The cost of Private health insurance vs Public Healthcare in Australia

You’ve probably heard about some horror stories when it comes to the price of healthcare and life changing medical conditions. So what exactly are the differences between private and public healthcare in Australia, how do they impact our journey to Financial Independence, and what level of cover do I need (if any) ?

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Glossary of health insurance terms

  • Private Health Insurance: Private health insurance is an insurance product designed to cover healthcare costs. This is primarily for treatment in a private hospital, but extras cover can also be purchased which are designed to cover the regular and unexpected costs of dental, physiotherapy and optical healthcare with a level of service that exceeds public healthcare system. Lastly, you will need private health insurance to cover the cost of Ambulance services.
  • Medicare: Medicare is Australia’s universal (public) healthcare insurance scheme funded by the Australian government. It provides you with access to life saving medical care and hospital services, as well as a limited level of elective or non-essential surgery.
  • Medicare Card: You get a medicare card when you are enrolled in Medicare. You present the card to receive public healthcare under the Medicare system, which is usually free or low-cost and you can claim a rebate.
  • Premiums: The amount of money you regularly have to pay the insurance company for your policy coverage.
  • Out-of-pocket cost: What you actually have to pay personally for medical visits and procedures. You can then usually claim a portion of the costs back through Medicare or your private Insurance provider.
  • Co-pay: The amount of money you pay for each medical visit or procedure. The insurance company pays the rest. This could be a flat fee per visit, or a percentage fee depending on your policy. You may have to pay the initial expense out of pocket, and then submit a health insurance claim to get back the full cost minus the co-pay.
  • Gap fee: The amount of money you aren’t able to claim back on your Medicare reimbursement or rebate for a medical visit or healthcare service (similar to a co-pay in private health insurance).
  • Medicare levy: The Medicare levy is the tax you pay to fund Australia’s public universal healthcare. Really, this is just the premium you pay for public health insurance.
  • Medicare Levy Surcharge: The Medicare levy surcharge (MLS) is an additional tax for high income earners (above $90,000 for singles or $180,000 for couples)
  • Lifetime Health Cover Loading: the LHCL is an additional levy you will pay on private health insurance for any policies taken out for the first time above the age of 30 (2% for every year above 30), payable for the first ten years of the policy.
  • Bulk-Billing: Where a GP or healthcare provider directly bills Medicare or your Private health insurance provider directly, so there are no out of pocket costs for you.
  • Rebate: The amount you can claim back from Medicare or your Private health insurance to recover out of pocket expenses.
  • Deductible: This is the amount you have to pay before your health insurance kicks in and starts covering some of the costs. High deductible plans usually have lower premiums, and these policies are best suited to those who would only claim for rare but expensive, life changing events.
  • Extras: This is a sub-set of private health insurance which covers general expenses that are not considered life threatening, and are not included in baseline private hospital cover. Extras typically include Dental, Physiotherapy and Optical healthcare.
  • Out-of-pocket max: This is the most you will be out of pocket, as a combination of the health insurance policy deductible and all co-pays.
  • Medicare Safety Net: The Medicare safety net helps protect Medicare card holders from excessive Gap fees – out of pocket expenses. Above the safety net, you get a higher percentage of these Gap fees paid back in rebates.

Why do I need healthcare?

healthcare
Everyone will have to visit a hospital at some point in their lives.

Good healthcare is something we will pretty much all need several times during our lives, especially since most of us are born in a hospital! We all know some people are frequent fliers in the medical system, and some do anything they can to avoid it – everyone is different.

Unfortunately there are a lot of my family that rarely go to the doctors ‘to see the scab lifters’ because its a long and uncomfortable trip into town, and the appointment is ‘expensive’. They like being self sufficient, and view themselves as the tough ‘salt-of-the-earth’ type of people that don’t get sick. Sadly this aversion to healthcare has led to complications with Cancer and other medical conditions, which progress undetected and then when they finally are discovered its almost too late.

Regular checkups are important – as a pilot I hold a ‘Class 1 Aviation Medical’ which requires a very stringent checkup every year. This involves eye, hearing and blood tests as well as a thorough physical, and usually sets me back around $300 for the appointment (and I don’t get anything back on Medicare!), plus another $75 for CASA’s processing fee. I am lucky though – I have very good health, maintain a high level of physical fitness through weight training and cycling, and eat an incredibly healthy diet (flexible whole food plant based dieting).

It doesn’t matter how fit or healthy you are though – accidents and unforeseen medical complications can happen to anyone. Whether it is a car accident, unplanned pregnancy, transmissible disease or a slip trip or fall, you can’t protect yourself from everything! When you are in need of healthcare is definitely not the first time you want to be thinking about it, because you will likely be in a compromised state.

No, its much better to understand how the system works and have things in place to protect you well in advance.

How to avoid needing healthcare

Let food be thy medicine

Hippocrates

Your first layer of defence against health issues is to get proactive with your every day lifestyle; maintain an active lifestyle, eat well and protect yourself from undue risks by not doing stupid things like climbing on roofs, driving unnecessarily or starting fights when you are on the piss.

Exercise and fitness

Aim for at least 45 minutes of high intensity exercise per day, alternating strength and cardiovascular training.

For strength training, try a weight lifting and resistance training program in the 5 to 12 RM range, focusing on compound ‘whole-body’ barbell lifts.

For cardiovascular training, consider Running (or jogging), Cycling or Swimming. Ways to easily increase your cardiovascular exercise include cycling to work, parking the car a few blocks away, taking the stairs over the elevator, and if you work in an office, then choosing to work a stand up desk.

Diet

Without preaching too hard, I think we all know what a good diet consists of. If you consistently put junk into your body, your going to get junk out. Eating a poor diet, or indulging too often is the key contributing factor to diseases of affluence such as Cancer, Diabetes and Heart Disease.

Do yourself a favor and read this article as well as the book ‘The China Study’ by Dr Colin Campbell, as well as ‘In defense of food’ By Michael Pollan. Distilled into key points, the advice is;

  • Choose a Whole food, plant based diet – “Eat food, mostly plants, not too much”
  • Avoid or massively cut down meat consumption
  • Avoid or massively cut down refined sugar consumption
  • Reduce your refined oil consumption
  • Reduce your intake of refined carbohydrates like bleached flour or rice. Instead opt for wholemeal flour and brown rice.
  • Limit your alcohol consumption to only a few drinks per week. I save mine up and get a bit loose on the weekends.

Lifestyle: Protecting yourself from risks

Don’t do anything dumb, dangerous or different!

Risk management proverb
Risk management

Take occupational workplace health and safety and risk management seriously – plan appropriately to avoid, substitute or mitigate risks, and only when you have explored all courses of action and there is no other choice but to do something risky, use your PPE!

I have had numerous injuries at work including horrific chemical burns to my arms from paint strippers while painting aircraft, exposure to asbestos and lead based paints, aviation turbine fuel spills, as well as a number of slips trips and falls and ongoing ergonomic issues which have led to ongoing foot, neck and back pain. Not good!

Perhaps rethink any of your high risk or ‘adrenaline seeking’ activities and hobbies. Some of the things I have reigned in (but still do occasionally) include riding motorcycles, downhill mountain biking, clay target shooting, Aerobatics in light aircraft, bungee jumping and bouldering / free climbing on rock faces and trees.

Absolutely, positively, never, ever, EVER Smoke! Its disgusting, makes you stink, rots your mouth and lungs, gives you cancer, costs you tens of thousands of dollars each year and cuts years from your life – which will probably end horribly. My Pop died of emphysema, where he slowly lost the ability to speak and even struggled to even breathe in the end. He eventually suffocated under his own weight. I would NEVER date a smoker.

You would be amazed at how many hospital admissions are a direct result of alcohol consumption – over 157,000 per year, and unfortunately over 5500 deaths are attributed to alcohol consumption each year. This report on the cost of alcohol in Australia shows some startling statistics.

It highlights that if you are going to consume alcohol, you really need to do so safely. Alcohol consumption is part of Australian culture, and is a bit of a rite of passage for most. Just do so responsibly with friends, look after your mates and don’t be a wanker. I tend to only get tipsy if I am at home or at a trusted friends house, and these days I rarely drink out on the town.

Mental Health

Take your mental health seriously! Incredibly, one in five Australian’s will suffer from a mental health illness in their lives, which can have devastating consequences. Unfortunately finances can play a massive role as major stressors in both single people and in families, especially in single parents.

The number of Australian’s who suffer in silence is astounding, with the ABS showing over 3400 Australians take their lives per year. This is on average 65 per week – nearly 10 every day! Of this number, Men are unfortunately the majority, with 54 Australian men committing suicide each week. It is estimated that 21 of these are Fathers who are struggling with custody battles in the family court.

Sadder still, for every suicide recorded, there is statistically over 30 unsuccessful suicide attempts; or over 280 Australian’s attempting to take their lives each day. As a suicide attempt is usually the last action of someone in desperation, you can begin to understand how deep seated and common mental health problems are in our society.

Discussing mental health can be a taboo topic for most of us, and unfortunately those struggling with mental health issues can find themselves ostracized or withdrawing from society – from their friends, family and support networks. This only makes the problem worse.

Managing your own mental health should not be a taboo topic – I am personally very open and upfront about my own mental health. For tips on getting proactive to be on ‘the front foot’, check out the Head to Health government website which is chock full of great advice, as well as ways to get support.

If you aren’t someone to talk about your problems or go in and see a ‘head doctor or shrink’, then check out some of the various methods of online therapy. These are mental health professionals who you can connect with online to chat, email, VoIP or even video call if you want, on a timeline or schedule that suits you – Online Therapy.

I believe physical and mental health are strongly linked, so ways I look after my own mental health to keep my mind fighting fit include;

  • Allocating time for physical exercise – at least 45m per day
  • Reading actual, physical books (made of paper)
  • Getting sunshine each day
  • Eating a varied and healthy diet “Eat food, mostly plants, not too much”
  • Making time to relax and unwind – Spa / bubble bath or meditation!
  • Having good sleep hygiene – Getting 8+ hours of sleep a night – I try to switch off devices by around 9:00pm if I am not doing shift work
  • Avoiding shift work bids if possible
  • Avoiding perpetually negative or limited /scarcity mindset people: This shit is contagious and worse than cancer! My Father is one of the worst offenders for this.
  • Spending time with good mates that love, support and build me up
  • Spending time with positive, creative, abundance mindset people that inspire me
  • Chatting to my mentors and coaches
  • Avoiding excessive workloads
  • Prioritizing using the 80/20 principle to focus on what really matters: The 20% of effort that will bring me the 80% of results
  • Setting SMART goals that I can then see myself achieving, creating a positive feedback loop and snowball of achievement, self confidence and personal pride.
  • Repeating my positive affirmations to myself three times per day! Just Do it! Write them on your bathroom mirror and on the back of your front door so you see it every time you get ready and go out!
  • Adopting minimalism principles to simplify my life, and making it easier to manage everything (A big reason why I choose ETF and LICs as the foundation of my investment strategy)
  • Adopting automation in my life as much as possible to preserve my brain space for making the important decisions (i.e. not wasting effort and energy and time thinking about stuff that doesn’t matter)
  • Living well below my means so that I know there will always be enough resources to support myself; Emergency fund, FU money, investments and passive income. This lets you live, not just work to live. Incredibly good for my mental health.

Without wanting to go into too much detail with this, there has tragically been a number of suicides in my extended family. This is incredibly distressing and a life changing event for everyone, especially the persons children. It doesn’t get easier.

I have seen first hand the effects of devastating mental health issues stemming from traumatic events, including suicide attempts in my family. This has resulted in several trips to the emergency room, as well as the heartbreaking decision to use an inpatient mental health facility (under the public Medicare system) to protect them from themselves.

Mental health issues aren’t miraculously cured overnight and something that needs to be constantly worked on, all of your life. Thankfully in my family, everyone is healthy at the moment as we grow and heal together. It is important not to bottle this up or suffer in silence, and nipping issues in the bud before they become major issues will avoid you needing major healthcare down the track.

If you are in crisis and need support, call Lifeline on 13 11 14.

They’re open 24 hours a day, 7 days a week.

The Lifeline website also has helpful information on crisis support

Medicare: Australia’s public health insurance scheme

Medicare is Australia’s universal or public healthcare scheme. This is effectively just a health insurance scheme which is organised by the government, and which is mandatory to contribute into via special taxes called the Medicare Levy. Medicare covers a wide variety of healthcare treatment options through the public health system, and the full list of what is or isnt covered can be found on the Medicare Benefits Schedule.

How Does Medicare work in Australia?

Medicare is a fairly simple system. To access public healthcare in Australia, you simply present your Medicare card. This entitles you to be treated as a public patient in a public hospital.

Some medical or healthcare centers will charge an upfront cost, which you will need to pay on the spot. This is called the out of pocket expense. You are then able to make a claim with Medicare to have this cost reimbursed, called a rebate.

Unfortunately, not everything will receive a 100% rebate, and this difference is called the Gap or Gap fee. Thankfully, there are still a large number of GPs and health practitioners who will ‘bulk bill’ their patients. Bulk billing means you pay no out of pocket expenses, and they directly bill Medicare for the cost of your treatment.

Gap fees can add up and be costly for certain types of expenses which might not be covered under Medicare or the PBS. As such, there is a threshold amount called the Medicare Safety Net. Healthcare expenses above the medicare safety net typically have a much higher rebate.

This designed to limit the gap fees and ‘total’ non-reimbursed out of pocket expenses for vulnerable Australians who need frequent or expensive medical treatment. Single people automatically qualify for the safety net, but families will need to specifically register and be approved.

What does medicare cover

  • Treatment and accommodation in a public hospital with no out of pocket cost
  • Free or low gap healthcare treatment through the public system including Doctors, Nurses, Medics, Obstetricians and Midwives
  • a 75% discount of the Medicare schedule free as a private patient in either a public or a private hospital (However may not cover certain fee’s such as medicines, accommodation or surgery theater fees)
  • 85% of the cost of specialist appointments referred to by your GP
  • Heavily subsidized medication and pharmacy subscriptions supplied under the pharmaceutical benefit scheme (PBS)
  • Public Patient Transfer, including the Royal Flying Doctor Service, as well as most aeromedical evacuations.
  • Some general costs such as eye and hearing tests.
  • Mental health services and treatments, covering up to 10 sessions per year (registered health professionals can extend this by a further 10 group sessions per year). The full list of services can be found on the Medicare mental health services page. If the service bulk bills it is free, however many don’t, leaving you with a gap fee after your rebate.

What doesn’t Medicare cover?

  • Certain elective surgeries such as cosmetic surgeries
  • Dental surgeries such as wisdom teeth or molar removal
  • Ambulance call-outs and transportation
  • Optical costs like glasses (spectacles) and laser eye corrective surgery
  • Overseas medical repatriation or Medivacs in non healthcare agreement member states or countries.

Who is eligible for Medicare?

If you are an Australian citizen or resident, then you are eligible to get a Medicare card. Even certain visitors to Australia can get one, so check your eligibility for Medicare here.

You need to specifically apply for a Medicare card, which you can do once you are above 15 years old. You can apply online, and if you get stuck, call Medicare on 13 20 11.

Remember though, not everyone is eligible for Medicare. There are a number of reciprocal healthcare schemes arranged with many other partnering countries which allow treatment for visitors under Medicare and vice versa for Australians abroad.

Students coming to Australia to study must have Overseas Student Health Cover. This is a form of private health insurance policy specifically to cover medical expenses such as visits to the doctor, hospital treatment, ambulance cover and limited medical prescriptions. It must be valid for the duration of your study visa.

What does Medicare cost Australian taxpayers

“Medical services and benefits, comprised primarily of Medicare and Private Health Insurance Rebate expenses, will account for $33.7 billion, or 41.2 per cent of total health funding in 2019–20. Growth in Medicare expenses is the major driver of growth”

Australian Parliamentary Hearing Library, 2020.

If you think that is a lot, Universal healthcare in America is estimated somehow cost twice the per capita expenditure in Australia! In Australia, our Medicare is paid for using consolidated government revenue and special Medicare taxes, called;

  • The Medicare Levy
  • The Medicare Levy surcharge (MLS)
  • Lifetime Health Cover Loading (LHC)

Keep in mind that universal healthcare and taxes is a major politically charged topic, and is constantly being debated and revised. It seems there are changes every year to the system so don’t rely on this for gospel.

Get an accurate estimation for what your Medicare contributions are from the ATOs Income Tax Calculator here

The Medicare levy

The baseline cost of Medicare is 2% of your income, a tax called the Medicare levy. This is treated similar to income tax, but rather than a marginal ‘tiered’ system it is a flat rate of 2%. Certain people are exempt from paying this levy, or pay a reduced rate such as;

  • Disabled people meeting certain medical requirements such as the Disability Support Payment (DSP)
  • Low income families who meet minimum thresholds and receive certain welfare benefits and exemptions. Currently if you earn below $21,600 ($34,200 for seniors) you are exempt, and below $27,000 ($42,800 for seniors) you pay a reduced amount.
  • Some migrants or visa workers who aren’t covered by Medicare at all shouldn’t be paying the levy – Note – if this is you, investigate whether you are currently paying it and stop doing so!
  • Workers of the Australian Military and some Australian Public Service positions, as well as some Not-for-profit or charity workers

You can read more about the Medicare Levy straight from the horses mouth at the Australian Tax Office website here,

The Medicare Levy Surcharge

There is also an additional tax called the Medicare Levy Surcharge which is charged to high income earners. The Medicare Levy Surcharge scales between 1%, 1.25% and 1.5% of your income depending on how much you earn, which is assessed both as an individual and as a family unit.

You can read more about this on the Australian Taxation Office MLS article here, but the threshold to start paying the surcharge is $90,000 for singles and $180,000 for families.

Lifetime Health Cover Loading (LHCL)

The Lifetime Health Cover loading is designed to encourage people to take out their own private health insurance to reduce load on the public healthcare system, and generate revenue to fund Medicare.

The LHC loading makes private health insurance progressively more expensive above the age of 30. The government charge a fee of 2% extra on your policy for every year past 30 that you don’t obtain private health insurance. This then applies for the first ten years that you hold your policy.

This can add up to significant costs later in life, which essentially ‘back-pays’ Medicare for the some of the public healthcare benefits you have received.

Private health insurance in Australia

There are a wide variety of kinds of private health insurance policies in Australia. Just like you can get different levels of insurance policies for your home and contents, car or income protection, health insurance is a pretty vast and complex topic.

It is not easy to navigate, the policies are usually complicated and convoluted with PDS’ that stretch hundreds if not thousands of pages, and its tricky to know just exactly what you ar,e and arent covered for, and how much it is going to cost you.

Having said that, almost half of all Australian’s have private health insurance to supplement Medicare, and the Australian government strongly encourages higher income earners to use private health insurance since it saves the tax-payer money. Actually, there are some tax incentives to adopt private health insurance (and penalties for not doing so – but we will get to those later).

The most common types of private health insurance are;

  • Private hospital cover
  • General services or ‘Extras’ cover
  • Ambulance cover

What does private health insurance cover?

Private health insurance is an insurance product designed to cover healthcare costs for treatment in a private hospital.

It is sometimes referred to ‘baseline’ insurance, and is meant to cover things like serious accidents and injuries, and other significant or life threatening events resulting in hospitalisation or surgeries such as childbirth, heart attacks, diabetes or cancer treatments.

It is impossible to state with certainty what your private health insurance will cover, since ultimately it depends on which type of policy you take out, what level of cover it provides, and the specifics of your provider. Insurance companies differ and even similar sounding policies can have very different levels of cover that is only fully explained in their PDS.

What is General or ‘Extras’ cover

Extras cover is primarily designed to cover peripheral, or non life-threatening healthcare need which take place outside of a private hospital. These kinds of things usually include:

  • Dental
  • Physiotherapy
  • Optical healthcare

Dental

Dental cover is to cover your pearly whites. This primarily covers the cost of regular checkups (usually once or twice per year), however can be designed to help for the significant costs of;

  • Dental surgery such as removing molars or wisdom teeth
  • Braces and teeth straightening
  • Some cosmetic procedures like veneers or whitening

Physiotherapy

Physiotherapy cover is designed to cover patient initiated physiotherapy sessions. These usually cover things such as minor sporting injuries, massage, ergonomic assessments and advice, physical training assistance or help with Chiro (back / neck soreness).

Acute physiotherapy needs arising from serious injuries or accidents may even be covered by your baseline private health insurance cover, but its best to read your PDS and check exactly what you are covered for.

Optical

Optical extras cover is designed to cover optical healthcare costs. This includes things like eye tests, spectacles (glasses) and a limited number of contact lenses. Depending on your policy, you may even be eligible for elective surgeries such as Laser Eye Corrective Surgery (e.g. LASIK) but there are often extensive waiting periods.

What is Ambulance cover

Ambulance cover is designed to cover the cost of Ambulance call out fees, as well as patient transfer in an Ambulance to a hospital. It can also cover the cost of ambulance or Patient transport between hospitals or health centre.

What doesn’t private health insurance cover?

Private health insurance doesn’t cover everything, so its really important you know your policy and read the Product Disclosure Statement. It can be incredibly frustrating and expensive when you incur an expense which you cannot claim a rebate for, and discover your co-pay is 100%!

As mentioned earlier, private health insurance policies are primarily designed to cover the expense of treatment in a private hospital, so common exemptions for your private health insurance might include;

  • Pre-set waiting periods for certain events such as pregnancy
  • Elective or non-essential surgeries
  • Overseas Medivacs or medical repatriations when travelling
  • Ambulance services and transportation
  • Physiotherapy
  • Dental
  • Optical

It is common for health insurance providers then to provide ‘extras’ cover, or additional ‘add-ons’ to cover some of these specific areas, at a higher cost.

Waiting period for private health insurance claims

If you want to adopt private health insurance prior to starting a family, you will need to consider family planning well in advance. All private health insurance policies in Australia have a 12 month exclusion on any cost relating to pregnancy or child birth. A similar time exclusion is set for corrective eye surgery through HBF; 12 months for LASIK eligibility.

Elective or non-essential surgeries

Some elective or non-essential surgeries such as cosmetic surgery or laser eye corrective surgery are not covered on many private health insurance policies. Again, it is super important you know your policy thoroughly and have actually read your Product Disclosure Statement. Do not just rely on slick marketing or assumptions to ‘think you know’ your level of cover – ensure you know.

Ambulance services and transportation

Ironically, Ambulance cover in Australia is not generally included in standard private health insurance policies, and even in some policies with extras. A call out and trip to hospital in an Ambulance can cost you an out of pocket cost upwards of $850!

Some private health insurers will offer Ambulance cover as an additional ‘add-on’, or you might need to arrange a policy directly with Ambulance service providers.

Physiotherapy

Ongoing physiotherapy such as rehabilitation may be covered by your health insurance if it is required as part of a serious accident or injury following hospitalisation and with a scheduled physiotherapy plan from surgeons or your GP. However, this isn’t always the case.

Patient initiated physiotherapy, or things like deep tissue sports massage generally aren’t covered unless you have extras cover.

Dental

Regular dental expenses like checkups, scale and cleans, or expensive dental surgeries such as veneers, braces or molar removals are usually not specifically covered on your private health insurance. Dental is usually covered as an extra for an additional premium on your policy.

Overseas Medical care, ‘Medivacs’ or Medical repatriations while travelling

Before you travel overseas, you need to contact your private health insurance provider to let them know – you may even be required to lodge an intention to travel. Consult your PDS, because often medical care outside Australia is not covered on your policy.

The cost of overseas Medivacs and medical repatriations often reach into the hundreds of thousands, and even in cases into the millions, depending on the level of medical services and healthcare that is required. Again, this is likely not covered by your policy.

Accordingly, when travelling outside of Australia you should first consult the Australian Government Smart Traveller website, and then consider and research travel insurance. Travel insurance are a branch of insurance policies designed to cover travelers outside of Australia for a multitude of claims, not the least being medical insurance.

Some countries actually require this as part of the Visa process to gain entry to the country, and there are also some countries with reciprocal healthcare arranegments which you can learn more about on Smart Traveller.

How much does private health insurance cost?

The costs of private healthcare in Australia vary significantly according to several factors, the two largest factors being your demographic and desired level of cover. High deductible plans (i.e. akin to paying a large excess on your car insurance) usually have lower premiums, as do policies for younger, fitter individuals. Those demographics at risk of claiming more, such as families or older Australians, will pay commensurately more for their cover.

Average Private health insurance costs

On average Australians each pay around $3000 in premiums for their various private health insurance policies each year. The break down is approximately $2000 for private patient hospital cover, $850 for general (extras) cover and an additional $150 for Ambulance cover.

Not all policies are created equal, and there are budget plans available as low as $500 per year but these typically provide a much lower level of coverage than the average policy.

Private Health Insurance Rebate

To encourage Australian’s to take out private health insurance, the government offers a rebate on some private health insurance policies for low income earners.

This helps low income earners cover the cost of premiums for both Baseline private patient hospital cover and also general (extras) cover. This is in the form of a tax credit (that is funded by the Medicare Levy Surcharge).

The private health insurance rebate is means (income) tested; lower earners will receive a rebate, whereas earners above $90,000 (or $180,000 for families) will be liable to pay the Medicare Levy Surcharge – somewhere 1%, 1.25% or 1.5% of your income as per the ATO’s (non-disclosed) marginal rates. Read more about the MLS here or the private health insurance rebate Here

Lifetime Health Cover Loading example

Ironically, there is actually a cost for Australian’s to not obtain private health insurance. This is called the Lifetime Health Cover loading, which makes private health insurance progressively more expensive above the age of 30.

The government charge a fee of 2% extra on your policy for every year past 30 that you don’t obtain private health insurance. This then applies for the first ten years that you hold a policy. The money goes to funding Medicare, the concept being you are ‘back-funding’ the universal healthcare you enjoyed the benefits of earlier.

For example, if you do not take out private health insurance cover until the age of 40, your LHC loading will be (40 – 30) x 2% = 20%. You will pay 20% extra on your policy between the age of 40 and 50, and then at age 50 it will revert to the baseline cost that the private health insurer charges you. For the average Aussies $3000 policy, this means you will now be charged $3600, or at least an additional $6,000 (subject to inflation or rising policy costs) over the 10 year period it applies.

This is a significant cost, and it only goes up the longer you wait. If you think you will ever need private health insurance (and 50% of the population does use it)

Do I need private health insurance in Australia?

No, you certainly don’t need private health insurance in Australia. Medicare is Australia’s public or universal ‘free’ healthcare system and provides a world class level of healthcare to keep you alive. However, if you would like a higher standard of healthcare such as shorter waiting times and better ‘customer care’ such as private rooms, then private health insurance might be something to consider.

Before I share some of my families experiences with healthcare, I will put out the disclaimer that I came from a pretty poor family. My Mum raised us all on her own, as a single mum on an income below the poverty line. She couldn’t afford private health insurance, and had to rely on Medicare for our families health expenses.

My experience with Medicare

Both of my parents, as well as myself and many of my siblings have had multiple life threatening accidents, injuries and medical conditions, which have all been successfully treated through the public Medicare system. For example, both of my parents have had cancer – Medicare and the PBS has covered the cost of their surgeries, inpatient care and Chemotherapy with minimal out of pocket expenses.

My Fathers current chemotherapy treatment has an out of pocket expense of $650 per month, however the true cost of the medication to the PBS is well over $4000 per month. Sure, there are some minor commuting expenses to various specialists and hospitals, but he also receives the aged pension supplement and various other government benefits and concession cards which outweigh this cost. If he lived in America, or somewhere else in the world, he would probably just die.

When my mother was hit by a car whilst cycling, she was treated as a public inpatient. Unfortunately there was some issues with public hospital wait times and she was in a lot of pain as she waited for immediate surgery to set her many shattered bones, internal bleeding, traumatic brain injury and shredded and grazed skin.

She made an amazing recovery: while her superannuation income protection / TPI insurance covered a portion of her lost income which kept the house-hold running (which we nearly lost by the way, and resulted in a lengthy court case), all of her medical treatment was as a public patient through Medicare. This involved numerous surgeries, scans and imaging, treatments and ongoing physiotherapy and counselling. Outside Australia, the cost of this would add up into the hundreds of thousands of dollars.

My dear Mother then also had to suffer through Cancer, requiring three major operations and several rounds of chemotherapy. Again, this was all covered by Medicare and the PBS with minimal out of pocket expenses.

All of us kids were born in public hospitals, as well as all of my niece and nephews. This has included a few emergency Cesarean operations, with the only out of pocket expenses for delivery amounting to less than $1000 for various scans, tests and medications.

The Mothers in my family unanimously agree that a public hospital birth is better. Despite the draw back of “being treated like cattle” it is much cheaper and often safer. Since public hospital maternity wards are often better equipped, staffed and funded, complications in a private maternity ward often lead to being transferred to a public hospital!

When I was involved in a motorcycle accident, and again when I was accidentally poisoned by a doctor, I was transported by Ambulance and treated in a public hospital through Medicare. Despite what felt like agonizingly slow treatment at the time, I was well looked after. Again, after getting knocked out at footy taking a mark, and another time after a case of food poisoning (gastroenteritis) whilst flying, I was well looked after in public hospitals under Medicare with zero out of pocket costs.

My experience of Private health insurance

Having said that, my current employer provides me with a comprehensive level of private health insurance as part of my salary package – great health insurance, good superannuation, travel benefits and subsidized accommodation are some of the benefits and the reason why I accepted a lower monetary salary over what some of my fellow aviators get paid, and agreed to ‘bond’ to the company for 5 years.

Because of this I have also had inpatient care in a private hospital. Following my case of gastroenteritis, I needed extensive specialist testing for possible food allergens; this was required to keep my Class 1 Aviation Medical from CASA, and by the company to get me back to flying unrestricted after hospitalization. This involved interstate travel and no less than about a dozen expensive private specialist sessions, including a colonoscopy at a private hospital.

Since I had the health coverage, I also opted to have my wisdom teeth removed when they were consistently causing me grief – mouth and gum pain is not fun, especially at 30,000ft! (aircraft pressurisation systems makes it worse). This is not something that is covered by Medicare, and on average you can claim back around $500 per tooth for private health insurance. I had all four removed, with no out of pocket expenses other than lost income due to time off – a week of ice cream and jelly.

The final private hospital procedure I have had was what I jokingly call my ‘lobotomy’ or ‘nose job’. Due to flying pressurized aircraft, copping a number of blows to the face / nose during footy, and I guess just a genetic defect (thanks Mum and Dad!) I had a less than ideal nasal airway passage. I would get nosebleeds fairly easily, especially at altitude or during rapid decompression (aircraft pressurization system failure). This is clearly not great for a Pilot, and so work covered an elective septum deviation rhinoplasty procedure in a private hospital – something that was unavailable through Medicare at the time.

My experience: Public Medicare vs Private health

Overall, my experience with both Public and Private health care systems has been overwhelmingly positive. Public healthcare through Medicare has been more basic and much, much slower, but in my opinion is perfectly acceptable – and the price is right!

I very much preferred my treatment as a private patient in a private hospital, its just nicer and quicker and I had my own room. It was more luxurious and efficient – I was in and out much quicker. If you are a high net worth individual and you value your time and privacy highly (over $1000 per day?) , then private health insurance is probably worth the expense for you.

However, I only have comprehensive private health and extras because work pays for it! If and when I leave this job, I will be using the Medicare system primarily. However I will most certainly purchase a very specific type of private health insurance coverage policy during my ‘early retirement’… more in this below.

What is the best private health insurance for Financial Independence?

If your fairly young, pretty healthy and don’t claim much, you can probably ditch your comprehensive private health insurance and extras cover and opt for a ‘high deductible’ baseline healthcare plan, where you basically just pay a larger portion of the the co-pay (the ‘excess’) and must reach a higher threshold of medical expenses before you can claim any of it back.

This can usually reduce your ‘baseline’ private health policies premium to around $500 a year. This provides you smart insurance against medical issues that could potentially financially ruin you, but more importantly in terms of direct cost it lets you avoid the government Lifetime Health Care Loading Tax.

As we calculated earlier, the LHCL tax can amount to tens of thousands of dollars in inflated premiums later in life. If you do not heed this warning and get a ‘budget’ private health plan before you are 30, you will be stuck paying it for a decade when you finally do take out private health! the longer you put it off, the more expensive it becomes.

Further, I would not advise cancelling your ambulance cover to save money – this is only around $150 per year and who knows when you might need it. Personally I have had three ambulance rides in the past 5 years, and this alone has validated paying for another 14 years of ambulance cover!

Private health insurance is NOT income protection or TPD insurance

Private health insurance is completely different to income protection insurance, Total and Permanent Disability (TPD) insurance (sometimes called Total and Permanent Impairment (TPI) insurance in Australia) or workplace occupational health and safety insurance such as WorkCover.

TPD, WorkCover or income protection insurance typically cover things like:

  • Replacement income lost due to injury
  • Healthcare and rehabilitation costs like physiotherapy which are not covered by Medicare
  • Miscellaneous legal costs
  • Lump sum compensation for serious injuries

Most Australian workers carry some level of TPD or income protection insurance through their mandatory WorkCover insurance (paid by employers not by the employee) or through their personal superannuation accounts. This is usually far cheaper than buying it directly, and sometimes this even provides a level of private health insurance coverage too.

While private health insurance covers some of the acute healthcare costs, TPD or income protection insurance is designed to cover you for the loss of income during this period and provide a life-line to keep your household running, including paying your out of pocket legal, healthcare and rehabilitation costs. They kind of all work together, but are separate, distinct policies (and you pay for them all seperately!).

TPD generally covers a permanent inability to work, and income protection insurance covers a loss of income from not being able to work full time for a set time due to ongoing medical treatment and rehabilitation. These can either be paid out as a lump sum payment, as a percentage of your usual income (usually between 50-80% of your base-line pre injury income) or a combination of both.

You can read more about it in this very informative article on the Australian Securities and Investment Councils MoneySmart website – ‘How Life Insurance Works‘. While your at it, click around and soak up all the goodness and smart tips on the ASIC MoneySmart site – your tax dollars are funding this site and its research to help people improve their personal finances!

TPD (or TPI), Income protection insurance and WorkCover are all separate things, but kind of similar. And they are distinct from private health insurance. Discussing these warrants an entire discussion on its own, due to their complex and sometimes overlapping structures. You are best to seek expert counselling from a financial advisor if you are looking to structure use of these insurances.

Who are Australia’s biggest private health insurance providers?

There are a number of free and useful comparison tools online which you can play with to check out different types of health insurance cover and the policy costs. The biggest providers of private health insurance in australia are;

  • Bupa
  • MediBank private
  • NIB
  • HBF

Summary

I hope you have gleaned some useful information for this article; I certainly have whilst writing it. To summarize – its not one or the other. You can take out private health insurance policies and still use the Medicare system at any time.

Medicare and the PBS are Australia’s universal healthcare schemes and they are more than adequate for most of your through-life healthcare needs, apart from certain elective surgeries and specialist medications. Surprisingly, Medicare also does not cover Ambulance fees.

You pay between 2 – 3.5% of your income to help fund these schemes through the medicare levy and medicare levy surcharge, as well as some other various contributions like the lifetime health cover loading. High income earners pay more, and low income earners pay less. Those on welfare are entitled to some discounts and rebates to avoid paying these taxes.

For tax savings, it is well worth exploring a cheap, ‘high deductible’ private health insurance plan to avoid the Lifetime Health Cover loading, and you might get a rebate through the Medicare Levy Surcharge to help cover your premium. These start from around $500 per year, with Ambulance cover being a separate plan starting at around $150 per year.

More comprehensive Private Health Insurance policies with extras cover are probably more suited to high Net Worth Individuals who place higher value on their time and privacy – I would suggest those earning more than $1000 per day or with a Net Worth over $1,000,000. These policies on average are more like $2000+ per annum for baseline private hospital patient care, and a further $850+ for generals (extras cover), but can cost dramatically more – even in the 10’s of thousands for some families or older Australians.

Income protection insurance is distinct from private health insurance, but is designed to help in instances where you might need to use your private health insurance. This can be purchased as a separate ‘add-on’, but you likely already have some level of TPD or income protection policies through your employers workplace occupational health and safety program insurance such as WorkCover, or through your personal superannuation TPD insurance.

RFDS: the Royal Flying Doctor Service

P.S. if you are looking for a great charitible organisation to support, please consider a donation to the Royal Flying Doctor Service of Australia. You can find their collection tins in pubs all around the country! This is an amazing organisation and on my top list of jobs to apply for once I retire from mainline flying operations.

CaptainFI

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3 thoughts on “The cost of Private health insurance vs Public Healthcare in Australia

  1. Hi CaptainFI,

    I like your comprehensive run down of the financial aspects of private healthcare, and as a Dr who currently works in public and private hospitals in Oz I’d like to add my thoughts. This is a complex, subjective and individual decision for everyone, and a large yearly expense for anyone interested in FIRE. I’ve read many articles in aus newspapers over the last 2 years quite universally criticising the need for private healthcare in young people, which I find absurd. Of course insurance is only helpful when you need it, and you don’t know you need it until you really need it, and then it’s too late to obtain immediate insurance (12 month waiting period for pre-existing conditions).

    Basically I think in terms of healthcare we live a very very lucky country, and if you’re sick and can’t/have difficulty working, your basic survival + income/welfare needs will be met, but usually the system doesn’t provide any more than that. In many ways have private healthcare is similar to having income protection insurance or comprehensive car insurance. Maybe because I work in the system I feel guilty that many of my patients have health-induced financial problems, but every fit and well person needs to be aware of their options.

    As this is a financially themed blog I will use a financial lens to describe our options.

    1. Have no private health insurance, rely on medicare and your savings if you want to bypass the public system wait
    – the public hospital system is the best place to be if you’re very sick (life-threatening or complex) but for everything non-life/limb threatening the waiting times are eye wateringly / FI crushingly slow. Remember that all officially listed waiting times are KPIs that everyone in the hospital (including myself) work hard to optimise while everything else is de-prioritised. Not being able to work does not elevate you in the the wait to see a specialist (6-18 months) or the subsequent 1-2 year wait for elective surgery. Some procedures are not even offered publically. If you can’t work/sleep/look after your family for this period there’s little you can do, and if you don’t have income protection insurance you’ll need to rely on welfare.
    – You can pay to get healthcare privately (conceptually using money saved by not paying for insurance eg basic plans are $100-150 per month). This works well for any non-surgical assessments/treatments. You can pay for simple/small surgeries in private hospitals but not significant surgery. Many private hospitals do not allow general anaesthetic (therefore any major surgery) in uninsured patients as a few % of people take many hours to wake up or have other complications and therefore need an overnight ICU stay (10-15k/night).
    * you can buy health insurance after the onset of a condition but have to wait 12 months before it’s insured (which is shorter than many elective surgery waiting lists)

    2. Have basic health insurance, focus on your health and hope for the best
    – a good diet and exercise won’t save you from most illnesses, cancer, accidents. A small number of young people need silver/gold-level medical care (eg joint replacement, dialysis) and there’s no way of knowing.
    – single person basic insurance costs me $100-150/month and should minimise time off work in the event of illness or accident.
    – the compound interest on $150/month for 20 years is $62k, and as you’ve detailed there are tax rebates and penalties too.

    3. Have comprehensive insurance
    – about $250/month
    – appropriate if you already have multiple medical problems and anticipate using it
    – appropriate if you want to avoid time off work at all costs

    At the end of the day it’s a personal financial risk decision, like all of investing or TPD/income protection insurance. For average folk who want to retire at 67 I think basic insurance is a good idea if you have enough income to afford the latest iphone, a macbook, mid-range car, comprehensive car insurance, overseas holidays etc. People who want to FIRE need to balance the cost of 6-12 months off work (or intermittent job/sleep disruption) vs the cost of insurance. There is no good way of estimating your personal risk of needing to take time off, but it happens to many people.

    1. Dr FI, what can I say but wow. Very comprehensive reply to the article and really appreciate your experience on the matter as a subject matter expert. I really like how you start to break down it into the categories and what might be appropriate for certain people / phases of life. all the time we hear ‘ check this product suits your personal needs’ but how the f do we know if it meets our needs if we dont have any information or datum to compare it to. Its so true that you don’t need insurance untill you do, and by then its too late. I guess it all comes down to our realistic risk appetites and personal risk factors. Sounds like I really need to chew your ear on this one, and delve a bit deeper. Perhaps a health insurance podcast!

  2. Yeah this is a complex but important topic with no published decision making process. In the era of diagnosis by blood test one of the main roles of Drs is to help people make individualised choices.

    Since I posted my original comment I found out 2 useful pieces of info:
    1. https://www.doineedhealthinsurance.com.au/ a website from choice will tell you based on your income if private insurance is cheaper than the Medicare Levy Surcharge. For me, a single earning > $90k pa, I save money by having basic health insurance.
    2. By googling I found some hospitals/insurers that enable uninsured people to have some low-moderate risk surgical procedures done privately. So the option of not buying insurance, aiming to FIRE and buying care if you need it is a competitively priced option.

    I think if FIRE were easy and low-risk, then everyone would be doing it. Good luck!

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