Ask LH: When Should I Consider Getting Private Health Insurance?

Dear Lifehacker, When does private health insurance become worth it? With all the rules surrounding tax breaks (or penalties) for not having it, it can be difficult to decide if it's a good use of my money. Thanks, Privatised

Hospital picture from Shutterstock

Dear Privatised,

The rules for private health insurance can be confusing, and have changed a number of times over the years. The current set of rules came into effect on 1 July 2012, so we'll focus on those. (Slightly different considerations would apply if you already had insurance at that date.)

There are three factors you need to consider:

  1. How much your private health insurance costs;
  2. The level of rebate you will receive for that insurance;
  3. The extra Medicare levy you might have to pay if you don't have insurance.

The cost can obviously vary depending on what you sign up for (insurance is generally cheaper when you're younger, extras and expanded choice of specialists cost more). However, it's actually more helpful to consider the other two factors first.

The Medicare levy kicks in for an individual if you are earning more than $84,000, at which point you'll pay 1 per cent on your taxable income. That figure rises to 1.25 per cent if you earn more than $97,000, and 1.5 per cent if you earn more than $130,000. The rules become more complex if you're married or have a family; the ATO has a calculator which will calculate the surcharge for your specific circumstances.

That said, we'll assume you're single. If you earn $84,001, the effective Medicare levy surcharge will be $840. What this means is that if you earn above that amount and can find health insurance for less than that, you'll definitely be better off (since you'll have to pay out that money anyway). If you earn under that amount, you might prefer to keep the money — but you will be penalised eventually if you don't have health insurance by the term you turn 31.

If you haven't signed up before you turn 31, your insurer can apply a loading of 2 per cent a year (up to a maximum of 70 per cent), As of this year, the loading portion of your insurance cost is not eligible for rebate relief either, so the total cost will be higher. So even if you haven't quite reached a salary level where you have to pay the levy by that age, it will often make sense to sign up before the price penalty applies if you can see that happening to your salary at some point.

Whether you can find a policy at the right price will also depend in part on the level of rebates you can score, which takes us to the second item on that list. The government effectively subsidises private health insurance premiums by rebating part of the cost, but the level of rebate differs depending on what you earn. The rules are complex (see the full summary here), but effectively offer a higher rebate for people on lower incomes and people who are older. The threshold amounts are the same as for the Medicare Levy surcharge.

Note that in most cases health insurers will apply the rebate up-front, by quoting you lower premiums. When comparing prices, make sure you're comparing like for like. You have to detail your insurance cover on your tax return, but you won't see a refund from it if it has already been applied by your insurer. (You can opt to have the rebate as a refund, but this is a rare choice.)

The system as it stands is definitely designed to make private health insurance the option most people choose. If you fall above the Medicare levy surcharge threshold, it's almost certainly going to cost you less or the same (leaving aside that you'll also have additional cover).

Cheers Lifehacker

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Comments

    I think you're missing the point of having private health cover. It isn't a simple comparison of how much you will pay vs paying the medicare levy. You are paying so you can use the services available if/when you need them. You don't get the same services if you are relying purely on medicare so you've got to weigh up if you want the ability to go private should you need it.

      Private health insurance is a joke. You are already paying it in the medicare levy. If it comes down to eating or having health insurance, for most people private health insurance is not high on the agenda. Howard and his cronies wanted us to have a health system like the US. God help us if that ever comes in.

      When I lived and worked in the US I paid US$2500 per month for a family for my health insurance; I still had to pay "Co-Pays" to see a doctor, go to hospital and to have any procedures done, despite having good health insurance.

      In cases where you had an accident, and required immediate critical care, and you were out of the health care's system you could be up for 100% of the costs; including ambulance transport, unlike here with our excellent ambulance system so long as you pay the small premiuim.

      Health insurance, like all insurances is fools old. You have to jump through hoops to get access to what you pay for. Nothing comes for free and insurance is a game for those insuring you, not for the insured.

        You aren't paying for private health in the medicare levy. If you think you get the same level of cover with medicare then you are mistaken. That level of cover may suit your needs but that doesn't mean that private health is a joke.

        I think you'll find that without private services the public system would be strained so much more. In a perfect world we could get all the services we want for nothing but that isn't going to happen.

    tl;dr - It's confusing as all hell.

    I'm sick of all this Private Health Insurance crap. I'd just like to pay a fee each month and get access to the services I need. I don't want to worry about tax implications of all this crap.

      I agree with Cameron, there are sites you can get onto for DIY health funds like myhealthfund.com.au Simple and more efficient- take control!

    For people earning under $84k, in good health but are heading to age 31, do the sums on whether the Health Insurance rebate is worth worrying about vs whether you're likely to ever use the Private Health you have to buy to avoid that levy (I'm using the word levy here for want of a better word to describe the % extra you pay for being over 31).
    For me, I don't think it's worth the money until I start approaching 40. Sure I'll be paying up to 20% extra for 10 years, but I'll have saved 10 years of 100% premiums (ie I'll have saved significantly more than what I will later have to pay in levys. That money is currently going into my mortgage, probably offsetting the 20% levy as well!)
    Of course this plan kind of falls down the moment you need Elective Surgery, but that's the gamble you take...

    Last edited 01/07/13 10:22 am

      Either way I think it's pretty stupid. One way or the other, they are basically taking money off you for being alive on the premise that you might need health care at some point.

      Once you are 31, either cough up money for health insurance, or the government takes it from you. It's a rort. It should be left up to the individual to decide if they want health insurance, not be given an ultimatum from the government that says "if you don't pay for health insurance, we'll take the money off you anyway".

        You only pay the levy if you ever take up Private Health..
        If you never take Private Health, you never pay the levy.

        They take money off you in case you get unemployed or sick or disabled and need a pension. They also take money off you to provide roads and public transport, government teachers, social services, etc etc. Here's the kicker - you're not just paying for yourself, and it is almost inevitable that you will need medical care at some point in life.

          They also take money off you to provide roads and public transport, government teachers, social services, etc etc.

          The Medicare levy doesn't cover that stuff. That's what all of the other taxes are for.

      This is exactly what I did.
      Basically the money that I would save not being privately insured, offset the amount of loading I would end up paying. It's ridiculous that they can call it "Life Time" when it is 10 years. I doubt i will get to 40 before I get Private health, but when i do, it will be because I have a family and wife.

    Interesting article, but I'd be more interested to see the economics of how often younger adults (those under the age of 40 for example) actually use their private health insurance, and how much their claims amount to when compared to their premiums. I'd also like to see how much of the actual cost is still covered by medicare (is it 70%?) and how big the average gap is (ie. how much extra a surgeon charges on top of the private fund). The private health funds only really cover the costs between those two, and this is the amount that you need to compare to your premium.

    From my experiences working in a hospital, private health insurance makes the paperwork side of things easier. Even if you can afford to be a 'self-funded' private patient, private hospitals are less inclined to accept your admission or transfer.

    I've also seen private health insurance and the mentality that goes along with it work against people. A child needed an urgent operation, simple enough for the registrar to do, but the ED admissions staff had told them if they come in privately the consultant would do the operation. The mother then wanted to hold off until the consultant surgeon was available, in 3 or so hours. I've also seen an appendicitis patient wait 3 days for his surgeon of choice (who operated on his dad and wasn't on call), during which time he developed peritonitis and ended up staying in hospital about 5 days longer than he would have otherwise.

    So yeah, just my 2 cents from working on the front lines.

      For decent psychiatric admissions you need private insurance. I am under 31 and have used my private insurance 3 times- 5 weeks of psych and 1 day surgery procedure. Def worth it for me. And before anyone says it, I am not representative of every under 31 year old with private health insurance, but with a chronic illness, medical or psychiatric, it is essential.

    Great write up Lifehacker and very timely given it is the first day of the new financial year.

    As acknowledged in the article, the rules and figures discussed are relevant to last financial year and have changed (applicable as of July 1 2013). You can see the new rules and figures in a helpful info-graphic explaining why having private health insurance can reduce your tax bill on ahm health insurance's website here: http://ahm.com.au/pages/tax

    Full disclosure: i helped develop the ahm health insurance website.

      Tony;
      The problem is that the page you write shows that you are covered for Dental and other things. reality is though you always pay out of pocket on this stuff, and quite large amounts. So really - are you covered for dental? Fully, as your page at first suggests? Or are you going to have out of pocket, maximum coverage, etc? I am pretty sure the latter. It is still just offsetting the costs of Healthcare, not covering them. Face it. There are better ways in use around the world that we could adopt.

    I'm a young healthy 25 year old and have had health insurance for the past year or two. Have only really claimed a few extras (these were all insta-claims) I've gotten small things like 2 pairs no gap prescription glasses. A few fillings and cleans every year. That said i'm still paying 80 something a month for the health insurance. And just last week I was told i need my gallbladder removed. Thinking oh yeah I'm covered for day surgery; Lets pull that sucker out! Little did i know patients are kept in overnight (not day surgery?) my so called cover doesn't cover an overnight stay and If i did stay overnight I foot the bill for EVERYTHING. This is the first and last time I will be using my health cover for a hospital stay. There is just too much fine-print and crap to worry about. And when you have a health issue and actually need the fund it's not even there to help you? SO WTF have I been paying for??! And that fine print I was talking about not covering an overnight stay wasn't in the "what's not covered" section, can you believe it was in the "other features of your fund" section. THAT'S NOT A FEATURE. sorry for the essay, endrant. Not worth it until you're a bit older IMHO

      Omptser... so what was the end result? did you have to pay for the overnight stay to get your gall bladder removed or was it covered by medicare?

      This is my concern, im curious about the basic stuff like getting high level melanomas removed or issues with thyroids (both run in my family) and operations but cant seem to weed through the mumbo jumbo to work it out.

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