Ask LH: Do I Need Full Hospital Cover?

Dear Lifehacker, As a 25 year old male with a long-term partner, with no medical problems, do I need hospital cover or can I get away with just extras cover? Thanks, Insurance Investigator

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Dear II,

Health funds typically include two elements: hospital cover (which pays for admission to a private hospital in the event of illness and accident), and extras cover (which offers full or partial payment for other services such as dentists or chiropractors). What's paid for under both varies widely depending on the policy you have and how much it costs (the higher the charge, the more extras will be included).

Most funds offer hospital cover with extras as an added possibility, but you can theoretically sign up for extras cover without signing up for hospital cover. That might make sense, if, for example, you qualify for free hospital cover due to military service, but it's an unusual situation.

The short answer to your question: you definitely want hospital cover ahead of extras cover. Quite aside from knowing that you'll be covered in the event of an unexpected accident, you're likely to end up paying out additional money in tax if you don't.

To encourage the uptake of private health insurance (and reduce expenditure in the public health system), anyone earning above a specific level who doesn't have hospital cover has to pay an additional Medicare Levy surcharge. In 2012-2013, this level is $84,000 for individuals. (While you have a partner, that isn't relevant for the purposes of the surcharge unless you have children.) If you're earning more than that per year, then you'll have to pay a surcharge of at least 1 per cent (and potentially as much as 1.5 per cent) as part of your tax bill.

Given the choice, most people choose to spend that money on health cover instead. However, you must have private patient hospital cover to avoid the levy. An extras-only policy won't qualify, and you could be hit with the levy if you earn above that number.

Without knowing your exact income and situation, it's impossible to provide an absolute answer (and you should check with a professional if you require detailed tax advice). But getting health insurance that doesn't include hospital cover often doesn't make sense: if you're earning more than $84,000, you'll end up paying that money for the Medicare levy surcharge anyway.

Cheers Lifehacker

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Comments

    Generally speaking, you'll be infront if you take that money, and put it in a savings account each month. But due to the unforseen nature of illnesses and accidents, something could happen early on in the savings plan, and you'll be stuffed... And with the Medicare Tax Implications, well, it just makes sense to have it now.

      Not true. No matter how much you're willing to pay, it's not going to help you jump a queue.

      People often complicate this, so let me explain it more simply:

      Extras - a glorified savings plan. For people who are reckless with their money. This is what you described.

      Hospital cover - a special pass that lets you queue jump.

      Simple.

        That hasn't been my understanding of the system - I'm not sure where to start looking up the truth about how things work. But this is how I thought it worked - Lets say I have a dicky knee, and an operation could fix it. If I'm uninsured, I can still get the operation covered by medicare (i.e. free, or cheap) but I have to wait in line along with all the other non-life-threatened people waiting for a medicare-covered operation. Alternatively, if I were insured, I can jump from the medicare queue over to the HBF (for example) queue, which is much shorter. Option #3 is to pay for the operation 100% myself, which may be incredibly expensive, but moves me into the people-paying-for-themselves queue which is incredibly short indeed.

          Nope, not true.

          Private Hospitals hate dealing with people on account, since they are relying on you to pay an invoice. Thus, you can dick them around on payments, argue fees, and whatnot which is a headache. Not only that, but you are treated exactly the same as a standard health fund patient, possibly less so since you will be counting every dollar and thus the hospital loses the extras - television, single rooms, premium food etc.

          Once a hospital visit is approved by a health fund, the hospital can basically charge what they want - they know the limits of the system and will milk every dollar they can.

    Your advice about the spousal threshold for the Medicare Levy Surcharge not applying unless the person has independent children is incorrect. As is made clear on this page (http://www.ato.gov.au/individuals/content.aspx?menuid=0&doc=/content/00250854.htm&page=13&H13), the spousal threshold of $160,000 applies even in the event that the number of dependent children is zero or one. This may make a dramatic difference as to the decision that the person might make.

      Point taken, but I'm presuming they're not married.

        You don't have to be married, DeFacto relationships (live together 6 months minimum or dating and living apart for 2 years minimum) also qualify for this.

    all information is correct. being in the health insurance industry for 5 years now i should also point out that even though he is only 25, should be approach 31, his premium will also increase by 2% every year, and this is called LHC (lifetime health cover loading) and just like the MLS, requires a hospital cover to be avoided. Extras are really only worth it if you are using multiple items in the package, but if its just for basic dental or just physio then in this instance it may not be worth it, or just a break even in what you spend for your policy and what you claim back.

    What annoys me about articles like this, are unproved assertions such as "To encourage the uptake of private health insurance (and reduce expenditure in the public health system)" which have no actual basis in fact and are actually just pushing an ideological position from the private health sector marketing arm. Since the introduction of the private health rebate there has been no reduction in expenditure in the public health system. There has only been a massive increase in profits for the private health insurance industry. Our government now spends $4billion a year propping up the private health system at a time when that money could achieve far greater benefits if it were directly pumped in the public health system.

    If you have a heart attack tomorrow, you won't be attended to by a private hospital - you'll be sent to a public hospital. The money the government spent propping up the cherry-picking private sector and the for-profit private health insurance industry will be money that won't benefit you in any way in the emergency room. In fact you'll find that the service, equipment and support you get has been reduced because of it.

    Sure, talk about the relative merits of different types of private health insurance, but don't spout the lies about how having private health insurance helps the public health system. So long as public money is used to fund it, it doesn't achieve anything in this regard.

    If the private health system was so much better, and so efficient, it could survive without government handouts. We should all be asking the question about why it can't.

    Personally, I'm happy paying a 1% tax surcharge knowing that my money is helping the system that we all rely on (even though, unfortunately a proportion of it goes to funding the personal spending decisions of those of you with private health insurance).

    Otherwise though, nice article :-)

      Pretty much agree with most of this. Insurance of any kind is, at best, a gamble. I waited until I turned 40 to take out private hospital cover. The extra loading I pay for waiting that long is nowhere near what I would have been paying for the base cover over the 10 years prior. I took the 'gamble' that I woudln't need a knee re-construction or other non-life threatening surgery between the age of 30 and 40 and put the extra money on my mortgage instead. Also, good luck finding any kind of decent (or any at all) hospital cover for $840 pa (the Medicare Levy Surcharge on income of $84,000 if you don't have cover). I always laugh when I see ads for that dodgy iSelect mob where they try and make out that smart people woudl avoid the LMS by taking out insurance - any smart person woudl realise that the MLS is a fraction of what hospital cover costs.

        A reader on this site suggested health.com.au and I did a quote for myself and it came to around $850 for hosipital cover in WA.

          Even though its been nearly a year since I posted, I don't think much has changed except for one thing. Health funds are now offering cover at premiums that are lower than what you might pay in MLS. I'd be very careful checking the policy details on these premiums. They will likely have a lot of exclusions and large co-payments or excess. I currently pay about $5000 pa for the highest level of cover (hospital and extras) offered by TUH for my wife and I (after the 30% rebate). You can get cover for a lot less than this, but I can afford this level. That being said, I'd much rather pay that amount extra in tax each year if it meant the public hospital system was as efficient and quick as the private hospital system.

      An OECD report from a few years ago on public subsidies for the Australian private industry health basically agrees with you, Jason.

    "If you have a heart attack tomorrow, you won’t be attended to by a private hospital – you’ll be sent to a public hospital. "

    This is utter tosh. My dad had a heart attack last year and we had a choice of where to take him for Emergency (we chose the nearest hosptial - a private one) and then chose where he would stay ongoing - also private. He has full private cover.

    The notion that all emergencies end up in the public system is a myth.

      "The notion that all emergencies end up in the public system is a myth".....

      Utter tosh?? You're dad and your family got lucky. My children are no longer given the choice. They are ALWAYS sent to the public hospital for treatment.

      We've given up taking our children to the local private hospital due to the fact that they were ALWAYS transferred to the local public hospital by ambulance. The private hospital could not care for my children who have asthma/restrictive airways (requiring hospital admission several times a year).

      We have full private cover and no co-payments for hospital admissions. We struggle to keep it. I'm questioning whether we will into the future. We had the belief that keeping private health meant our children would get the very best care from a doctor/specialist of our choice (their regular respiratory specailist), in a private room where their parents can stay with them and they can rest and recover in peace. But this is far from reality for my children. They are taken from a private hospital, in a room where their family can visit in comfort and for as long as they like and are instead thrown into a six pack room with other screaming and frightened children, with limited access to family members - which only makes things worse. Not only are they terrified by the whole situation, but they are exposed to multiple other viruses and germs that they should not have to be. As parents, we are exhausted, worried and sleep sitting up in broken recliners - if a recliner is even available! In the past I've been forced to sleep on the floor beside my daughters bed or sleep sitting up in a plastic chair not too unlike those you find in airport departure lounges. In most cases, the rooms are too small for beds and if they are large enought to accomodate one, the nurses will not let you use one as it makes it too difficult to get to the equipment. (fair enough!)

      So what benefit does my family having top private health insurance do for the public system and the wider community? Absolutely nothing! Public beds are taken up by private patients. Private doctors visit their patients and charge way above the scheduled rate for the privilidge. Our last hospital admission as private patients cost our private insurer greater than $3000 in accommodation, xrays and pathology. Their specialist charged us $2200. The private health benefit we received was $220.

      So what were the costs?
      The cost to the community was the loss of a bed for a child/family who relied on public health
      The cost to our private health insurer was more than $4000 for accommodation and treatment
      The cost to our family was $1980 out of pocket (don't even get me started on the cost of 3 meals a day plus daily parking tarrifs!!)

      Add this up over several admissions a year and it's an expensive exercise for everyone!

    I took up private insurance "just in case" many years ago- a very cheap hospital and extras version, and I never really thought that I would need it.... Six months later, I fell really ill and needed surgery. As my condition wasn't life threatening (but very close to it) I would have been put on a waiting list for public health. During that time, I would have been in excruciating pain, and the massive cyst that I needed removed could have burst at any time, putting me in a lot of danger. As I had private, I was able to get it removed almost immediately, with an outlay of something like $250. Long story short, hospital cover saved me over 6 months of waiting or $7,000.

    The way that I look at, I am very lucky to have a full-time position that pays well (that is also under the threshold that the Government has put in place), and if I can, I should pay a little more so that I can do a little to take the pressure off the public system. That way, those that aren't able to pay for private insurance will hopefully have a bit of a better time of it.

    The fact that health insurers make more money out of us than we do out of them is worth considering. Put the money you would be charged by private health, into a savings account. If you're young and healthy, you won't need to dip into it until the interest starts paying for your 'extras'.

    As I see it, taking hospital cover is like paying a monthly fee which locks you in to more fees later! Why pay every month just so you can pay more when you go to hospital? I don't know anyone who has signed up for hospital cover in the last year, but I know plenty of people who have dropped it.

    Example: I was in hospital for an emergency operation last week and it cost me nothing. A colleague with hospital cover had a similar operation and her gap was $600 on top of her monthly premiums. While she had her own room, I was at a teaching hospital with better doctors. Given the choice, I know which one I'd choose!

    If you have a life threatening illness or condition, Medicare covers you. Hospital cover gives you options, such as a private hospital, own room, and for elective stuff you don't have to wait so long. You decide if that's worth an extra $200/month to you.

    With the rebate now being means tested, orivate cover has just jumped dramatically in price.

    Problem is you don't know what's going to happen in the future to Medicare, because politicians can't see past 4 years, that surcharge for every year past 31 if you start later in life might really bite you in the arse when you're 50.

    As with any insurance, you may get a lot out of it or nothing at all for many years. I was attached to the family cover (hospital and extras) that my parents had until I turned 25 a little over a year ago. I was young and healthy so I decided to forgo hospital cover and just take up extras because I generally used up the extras for optical and dental at least. I figured I could take it up again before I turned 31 so I wouldn't have the premium increase.

    For some people this works out fine. For me, well six months later I had a thyroid problem that turned out to be thyroid cancer. I went with the public system and while my doctor was great and I was given great care, it was months before my first appointment (and a 2+ hour wait - this went for most of the consultations) and then months before my surgery. Luckily for me it was asymptomatic but if it's something that is not considered life threatening yet causes considerable discomfort (and that includes psychological), then I imagine the 6+ months of wait time would be hellish.

    I took up cover again after initially being diagnosed with the thyroid problem but I can't use it for anything thyroid related ("existing ailments" carry a 12 month waiting period) for another few months. However, I've recently had another issue that is unfortunately symptomatic and very uncomfortable so I'm glad I have the hospital cover so I'll be waiting weeks as opposed to months for surgery. I can also continue to see my oncologist as a private patient should she stop working at the public hospital - plus with public, I generally end up seeing a rotation of training doctors (I've seen a different one for almost every consultation so far!).

    I suppose my point is...as long as I'm working, I'll be buying hospital cover. That might just be my sudden influx of health issues this year though that's made me a little insecure about leaving it again.

    The Government would be better to put the 30% rebate they pay into the public system. It will benefit far more people, and you'll find the cost of health cover will come down. Anytime thee Government subsidies the cost of something for a large majority (rather than a minimal few at the very low income level) it pushes the price up. The suppliers know how much people are willing to spend. if the Government pays 30%, they'll whack their prices up 30%. Childcare rebate is the same;

    Something not mentioned in the article, if you have a history of depression or mental illness in general even if you are at a 'good time' that ups the value of hospital cover 'immensely'. If your condition takes a turn for the worse and your best treatment option is hospitilisation for observation and short term intervention then your options without private cover are underfunded public psych hospitals in shared rooms often with patients who should be in higher care facilitys due to instability (not exactly conducive to reducing stress). Or forking out $500 a day or more to stay in a private facility, much higher quality service (cause they have the money for it) much more likely to actually help you, however at that cost you'll go broke. Add in private health coverage and depending on your level it can result in a reduction to $50 a day capping out at $400-$500ish so everyday after 10 or so are free, oddly at that point it's cheaper to stay in the hospital than it is to live outside it given your fed 3 meals a day etc (but as helpful as those places can be in times of crisis you would *not* want to live in one, it may sound like bad taste/bad pun but anyone who's spent a week or two in one will tell you the boredom will drive you insane)

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