Around 45 per cent of all Australians have private hospital cover and more than half of those people have private extras cover, according to the latest data from APRA.
With premiums set to rise in the coming months — Medibank will be the first major provider to increase premiums on June 1 — it's time to consider whether to take out, keep, downgrade or ditch your private health cover.
So, does private health insurance represent value for money for most Australians?
The Drum spoke to three experts to find out.
Why should I purchase – or keep – private health insurance?
Some of the common reasons why Australians decide to take up private health insurance, include: peace of mind, greater choice of healthcare providers and reduced waiting times for elective surgeries.
Choice health insurance specialist Uta Mihm says reduced waiting times is particularly important for people with health issues that require surgery, such as hip or knee replacements, or health issues with limited public hospital services, such as fertility or obesity.
"For surgeries, you can be waiting up to a year in the public system — compared to weeks or months in the private system," she says.
There are financial reasons to have private health insurance, and these factors are typically based on income and age.
Australians earning above a certain income must pay a Medicare levy surcharge (MLS) if they don't have private health insurance.
For this financial year, an individual earning more than $90,000 — or a family with a combined income of more than $180,000 — will be charged MLS at 1 per cent.
The rate increases are relative to your income: up to 1.5 per cent for individuals earning more than $140,000, and families earning more than $280,000.
And the federal government offers a private health insurance rebate, which is income-tested and can be claimed directly from your provider or as a tax offset.
University of Melbourne Professor of Health Economics Yuting Zhang says these policies can strongly influence people's decision to take up private health insurance.
"Even if [their private health insurance cover] doesn't represent value for them, they'll save by not paying the tax," she explains.
Lifetime health cover (LHC) loading is another government initiative to encourage Australians to purchase and maintain private health insurance from a young age.
For every year you are over 30 years of age and have not taken out — and stayed on — private health insurance, you will have to pay a 2 per cent loading on top of your premium every year.
This means that, if you buy private health insurance for the first time at 40 years of age, you'll pay an extra 20 per cent on your premium per year until you turn 50: the LHC loading drops off after you pay it for 10 consecutive years.
"We've seen a 4 per cent increase in insurance uptake when people turn 31," Professor Zhang says, "but, out of those people, there are some who may not need it."
She recommends weighing up the cost of paying years of premium against the LHC loading, which usually adds up to "not much, a few dollars" per year — and whether you'll need to use private health cover in your 30s and 40s for things such as pregnancy and childbirth.
Are there any good reasons to give it up?
Increasing cost-of-living pressures means that private health insurance is one of the areas where Australians may consider cutting back.
University of Sydney's School of Health Sciences senior lecturer Sophie Lewis acknowledges this.
"There's a lot of anxiety, particularly for people who are experiencing financial hardship," Dr Lewis says.
"Some people will talk about downgrading their cover or removing extras, while others are needing to drop out [of private health insurance] altogether."
Another important consideration is whether your policy is fit for purpose, particularly if your circumstances change.
"You might be paying for a higher level of cover for pregnancy, but you're not going to be using those services anymore," Dr Lewis explains.
More than 14 million Australians have private extras cover, which provides rebates on health services such as dental, optometry and physiotherapy.
Ms Mihm says it's good to review whether your extras insurance is giving you value.
"Some people don't need glasses or don't have any sports injuries that require a physio," she says.
"It's a good idea to downgrade the extras policy to something that costs less and is suitable for your usage — or chop it altogether."
Dr Lewis also suggests calculating whether "you're better off paying for those services up front", especially if you are not using your extras frequently.
Are there any 'hidden costs' I need to be aware of?
In short, yes.
Private health insurance does not guarantee cover for the total cost of treatment or surgery.
"People don't think about out-of-pocket spending," Professor Zhang says.
"Doctors can charge whatever they want — and they may charge a lot higher than what your insurance covers."
This means that "you don't necessarily know how much you have to pay" or "you have to pay quite a lot out of pocket".
It can also mean that, once you calculate the out-of-pocket expenses, you may be unable to afford the health service required and, therefore, are unable to use your private health insurance.
Ms Mihm also recommends looking at the fine print when it comes to accident cover.
"There are quite often strict conditions on that," she says.
"If you haven't sought treatment straight away, you may not be covered.
"If you need treatment over a longer period of time, you may only be covered for the initial treatment — or the treatment needs to be done within a certain number of months to be covered."
How often should I re-evaluate my need for private health insurance?
The experts recommend reviewing your private health insurance policy — or your need for one — at least once a year.
Professor Zhang says a good time to reassess is when your income changes "because there are a lot of policies around rebates and tax penalties".
Ms Mihm says you can potentially save money if you review your cover at the time you receive the annual premium increase notice from your provider.
"If you pre-pay the annual premium before the premium increase comes into effect, you can delay paying the higher rate by 12 to 18 months," she says.
"The longer the period you can prepay, the more savings you can make."
Medibank will increase premiums on June 1, so Medibank customers should consider this option by the end of May.
HCF and NIB will increase their premiums in September, and Bupa customers will be subject to a premium increase on October 1.
The experts also recommend using independent comparison sites to determine the best private health cover for you, like Choice or the Australian government's private health website.
Bigger companies will have a wider network of service providers, "which means there are more no-gap coverage options", Professor Zhang explains.
However, it is also worth looking at smaller providers.
"There are actually more than 40 brands of private health insurance and sometimes small, not-for-profit insurers have really good deals," Ms Mihm says.
Dr Lewis recognises that reviewing your private health insurance cover is not always an easy task.
"Our health is such an emotional experience," she says.
"It can be a scary time when you encounter a life threatening or debilitating illness, and it can be difficult to make a decision in those situations."
So, does private health insurance represent value for money?
For most Australians, it depends.
Ms Mihm says that most Australians pay more for extras insurance than they get out of it but, with hospital insurance, it depends on an individual's level of risk.
"Older Australians get a lot more out of private hospital insurance," she says, because they typically have a higher risk of needing surgery.
"Young Australians may not get much out of it, but if something unexpected were to happen, it would be value for money.
"That's the nature of insurance — you're happy to not use it."
The main thing is to make sure you're not over-insured, she advises.
Professor Zhang says the private health insurance system is complicated and there are many reasons for people to buy it, "even though it doesn't bring much value to them".
In other words, Australians may purchase it for tax relief rather than evaluating the value of the product itself.
Families may get good value as "policies cost the same, regardless of how many children are covered — dependents are free".
Dr Lewis says that Australians are "becoming more and more dissatisfied with the cost of private health insurance and whether it's valuable or not".
However, she's also concerned about a widening of the healthcare gap between Australians with private health insurance and those without.
"There are questions about inequity here," she says.
"We need more information about what's available, not just from the private system, but the public system as well.
"Do we need to invest more in the public health system so there's more equal care?"
