premiums outweighs the perceived benefits,” he said, with customers needing to pay for hospital cover, not just extras, to avoid paying the surcharge.

“Others may have confidence in the public healthcare system and prefer to pay the surcharge.”

But Mr Bennett said for many, taking out a basic health insurance policy could actually save them money, with a variety of hospital policies available for less than the Medicare levy surcharge.

“For higher-income earners, the MLS can become a substantial expense, potentially making a basic hospital cover policy a more affordable alternative,” he said.

For example, a single 30-year-old in Queensland with an annual salary of more than $151,001 could save up to $1,114 a year by taking out hospital cover with a $750 excess.

However, for those earning less than $113,000 a year, taking out health insurance would leave them out of pocket.

Christopher Zinn, CEO of the Private Health Insurance Intermediaries Association, said many consumers might not understand the MLS was costing them real money, even though it comes in the form of paying additional income tax.

“It’s unnecessary, costly and frankly, money down the drain,” he said.

“It might help fund Medicare, but you don’t get any direct benefit.”

While he said having private health insurance could save Aussies money by avoiding MLS, they needed to carefully consider the policy they were signing up to and evaluate factors such as their health needs, the quality of public hospitals in their area, and how much they could afford to pay consistently.

Many Queenslanders don’t find private health cover value for money.

“You should consider reviewing your level of cover to assess your and your family’s needs as

circumstances change, kids grow up and you may not need cover for braces but hip and knee cover,” he said.

Greg Jericho, policy director at the Centre for Future Work, said private health insurance was costing more and delivering less, making it less viable.

“It’s becoming less and less worth it for many people because they’re finding that their health insurance premiums are either so high or if they’re seeking lower ones, they exclude so many services that, in essence, it’s not worth it,” he said.

He believed the government needed to stop trying to “prop up the private health sector” and “support the public health sector”.

“We need more expenditure in the public system rather than continuing in this belief that the private sector will deliver things more effectively or more efficiently,” he said.

Also determining whether private health insurance was worth the cost was the government-imposed Lifetime Health Cover loading, by which if you have not taken out and maintained private patient hospital cover from the year you turn 31 and then decide to take it out later in life, you will pay a 2 per cent loading on top of your premium for every year you are aged over 30.

Getting private health cover – is it worth it?

According to Finder, that could be anywhere between $68/month extra to as much as an additional $268/month for over 60s on a gold private health policy.

Sally Tindall from comparison service Canstar said the LHC loading was designed to encourage Aussies to take out private health insurance earlier in life. But for those who were simply looking to avoid the Medicare Levy Surcharge, she said it was important to weigh up the policy’s costs and inclusions.

“Some basic-tier options provide minimal benefits, which could leave you with high out-of-pocket costs if you need treatment,” she said, revealing a bronze policy could be a better choice offering more inclusions, such as joint reconstructions, hernia and appendix surgeries, for only a small amount extra each week.

“You don’t want to overpay for features you won’t use, but you also don’t want to be caught without key inclusions when you need them.”

She recommended using a higher excess to cut policy costs, but said it was important you could still afford it if you needed to make a claim. As for adding Extras to your policy, such as dental, optical or physio, Ms Tindall said unless you used the services regularly, they might not be worth it.

Originally published as Private health coverage: Is it worth it in Australia?