Should I get private health insurance?
Turns out most of us have no idea how Private Health Insurance works.
The reality is that Private Health Insurance is an extremely complex product. In fact, so much so that many people we spoke to while researching this topic (private insurance policy holders, doctors, and insurers themselves) couldn't really explain what exactly it does.
Given this, we've found that many purchasing decisions about Private Insurance aren't particularly well informed; purchasing decisions seem too often to be guided by emotion and half-truths rather than the real underlying economics of the product.
Our goal at Prosple is to help people make the best decisions for themselves as consumers. So today, we're shining some light on the murky world of Private Health Insurance: to understand the product, to highlight its real benefits and to dispel the myths.
It's two different products, really.
There are actually two very different types of Private Health Insurance: Hospital Cover and Ancillary or 'Extras' Cover .
Hospital Cover helps you pay for expenses you incur as a patient in a private hospital (though it will almost never cover all of the costs - more on that later). It's important to know that Hospital Cover doesn't admit you to a highly privileged Private Patient Club. You do not need private health insurance to be admitted to a private hospital; Hospital Cover simply helps you pay the costs associated with your admission and treatment.
Ancillary or Extras Cover helps you pay for the cost of outpatient medical treatments that aren't covered by Medicare: dental, optical, physio, chiro, osteo, natural therapies, alternative therapies, some pharmaceuticals and often a few others.
There is a third type of cover (that can often be bundled into either Hospital Cover or Ancillary Cover, or bought standalone): Ambulance Cover . Yep. Ambulances aren't free. The cost depends on distance travelled, the level of care given in the journey and the State within which the ambulance is operating - but is typically $300-$1,000. NB: ambulances are free in Queensland, covered by a $100 p.a. levy added to all electricity bills.
Most insurers offer bundled packages that include Hospital, Extras and Ambulance. However, a recent Choice study found that, in many cases, buying a bundled package didn't offer better value than buying individually - so we like to think of them as separate products altogether.
Of all these covers, Hospital Cover is the most costly, most relevant to your tax situation and the most misunderstood. As such, we'll look at Hospital Cover today, and will get to Ancillary Cover next week.
So, you want a Private Hospital?
The purpose of Hospital Cover is to help you pay for Private Hospitals. So the first question you need to ask yourself is whether there are foreseeable reasons you may want to use a private hospital in the future.
Good reasons to use a Private Hospital
- 'Elective' surgeries. For many medical interventions that are considered non-urgent, the public system has very long waiting lists to get treatment. Depending on the treatment, the hospital, the seriousness of your condition and sheer luck, the wait can take months and in some cases more than a year. The Government publishes a lot of information on waiting times on the My Hospitals website - see for yourself. In a private hospital with your own doctor, on the other hand, you will be able to get treatment very quickly.
Some of the types of surgeries that are considered elective: wisdom teeth/tonsil removal, knee/hip/shoulder investigations/reconstructions/replacements, gall stone removal, hernia, neurosurgery, heart bypass surgery, and more.
Of course, our world-leading public health system can and does cater for many pregnancies, and does so with no out-of-pocket expenses to the patient (which is just absolutely amazing). Most of your ante-natal visits will be managed by mid-wives, and if you have a low-risk vaginal delivery, you may in fact not see an obstetrician throughout your whole pregnancy.
Bad reasons to use a Private Hospital
- 'If something serious happens, I want the best care'. Many of the doctors we spoke to who are familiar with both public and private hospitals said they'd prefer to be treated in a public hospital if they had a serious condition. There were a few reasons for this:
- There are more doctors 'around'. In a public hospital, if you are in sudden need of urgent medical attention, you can have a handful of doctors are your bed in less than 5 minutes. In private hospitals, since all doctors are privately engaged by the patients, there are less 'hands on deck' should something go wrong. Of course, the hospital itself employs support staff (nurses and doctors), but there would still be less people on hand
- Wide range of specialists available. If you are being treated by a neurosurgeon in a private hospital, but have minor complications with your respiratory system or joints or digestive system or otherwise, your neurosurgeon may tend to provide minor treatment to those complications rather than engage another specialist. In a public hospital, you have a team of healthcare providers with a wide range of specialties on hand to treat you.
- 'If I have an emergency, I'd prefer to go to a private hospital'. If you have an emergency, you'll most likely end up in the public hospital. Only some private hospitals have emergency wards and they are generally much smaller and less equipped. You could be transferred to a private hospital at a later stage, but if you are in a real medical emergency, you're likely to get the timely treatment you need in a public hospital.
So, what does Hospital Cover do?
Now that we've got a better understanding of the benefits of a private hospital, it's important to understand exactly what Hospital Cover does to assist you in meeting the costs of treatment in a private hospital.
- Pays for (generally) 100% of
the cost of hospital fees. This is a lot. When you are treated in a private hospital, the Private Hospital will charge you a certain amount for your stay. The amount they charge will depend on the length of your stay and the type of treatment you receive, but can be in the range of $1000-$5000 per day. Your Hospital Cover will pay all of these costs on your behalf, but will sometimes require you, to pay a co-payment/excess, which can be a few hundred dollars a day (and generally no more than $500). This is generally the case for cheaper forms of Hospital Cover.
- On top of your hospital fees, you'll receive a bill from each of your doctors for the treatments they performed on you.
- If a particular treatment is on the Medicare Benefits Schedule. Medicare will pay 75% of their prescribed total benefit to you (even though you were in a private hospital).
- Your private health insurer will pay the remaining 25%, so you receive in total 100% of the Medicare Benefits Schedule.
- The bad news? Medicare benefits are much less than most doctors charge, so you'll still have a big gap between your benefits and the total cost (this is known as the Medicare Gap and contributes to your Out-of-pocket Expenses ).
- The Gap is big. Despite your private health insurance, you can still have $1000's of out-of-pocket expenses that you will owe to your doctor. Note that your doctor must get your informed consent to the fees before they perform the treatments.
So, how much will private hospitals cost me?
Insurance won't make private hospitals free. In almost all cases, you will still have significant out-of-pocket expenses when visiting a private hospital, even with your insurance.
Example 1: Wisdom teeth removal
If you were having your wisdom teeth removed from the Mater private hospital in Sydney's North Shore, your hospital fees of around $1,400 would be paid by your Private Health Insurance, but you would be liable for $800-$3,000 of doctor's fees (depending on the doctor). There is no Medicare coverage for dental care.
Example 2: Surgical removal of torn knee cartilage (meniscectomy)
If you were having a knee arthroscopy at the same hospital, private health insurance would pay hospital fees of closer to $2,500. Your insurer would also contribute to your orthopaedic surgeon's and anesthetist's fees, with probably around $200. Medicare might pay around $600, leaving you with another $500 - $2,000 worth of out-of-pocket expenses.
The Medicare Levy Surcharge
The federal government has implemented a Medicare Levy Surcharge of 1% on high income earners to incentivise them to take out private health insurance. You will be liable to pay the surcharge if you:
- Don't have approved Hospital Cover with a private health insurer; and
- Have a taxable income of more than:
- $80k for an individual, or
- $160k for a couple or family, + $1.5k for each dependent child after the first child
If you exceed the income threshold for the Medicare Levy Surcharge, you should (at least) get the cheapest hospital cover available. Note that you only need Hospital Cover, not Extras/Ancillary. The cheapest cover for singles, according to this government comparison website. is HIF Goldstarter. at $39.25 per month (for NSW customers). Your total premiums will be $471 each year, which will save you at least $800 in taxes - and potentially more, depending on how much you earn. It's worth it.
Note that the Medicare Levy Surcharge is separate to the Medicare Levy . The Medicare Levy is applied at a rate of 1.5% to your taxable income, and cannot be avoided by procuring health insurance (exemption to this levy is only provided to low income earners, to foreigners or on medical grounds).
The Bottom Line: Should I get private health insurance Hospital Cover?
It's a difficult question, and (as with any insurance) is a personal one; it depends on your appetite for risk. To assist you in your decision making, we find it useful to consider the following 4 questions.
Would I otherwise be liable for the Medicare Levy Surcharge?
If you answered yes, you should get (at least) basic level of cover, as discussed above.
Would I want to have a baby in the next 3 years? And if so, would I want to choose my own obstetrician and/or have my baby in a private hospital?
If you answered yes, you should get a policy that covers you for obstetrics. Note that most covers have a 12 month waiting period on obstetrics - and you generally need to conceive after the waiting period is over. Make sure you are prepared and sign up for health insurance in advance.
Am I likely to need at least one elective surgery in the next 5 years?
If you answered yes, you should get a basic level of cover . This may seem like a strange question (and a difficult one to answer), but it's based on the economics of your premiums. A basic level of Hospital cover costs around $500 per annum, and the amount insurance can contribute to elective surgery is around $2,500. If you receive one elective treatment in the next 5 years, you will (very roughly) break even. You may have an increased need for elective surgery in the next 5 years if you have an existing medical condition, play a sport that has a high risk of injury, or if you have a history of dental problems.
If something 'serious' happens in the next 5 years, would I want to be in a private hospital?
If you answered yes, you should obtain a level of cover that is suited to your risk appetite. The cost of a long stay in a private hospital will substantially outweigh your premiums. The good and bad reasons for private hospitals above will help you in answering this question. Remember that the public system caters for (and arguably is better suited to treat) 'serious' medical conditions.
What's your experience with private health insurance? Got a question about insurance that you still don't get? Or got a completely unrelated query? Throw them all at us!
Stay tuned next week as we tackle the other half of Private Health Insurance: the Extras.