Private Health Insurance in Australia

[abyss]

My partner and I are Australian and we're under some pressure from family to consider buying private health insurance.

We don't earn enough to be charged the extra medicare levy for high income earners, but we are over 31 so if we ever do want private cover we will attract the 2% per-year penalty on our premiums.

The family encouragement is based around an assumption of better and faster care being available under private cover. We're generally quite fit and healthy and in our mid-30s, but I guess you never know what might happen.

Does private cover make sense to other Australian mustachians? We could go for hospital-only cover with a high excess like MMM recommends for Americans, but is that value for money in an Australian context?

[petey]

We had it. When my wife got sick, the best place for her to be was the public hospital. It didn't achieve anything.

Now we don't - granted we are under 31, but unless we were having kids (and even if we were), we could probably not bother with it.

If you spend every month at the chiro, every second month getting a dental checkup and the rest of your time at the GP, maybe consider the extras, but if you are fit, healthy and not a hypochondriac it's probably not financially worth your while.

[arrow1963]

It doesn't sound to me like PHI would be good value for you.

Australia's PHI system is heavily regulated, and your premiums *will not* be related to the amount of private health care you would be expected to require.


All Australian adults, regardless of age, health or gender, face the same basic premium for private health insurance.  Premiums are then adjusted for income & age . The choice to have equal premiums is a statement of social values, and hugely redistributive, from younger & healthier enrollees to those who are older or sicker.

One of the (equity based) decisions made in the US Affordable Care act was to limit age based differences in insurance premiums to a 3:1 ratio, which underestimates the actual differences in health expenditures.  In Australia, that ratio is 1:1, or less, since seniors receive a discount.

On the basis of probabilities, this means that private health insurance is a very poor deal for healthy people in their 20's or 30's, and a very, very, very good deal for those in their 60's, 70's and 80's.  Australia's PHI system thus has a number of regulations which encourage, or effectively force, younger citizens to take out health insurance in order to subsidize older enrollees.

The most obvious of these is the medicare levy surcharge which you must pay if you make >(approximately) $85K as a individual or $150K as a family.  For most above these income levels, it's cheaper to buy the basic insurance than to pay the surcharge.  This is what I refer to when I say younger taxpayers are 'forced' to take insurance.

Secondly, you've alluded to the "Lifetime Health Cover" program, which adds a surcharge to the basic hospital rate for every year you're over 31 and you don't purchase insurance.  This incentivizes younger taxpayer to buy insurance, and discourages people from jumping in and out of the system when they know that they'll need care.

You could think of buying insurance as an 'investment', which (assuming that you continue to buy insurance every year) pays you:

2% (after tax) interest/year, increasing at the rate of PHI inflation

On the plus side, that's a guaranteed return that's close to term deposits (after tax), and you get insurance.  On the other hand, you have to spend money every year to 'save' this money, and it's a worse deal that the dividend yield on most broad ASX index funds (which also offer opportunities for growth).


Since you don't qualify for the medicare levy surcharge, you would receive a discount on your insurance premiums.  However, I think you should consider the circumstances under which you'd actually want to access private care.  Unlike in many countries, most acute care and emergency care in Australia is in public hospitals, and you may find that you wouldn't want to 'buy' private care even with insurance, after consideration of the copayments and deductibles. 

[Ozstache]

My wife had it for the birth of our first child and not only did it not make any difference to the service she and my son received while in hospital but we also were hit with a number of small, but nonetheless annoying, gap bills from our private health insurer. For our next child we went medicare all the way baby and everything was good and FREE.

That was 20 years ago and we've been on medicare ever since. We've had a couple of day medical procedures in that time where we've paid ourselves to jump the public system queue, and that's been about $3K total. Compare that to the $3K+ per year we would have paid for private and that calculates to being $57K+ ahead. As you can imagine, we are not going back to private health insurance anytime soon.

[happy]

I have private health insurance, but always had the high income surcharge to contend with. I'm now 54 and probably if the stats are to be believed, I am starting to get into the time when  health insurance will "payoff". I have extras and what with 2 kids: dental, orthodontics, optical, glasses and orthotics we are possibly slightly ahead. Despite us all being quite healthy we've chalked up something like 4 private hospital admissions, 3 to do with childbearing matters, and probably another 5-6 day only admissions. I've never had an issue with gap payments.

Its quite true, if you are admitted to a public hospital whilst being privately insured it will highly likely make no difference whatsoever.  Most acute illnesses and trauma come into this category.  I've worked in public hospitals for over 30 years and most specialists make very little distinction between private and public patients in a public hospital and other hospital staff make no distinction at all. In fact, having a sense of entitlement about being privately insured in a public hospital will likely win you no friends. Private insurance is good if you are fairly healthy and have a need for an elective procedure, and you wish to avoid what can be potentially long wait-lists. Private hospitals however are not necessarily "better"; particularly if you have chronic and complex health problems. Personally I've always found private hospitals run by religious organisations are of higher quality than those run by for profit organisations making profits for shareholders.

If I had my time over again, and was young and healthy, and particularly if I was not up for the high income medicare surcharge, I would create my own "insurance fund "by setting aside/investing  the premium amount each year .  As Ozstache found, if you remain generally healthy you may well end up with a nice little nest egg, which should pay for any private procedures you wish to have.

[Aussie]

Some family members without PHI just had a baby going through the public hospital system.  They live in a growth area and the metro hospital was super crowded.  They ended up driving 30 minutes to a regional hospital and had an awesome experience!  The got a private room, great doctors/nurses, and they were not rushed out at all.

In general, I am always skeptical of products advertised aggressively during footy.

[kit]

I have private health insurance because I'm required to (terms of my 457 visa) and I can't wait for PR so I can dump it. It's pretty much wasted money every month and the service is more or less impossible to use. I have a basic hospital only plan but my other 457 buddies with the gold-plated policies express nothing but displeasure over how little they get out of them.