Private health insurance can be purchased for a single person, a couple, a single parent family or a couple with children (family membership).
Advantages of private cover
The main benefits of having private health insurance are:
- cover for some or all of the expenses associated with choosing a particular doctor or a particular hospital
- better accommodation in some private hospitals (for example, a better standard of meals and a private room)
- access to private hospitals for non-urgent (elective) care. There are usually waiting lists for non-urgent treatment in public hospitals
- cover for services not available under Medicare, such as physiotherapy and dental care. These are called ancillaries or extras.
Privately insured patients in public hospitals
Having private health insurance does not (and is not intended to, or designed to) give a person priority of treatment over public patients in public hospitals. The Australian Health Care Agreements (agreements between state and territory governments and the federal government in relation to the provision of funding for health care) for 1998 made it legally possible for a public hospital to treat private patients differently from public patients.
In general, state and territory Health Departments still require public hospitals to treat patients on the basis of need, regardless of their status as public or private patients. However, there have been reports in the media of public hospitals encouraging privately insured people to choose to be private patients by offering to pay any excess and waiving any gap between the cost of treatment and what their insurance covers.
Types of cover
There are seven main types of private health insurance.
One hundred per cent cover
Many funds have entered agreements with hospitals and doctors to provide products that cover all hospital and medical costs. These agreements do not apply to all hospitals and doctors, and it is important to check which are covered.
One hundred per cent hospital cover with partial medical cover
This form of insurance covers all hospital costs from hospitals that have an agreement with the member’s health fund. The patient still has to make a gap payment for doctors’ fees that exceed the schedule fee.
Public hospital cover
This covers a person for treatment as a private patient in a public hospital. The person must pay large additional costs if they are treated in a private hospital.
This form of insurance excludes cover for certain treatments or conditions, and in return the member pays a lower premium. For example, a fund could offer a package that does not cover obstetrics, or hip and knee replacement surgery, or major eye surgery.
Front end deductable or excess cover
In return for lower premiums the member agrees to pay a certain amount up front if they use their private health insurance. For example, a member with a $400 front end deductable will have to pay the first $400 if they use their insurance.
With these policies, the member contributes an agreed amount per day for their care while in hospital. For example, a patient might agree to pay the first $100 for each day in hospital.
Ancillary policies provide cover for a number of non-hospital services such as physiotherapy, dental treatment, and optical treatment. Ancillary cover is available separately, or in addition to any form of hospital cover.
Combinations of these types of cover can be purchased. For example, a policy with hospital cover with a front end deductable and excess could be purchased, along with ancillary cover.
The main difference between most private health insurance products is in terms of the trade-off between premiums and excesses. That is, the choice is largely between:
- paying lower premiums but paying an excess when the cover is used, and
- paying higher premiums but not having to pay an excess when the cover is used.
Choosing between packages
There are many different health insurance packages available, tailored to the needs of different consumers. This range can make it difficult to understand what is covered, and to compare different funds and packages.
Before taking out insurance, it is important to be clear about what is covered by the package being considered, and to check whether there are limits on the benefits paid, whether an excess applies, what the waiting periods are, and so on.
Limits on benefits for ancillary services
Most health insurance funds limit the maximum annual benefit payable for ancillary services such as dental care and physiotherapy.
All funds have waiting periods before benefits will be paid for some services. For pre-existing ailments and conditions, and obstetric care, the period is 12 months. People planning a family and intending to join a health fund should do so as early as possible to ensure they are covered if the baby is born prematurely.
For other services the waiting period varies, depending on the fund and the type of service.
The waiting period for pre-existing ailments and conditions is rarely waived, even in special promotions that waive other waiting periods.
The thirty per cent rebate
Since January 1999, the federal government has offered a 30% rebate on premiums paid for private health insurance. The rebate covers all private health insurance cover (hospital, extras and combined cover), and means that the cost of private health insurance is reduced by 30%. For example, a family paying a premium of $4000 per year would receive a rebate of $1200.
The rebate can be claimed:
- as a reduction on the premium, by registering this choice with the fund
- as a tax rebate on a person’s income tax return
- as a direct payment through Medicare offices.
All Australians who are eligible for Medicare and who are members of a registered health fund are eligible for the rebate.
The Medicare levy surcharge
High income earners are further encouraged to take out private health insurance through a surcharge of 1% that must be paid on top of the normal 1.5% Medicare levy if they do not take out private hospital insurance.
The surcharge is paid by:
- single people earning more than $88,000, or
- couples or families earning more than $176,000
who have not taken out appropriate health insurance cover.
The family income threshold increases by $1500 for each dependent child after the first.
Lifetime health cover
Lifetime health cover, introduced by the federal government on 1 July 2000, allows health funds to charge different premiums according to a person’s age when they first took out hospital cover. Members who join early in life pay a lower premium than those who join later in life.
The certified age of entry
A person’s certified age of entry is the age they are considered to be when they take out hospital cover. A person’s certified age of entry is:
- 30, regardless of their actual age, if they took out the cover before 15 July 2000
- their actual age when they took out the cover, if this occurred after 15 July 2000.
People born on or before 1 July 1934 are not affected by lifetime health cover. They can take out private health insurance at any time and receive a certified age of entry of 30.
Effect on premiums
There is a 2% loading on the base rate premium for every year that a person’s age at entry exceeds 30, up to a maximum of 70%.
Breaks in cover
A person can drop their hospital cover for up to 24 months (cumulative) without affecting their certified age of entry. After 24 months their certified age of entry increases by one year for every year they do not have cover.
Effect on ancillary products
Ancillary products are not affected by lifetime health cover.
Weighing up the cost
While lifetime health cover provides an incentive to take out private health insurance at the age of 30 or as soon as possible thereafter in order to avoid paying the additional loading later on, it is important to weigh up the cost of paying premiums from the age of 30 onwards against the cost of joining later and paying the loading.
Another recent legislative change allows funds to offer loyalty bonuses to members based on length of membership. Such bonuses can take the form of either:
- higher benefits paid
- lower premiums charged.
No claim bonuses
Offering no claim bonuses is still prohibited.
Effect on higher income earners
The combined effect of the Medicare levy surcharge, the 30% rebate and lifetime health cover means that some high income earners may find it cheaper to take out private health insurance cover even if they never intend to be treated as a private patient.
Some people choose to self-insure. Given that private health insurance can cost a family thousands each year, setting the equivalent amount aside each year in a term deposit account may be cheaper. It is, of course, more risky, because people have little control over the timing of major medical expenses. The person must also be sure not to spend the saved amount for other purposes.
The medical expenses rebate
Those who self-insure have the option, like all Australian residents, to access the 20% medical expenses rebate for medical expenses over $2162 for singles on incomes of $88,000 or less and for families on incomes of $176,000 or less. There is information on this rebate on the Australian Tax Office web site.
People who have problems with private health insurance fees or claims for refunds should first try to resolve the matter with their health insurance fund.
If the matter is not resolved with the fund, the person should contact the Private Health Insurance Ombudsman. The Ombudsman has been established to deal with complaints about private health insurance arrangements, and is independent of the private health funds, public and private hospitals, and the government.
The content of the Law Handbook is made available as a public service for information purposes only and should not be relied upon as a substitute for legal advice. See Disclaimer for details. For free and confidential legal advice in South Australia call 1300 366 424.