What is the cost benefit of your private health insurance?
Every year private health insurance premiums rise on the 1st of April and households around Australia ask themselves in unison – “What are we paying for?”
Having private health insurance cover for your average family equates to a small fortune every year and when there’s been no health emergencies or accidents, we often question whether we really need to keep the cover.
For the most part, fear prevents you from cancelling. Fear that the moment you do, something will happen and you’ll realise that you really did need it and it was all worth it after all.
You’re certain there are some advantages over relying solely on the public system – but you’re just too busy to really look into it and confirm for yourself what they actually are. If you were to set some time aside, you’d have to learn the language of Australia’s health care system with fees, schedules, gaps, limits, benefits, schemes and all sorts of other terms thrown into the mix with no start and end to where services offered under the public and private system seem to start and stop.
Well in anticipation of the 1st of April price hike – I thought I’d look into this one for you before you hear the national chorus start to sing again “what are we paying for?”
First off, how does the public system work?
Public health care is provided by Medicare, which is administered by the Government.
It provides access to a range of health services at little or no cost and is funded by a combination of general revenue and the Medicare levy.
All Australian citizens and permanent residents have access to Medicare even if they also have private health insurance.
Because Medicare has its limitations in what it covers, private health insurance provides for a number of extras at a cost to you.
Perhaps the easiest way to look at the differences and therefore assess the value is to look at the difference between care as a public and private patient in hospital and then when it comes to extras or ancillary health services (like dental & physiotherapy for example) which generally aren’t covered by Medicare at all.
Hospital differences
If you don’t have private health insurance, Medicare covers treatment as a public patient in a public hospital. This is provided free of charge, but you won’t have a say in the doctor that treats you – you are assigned a doctor depending on availability at the time you are admitted.
With private health insurance, you may choose to be treated in either a public or private hospital as a private patient. As a private patient, Medicare will cover 75% of the Medicare Benefits Schedule fee and the remaining costs may be partially or fully covered by your private health insurer, depending on your individual level of cover, the doctor you choose and the hospital you’re treated in.
None of this really matters when it comes to emergency surgery. Whether you are a public or private patient, as an Australian citizen you will be provided with required care under the public system at no cost to you. If it’s an emergency, most of the time you would be transported by ambulance to the nearest public hospital for emergency treatment. So if you are rushed to hospital with appendicitis for example and require emergency surgery to remove it – this will be provided at no cost.
However, the ambulance ride to hospital is not covered by Medicare (at least in NSW it’s not – some states are different). Private hospital cover usually picks up the tab for the ambulance depending on your level of hospital cover. If you don’t have private health insurance, you will have to pay this out of your own pocket, which can amount to anywhere between $350 – $500 dollars depending on how far the journey is and which state you live in.
Elective surgery – anything that’s not an emergency
One of most noticeable benefits of having private health cover when it comes to hospital, is that waiting times for elective surgery are greatly reduced. Elective surgery is non-urgent, medically necessary surgery that can be delayed for at least 24 hours.
Because public hospital waiting lists operate on a priority basis, as a public patient, you could be waiting months or even years for your operation. Even when you are given a date, there is the possibility that you’re told that your procedure has to be postponed because of the more urgent needs of other patients.
Take the example of someone needing a full knee replacement. Whilst not life-threatening, they are likely to be in pain and have mobility issues – which undoubtedly impacts on their quality of life.
Whilst their surgery isn’t considered urgent, waiting to be treated under the public system when you are in pain and possibly unable to work is not a desirable situation. Another common one for families is when a child has to have a tonsillectomy. Medical opinions can vary on the necessity and urgency of these kinds of procedures which can mean you wait for lengthy periods of time on a public system waiting list.
With private health cover, you can see a specialist of your choice (as soon as they’re able to fit you in) and you’re given a definitive date for your elective surgery that’s locked in and usually not far away from your initial appointment with the specialist.
So what are the average waiting times on these elective surgery lists? Well it depends very much on the local area hospital and the area of speciality (e.g. gynaecology, cardiology, orthopaedics etc). In some cases it can be as quick as a couple of weeks, in others, it can be in excess of a year.
And this is the issue with public wait lists, you are falling into a much larger pool of patients than you are a private patient competing only with the existing patients of your preferred specialist.
Having a baby – public vs private
Another big one for us mums is family planning.
If we are still having babies, having private health insurance affords you the option to give birth in a private hospital of your choice with an obstetrician of your choice looking after you.
Now for some mums this isn’t a necessity. They have had successful and trouble free deliveries and positive experiences with their antenatal care under the public system. It doesn’t matter who you’ve asked, you have good and bad stories from mums who’ve chosen to deliver public and from mums who’ve chosen to deliver private.
There are a number of advantages to a stay in a private hospital including choice of obstetrician & hospital, continuity of care, private rooms, auxiliary services throughout your hospital stay, longer stays in hospital if desired, night nursery etc.
For me, what it essentially boils down to is that I had a natural delivery with wonderful care from both the midwives and obstetrician I delivered with at a private hospital. Both my daughter and I were healthy and there were no complications. I thoroughly enjoyed the experience, treatment and care I received and I would like to go down that same road the next time I have a baby.
I might also note that it cost us nothing (no out of pocket expenses) – our insurer picked up the bill. There was the hospital excess of $500 which you have to pay to make a claim which is standard amongst most policy types. So for us, from a family planning point of view, private health insurance gives us this option. I admit that it is entirely possible that I could have the exact same outcome going public without the $500, but that is an unknown and the choice to whether your monthly premiums are worth this is undoubtedly 100% personal.
What it boils down to (in my opinion)
After looking into it in detail, it would seem the decision to have private hospital cover can be narrowed down to some combination of convenience, comfort & peace of mind.
It is also a valid point to argue the choice of doctor is an advantage. While there is no authoritative evidence that you’ll receive any better treatment in a private hospital than in a public hospital (although you’ll find plenty of personal opinion on the matter) – it cannot be argued logically that some doctors are not better than others.
Just as with any profession, individuals have differences in skills and qualities that make them better or worse than their peers at their job. Obviously there are basic competencies which allow them to be licensed in the first place but competent and exceptional are two different levels of capability altogether.
How to avoid being out of pocket as a private patient
One thing that bothers most people about paying their private health insurance premiums is that they still feel like they’re out of pocket when the bill comes in.
Well this is true in many cases and by how much depends on two factors:
- What hospital you are operated on in; AND
- Which surgeon / doctor you elect to do their surgery
Your health insurer will usually cover 100% of the accommodation costs of your stay in private hospital if you stay in an approved or ‘member’s choice’ hospital. Now most private health insurers have agreements with most hospitals but not every hospital has a deal with every insurer. Being admitted as an inpatient to a non-member hospital will mean you are likely to incur significant out of pocket expenses as the fund will only pay a percentage of the hospital’s charges.
Tip: If you are a private patient and going to hospital for elective surgery, check to see whether the hospital you plan to be treated in is a member hospital of your individual health fund. These lists are readily available on your insurer’s website in most cases.
The next issue is which specialist you select and more specifically, whether they participate in your health funds “gap cover scheme”. Whether or not they participate essentially determines whether you will be out of pocket for their services and by how much.
For all treatments, Medicare will cover 75 per cent of what is known as the ‘schedule fee’. This is the fee recommended by the Department of Health that should be charged by a doctor for a particular service. Private health insurance will cover the remaining 25 per cent of the schedule fee.
But in practice, most specialists charge much more than the schedule fee. So the gap cover scheme is essentially an arrangement between individual specialists and the insurance company, where the specialist agrees to cap their fees at a certain rate above the schedule fee.
Tip: If you are a private patient and going to hospital for elective surgery, check to see whether the specialist you plan to use participates in your health insurers “gap cover scheme”. These lists are readily available on your insurer’s website in most cases.
Extras or ancillary services
The other great advantage to private health insurance is the availability of extras cover. Extra’s cover is designed to cover you for common health services you might need on a regular basis that aren’t covered by Medicare.
Services and treatments like, dental, physiotherapy and optical services are the kind of things that are included but exactly what you are covered for will depend on your level of cover.
Essentially how cover works for ‘extra’s cover’ is that you get a percentage back on the service fee charged by individual providers per treatment. You get a higher percentage back by using approved providers – much like using member’s choice hospitals with hospital cover.
Dentist
Dentist bills are one of the best reasons to seriously consider private health cover.
A shadow shopping expedition conducted by Choice of over 3,000 dentists across Australia revealed the cost for a general check-up and clean can range anywhere between $180 – $320 per person. For a family of four that’s a small fortune in itself.
We’re insured with Medibank Private for example, and according to Choice’s research, they have over 1600 participating dentists nationwide in their no gap scheme. We happen to go to one of them, and don’t pay a cent to see the dentist. If you do have insurance and are still paying out of pocket to see a dentist. You may not be making the most of your premiums. Consider reviewing your options to see whether you can switch to a comparable dentist that works within your funds no gap scheme.
Optical
Another popular service and the second most claimed upon by private health insurance customers is optometry treatments and products. Many insurers even offer 100% back on costs up to a capped amount per annum.
Medicare cover the cost of eye examinations provided by optometrists for all permanent residents of Australia, but you need private health insurance in order to receive any subsidy for contact lenses and glasses for example. If your eye sight is impaired private health insurance is an advantage in this area.
Still not sure and contemplating self-insurance?
It’s crossed your mind at some point. Instead of paying these premiums to the health fund, what if you put them aside in a savings account and then paid the hospital medical bills from this stash of cash instead?
Financially this could make more sense if you aren’t a big user of the extra’s health services on your policy and you are young, fit and healthy. You’d be earning interest on your money after all. Another incentive for self-insuring is that you can claim a 20 per cent tax rebate on medical costs above $1500 in any financial year.
However what if something happens and there is an unfortunate bill to pay in the first few years you are without cover. You’ve not had the chance to build your ‘self-insurance’ fund up to an amount big enough to cover the bill.
There is also the high probability that you won’t save the money. Most people are poor savers. Think about how much you save now for example?
Even if you are a good saver and put that money away, what’s to say that once you’ve accumulated a healthy $10,000 – $20,000 fund that you don’t dip into it for a holiday or put it towards the down payment on a bigger place to live?
Or maybe you’re thinking about cancelling and taking it up again in a few years – when you’re more likely to need to that hip replacement or knee surgery? It could end up costing you more.
If you take out private hospital cover before your 31st birthday, you can avoid paying Lifetime Health Cover (LHC) loading. If not, you’ll pay an additional 2% a year for every year you don’t have private hospital cover after the age of 30 (up to a maximum of 70%).
So if you decide to wait until your 40 to take out cover, you would pay an additional 20% loading on your hospital cover.
It looks like you can drop your hospital cover for a sum total of three years (1,094 permitted days) during your lifetime without any change to your LHC loading status.
If you drop your hospital cover for longer than this, in most circumstances you’ll have to pay an LHC loading when you take it up again.
Having private health insurance does give you advantages over the public system: you have the option of being treated by your choice of doctor, you have more control over when and where you are treated and the waiting times for elective surgery tend to be a lot shorter. But these advantages only work for you financially as well if you’re aware of what you’re covered for and utilise the services offered within the provider network of your fund.
You’re also covered for a number of extra medical treatments not covered by Medicare, including dental, physiotherapy, chiropractic, optical to name a few.
It really is a personal choice and it really does depend on what your individual policy covers you for and at what price. Only then can you work out whether it makes financial sense for you.
Great delivery. Solid arguments. Keep up the great work.
Thanks Stacie!