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1. What is private health insurance?

Private health insurance is an optional type of insurance which allows the policyholder to be treated in the private hospital system and covers a variety of healthcare options and medical expenses, depending on the specific policy. Australians can choose between hospital and/or extras cover. Hospital policies generally include some financial cover for hospital expenses such as medical treatments, hospital accommodation bills and ambulance costs (depending on the state). Extras can include a benefit for services such as dental, optical, physiotherapy, chiropractic and a range of wider general treatments performed outside a hospital, such as pharmaceutical and psychology.

2. What does private health insurance cover that Medicare doesn’t?

In Australia, the taxpayer-funded Medicare system covers most residents for health care and is paid for largely by the Medicare levy, which most Australians pay on their annual tax returns. However, Medicare does not cover everything. You may wish to consider a private health insurance policy to give yourself a wider range of health care options and more comprehensive cover.

Private health insurance lets you receive treatment as a private patient in a hospital and generally allows you to choose your hospital, doctor and specialist. You can also take out a health insurance policy that covers out-of-hospital services (extras) not covered by Medicare, such as general dental, physiotherapy and chiropractic, and some prescription medicines not covered by the Pharmaceutical Benefits Scheme (PBS).

3. Is private health insurance worth it?

There are a number of potential benefits of having private health insurance. For example, you can get a wider range of cover, choose your own doctor and avoid paying the Medicare Levy Surcharge and Lifetime Health Cover loading, if applicable.

That being said, there are also some potential drawbacks to be aware of. For example, private health insurance can be expensive and it can also come with various limits and exclusions. Read more about private health insurance and whether it is right for you and whether to seek treatment through the public or private healthcare systems.

4. How can I save money on my health insurance?

You can compare health insurance providers with Canstar to see if you can get yourself a better deal for your specific needs and requirements. General tips to potentially save money on your health insurance premiums include mixing and matching your hospital and extras policies, ‘consciously uncoupling’ a couples policy if it leads to better value, ‘turning off’ certain items in your policy if you think you won’t need them in the immediate future, paying upfront before 1 April to ‘lock in’ a lower premium, evaluating the merits of choosing a higher excess, and taking out insurance by 1 July following your 31st birthday at the latest, to avoid Lifetime Health Cover loading. You might even try negotiating a better deal with your provider directly.

5. How can I choose health insurance?

After deciding whether to go public or private, you can identify policies that may suit you personally by comparing private health insurance. When choosing, some questions to ask yourself could include:

1. What level or ‘tier’ of hospital cover do you want (Gold, Silver, Bronze or Basic)?
2. What health insurance life stage (e.g. young person, senior, single, couples, families) are you in?
3. Do you want extras cover?
4. Do you or your family have any pre-existing conditions that you need cover for?
5. What is your budget for premiums and excesses? Understanding the Medicare Levy Surcharge and Lifetime Health Cover benefits and loading, and finding out if you are eligible for any health insurance rebates may be helpful. You may like to find out which fund is keeping its customers the happiest, and see the winners of Canstar’s Private Health Insurance Star Ratings and Awards.

6. Does Medicare cover ambulances?

Medicare does not cover the cost of ambulances or other emergency transport. Ambulance costs are different depending on your state or territory. For example, in Queensland and Tasmania, ambulance fees are covered by the state government. In other states and territories, you can organise ambulance cover through a private health insurer or, in some places, the state ambulance authority.

7. What is an ‘excess’ in health insurance?

An excess is the amount of money you have to pay if you make a claim on your hospital policy. You can apply an excess to your health insurance policy to make your premiums cheaper. Typically, the higher your excess is, the lower your premiums and vice versa.

You have to pay the excess to the hospital when you are admitted for treatment as a private patient. The remaining costs will be paid by Medicare and your health insurer (depending on your cover). You may need to pay out-of-pocket costs in some circumstances.

No excess applies to extras cover.

8. What does ‘no gap’ mean in health insurance?

‘No gap’ means you don’t need to pay any out-of-pocket costs. A gap refers to the difference between your doctor or hospital fees and the amount that Medicare and your health insurer will pay.

If you are admitted to hospital as a private patient, Medicare typically pays 75% of the Medicare Benefits Schedule (MBS) fee and your health fund will pay the remaining 25%. However, a doctor or specialist may charge more than the MBS fee, and in this case you would have to pay an out-of-pocket fee.

Some insurers have gap cover agreements with health care providers, meaning all or some of the gap will be covered by the insurer.

9. Should I buy private health insurance for pregnancy?

If you are considering private health insurance for pregnancy, and looking to have your baby in a private hospital or as a private patient in a public hospital, it is a good idea to plan ahead and be aware of waiting periods. All health funds have a 12-month waiting period for pregnancy-related expenses, according to the Private Health Insurance Ombudsman, so you’ll need to have the policy for a year before you can make a pregnancy-related claim. It’s important to ensure the health cover you choose suits your needs and your budget during pregnancy, as well as the delivery and post-delivery stages. You can compare family or single health insurance policies that include pregnancy services and look for a policy that best suits your needs. You may consider keeping your partner’s insurance separate until after the delivery if you want to avoid an unnecessary higher level of obstetrics cover for them, as well as for you.

10. How can I avoid health insurance waiting periods?

You may not need to re-serve waiting periods if you switch from one health insurer to another, unless you add or upgrade your hospital cover, according to the Ombudsman. While providers sometimes waive two- to six-month periods on extras, it’s generally less common for longer waiting periods to be waived on pre-existing conditions, obstetrics or major dental. Insurers often advertise special offers for waived waiting periods in March and April, as premiums typically increase on 1 April and customers are seen as more likely to be shopping around for better value around that time.

11. What is the private health insurance rebate?

The private health insurance rebate is money the government may contribute towards the cost of your private health insurance premiums if you earn below a maximum threshold each year. As the rebate is income-tested, your entitlement will reduce as your income increases. According to the Australian Taxation Office (ATO), you will be eligible for a rebate if you (1) hold a Medicare card; (2) have a complying private health insurance policy; and (3) have an annual income that’s less than $140,000 as a single, or $280,000 as a family, and meet related specific requirements. According to the ATO, the size of the rebate you’ll receive depends on your income, your age and whether you are single or have a family. Generally, the older you are and the less you earn, the higher your rebate will be.

What Is Health Insurance and Why Do You Need It?

What Is Health Insurance?

Health insurance is a contract that requires an insurer to pay some or all of a person’s healthcare costs in exchange for a premium. More specifically, health insurance typically pays for medical, surgical, prescription drug, and sometimes dental expenses incurred by the insured. Health insurance can reimburse the insured for expenses incurred from illness or injury, or pay the care provider directly. It is often included in employer benefit packages as a means of enticing quality employees, with premiums partially covered by the employer but often also deducted from employee paychecks. The cost of health insurance premiums is deductible to the payer, and the benefits received are tax-free, with certain exceptions for S corporation employees.

Key Takeaways

• Health insurance is a type of insurance coverage that pays for medical and surgical expenses incurred by the insured.
• Choosing a health insurance plan can be tricky because of plan rules regarding in- and out-of-network services, deductibles, copays, and more.
• Since 2010, the Affordable Care Act has prohibited insurance companies from denying coverage to patients with preexisting conditions and has allowed children to remain on their parents’ insurance plan until they reach the age of 26.
• Medicare and the Children’s Health Insurance Program (CHIP) are two public health insurance plans that target older individuals and children, respectively. Medicare also serves people with certain disabilities.

How Health Insurance Works

Health insurance can be tricky to navigate. Managed care insurance plans require policyholders to receive care from a network of designated healthcare providers for the highest level of coverage. If patients seek care outside the network, they must pay a higher percentage of the cost. In some cases, the insurance company may even refuse payment outright for services obtained out of network.

Many managed care plans—for example, health maintenance organizations (HMOs) and point-of-service plans (POS)—require patients to choose a primary care physician who oversees the patient’s care, makes recommendations about treatment, and provides referrals for medical specialists. Preferred-provider organizations (PPOs), by contrast, don’t require referrals but do have lower rates for using in-network practitioners and services.

Insurance companies may also deny coverage for certain services that were obtained without preauthorization. In addition, insurers may refuse payment for name-brand drugs if a generic version or comparable medication is available at a lower cost. All these rules should be stated in the material provided by the insurance company and should be carefully reviewed. It’s worth checking with employers or the company directly before incurring a major expense.

Increasingly, health insurance plans also have copays, which are set fees that plan subscribers must pay for services such as doctor visits and prescription drugs; deductibles that must be met before health insurance will cover or pay for a claim; and coinsurance, a percentage of healthcare costs that the insured must pay even after they’ve met their deductible (and before they reach their out-of-pocket maximum for a given period).

Insurance plans with higher out-of-pocket costs generally have smaller monthly premiums than plans with low deductibles. When shopping for plans, individuals must weigh the benefits of lower monthly costs against the potential risk of large out-of-pocket expenses in the case of a major illness or accident.

Tip

If you’re self-employed, you may be able to deduct up to 100% of health insurance premiums you pay out of pocket.

High-deductible health plans (HDHP)

One increasingly popular type of health insurance is a high-deductible health plan (HDHP). These insurance plans are characterized by higher deductibles and lower premiums. For 2021, the IRS defines a high-deductible health plan as one that has deductibles of at least $1,400 for an individual or $2,800 for a family. Total out-of-pocket maximums are $7,000 for an individual and $14,000 for a family.

For 2022, the deductible limits will remain the same. But the out-of-pocket maximums will increase to $7,050 and $14,100, respectively. Out-of-pocket maximums don’t apply to out-of-network services.

High-deductible health plans offer a unique advantage in that if you have one, you’re permitted to open—and contribute pretax income to—a health savings account, which can be used to pay for qualified medical expenses. These plans offer a triple tax benefit in that:

• Contributions are tax-deductible.
• Contributions grow on a tax-deferred basis.
• Qualified withdrawals for healthcare expenses are tax-free.

In addition to health insurance, ill people who qualify can get help from a number of auxiliary products available on the market. These include disability insurance, critical (catastrophic) illness insurance, and long-term care (LTC) insurance.

Note

You can withdraw money from an HSA after age 65 for any reason with no penalty, though you will pay income tax on the withdrawal.

Special Considerations

In 2010, President Barack Obama signed the Affordable Care Act (ACA) into law. In participating states, the act expanded Medicaid, a government program that provides medical care for individuals with very low incomes. In addition to these changes, the ACA established the federal Health Insurance Marketplace. It also prohibited insurance companies from denying coverage to patients with preexisting conditions and allowed children to remain on their parents’ insurance plan until they reach the age of 26.

The Marketplace helps individuals and businesses shop for quality insurance plans at affordable rates. Insurance available through the ACA Marketplace is mandated by the law to cover 10 essential health benefits. Through the HealthCare.gov website, shoppers can find the Marketplace in their state.

Note

Eligible insured may qualify for a premium tax credit to help offset the cost of health insurance purchased through the federal marketplace.

Changes in the Affordable Care Act

Under the ACA, Americans were required to carry medical insurance that meets federally designated minimum standards or face a tax penalty, but Congress removed that penalty in December 2017. A Supreme Court ruling in 2012 struck down an ACA provision that required states to expand Medicaid eligibility as a condition for receiving federal Medicaid funding, and a number of states chose to refuse expansion. As of 2021, an estimated 31 million people have health coverage through the Affordable Care Act.

Medicare and CHIP

Two public health insurance plans, Medicare and the Children’s Health Insurance Program (CHIP), target older individuals and children (respectively) who need help with health insurance. Medicare, which is available to those age 65 or older, also serves people with certain disabilities. The CHIP plan has income limits and covers babies and children up to the age of 18.

Health Insurance FAQs

Important

Though Medicaid can help older seniors to pay for long-term care in a nursing home, Medicare does not.

What Is Health Insurance and Why Do You Need It?

Health insurance is an agreement you make with an insurer to have them pay for some or all of your medical expenses in exchange for a premium. Having health insurance can keep you from incurring medical bills you can’t afford to pay out of pocket.

Who Needs Health Insurance?

The simple answer is everyone. Health insurance can help to offset the costs of minor medical issues or major ones, including surgeries or treatment for life-threatening illnesses. But if you don’t have health insurance, you won’t be penalized for it under the terms of the Affordable Care Act.

How Do You Get Health Insurance?

If your employer offers health insurance as part of an employee benefits package, you may be covered by it. You can also purchase health insurance through the Health Insurance Marketplace. Certain individuals may qualify for health insurance coverage through Medicaid or Medicare programs.

How Much Does Health Insurance Cost?

Your costs for health insurance can vary based on the scope of coverage, the type of plan you have, and your deductibles. Copays and coinsurance can also add to the cost, so it’s important to consider what you’ll pay before enrolling in a healthcare plan.