Settlement Guide

Is private health insurance worth it?

Over 50 per cent of all Australians have private health insurance. But experts say not everyone uses it to pay for the cost of their medical treatment. Source: Getty Images/Ariel Skelley

Private health insurance helps people avoid long wait times for non-urgent procedures and lets them access services that Medicare does not cover. But out of pocket costs may be a deterrent for many people to use it to pay for their medical costs.

With tax incentives and rebates on premiums, more than half of all Australians have private health insurance on top of Medicare that is Australia’s universal health insurance.


Medicare covers costs, such as GP visits, diagnostic tests, treatment and accommodation in public hospitals and most prescription medications under the Pharmaceutical Benefits Scheme.

Medicare is also available to some temporary residents, partner visa holders and those on skilled regional sponsored visas.

Key points

  • Nearly 53 per cent of all Australia have private health insurance and 44 per cent have private hospital cover.
  • The government encourages Australians to take up private health insurance by offering tax incentives and rebates.
  • Experts say many people buy a private cover to save tax and don't use it to pay for their medical treatment.

Australia’s public health care system is among the best in the world. However, Australians may have to endure long waiting times for non-life-threatening procedures, such as hip replacement or cataract operation.

Secondly, Medicare doesn’t cover services like ambulance, eyeglasses or contact lenses, osteopathy etc.

Medicare card
Medicare is Australia's universal health insurance that guarantees health services at low or no cost.
AAP Image/Mick Tsikas

Private health insurance

On the other hand, private health insurance lets you access treatment in a private hospital where waiting times for elective surgeries are much shorter. You may also have the option to be treated by a doctor of your choice.

With an extras cover, you can access services such as dental, eyeglasses etc., that Medicare does not cover.

Senior journalist and private health insurance specialist at CHOICE Uta Mihm says people can reduce their cost of treatment by taking out an extras cover.

“Extras insurance works like a book of discount vouchers. Many policies give you a certain percentage off your cover. So, for example, if your physiotherapist charges you $100, you get $60 back, and you pay $40.”

Milosh Milisavljevic, senior executive at Medibank, says the role of private health insurance is to provide options to Australians and take pressure off the public health system.

“Should anything happen to your health or your family, you know that you’ll be able to get access to the right hospitals and doctors and procedures and have the funds there through your cover to pay for this.”

It gives consumers a choice – choice of doctor, choice of hospital and the ability to really shape their health care to their own needs and to their family’s needs.

Out of pocket expenses

There may be out-of-pocket expenses and excess payment when using private health cover to pay for your medical costs.

You pay an excess when you seek treatment at a private hospital. You can opt for a higher excess to reduce your premium.

Medibank private
The government encourages Australians to take out private insurance to reduce burden on the public health system.
AAP Image/Dan Himbrechts

The other out of pocket cost is the gap fee that is paid if the surgeon or the doctor charges you a higher fee than you are covered for. 

Melbourne University’s Professor of Health Economics, Yuting Zhang, says the out of pocket expenses and the excess deter many people from using their private cover to pay for their treatment. 

“If you have a lot of people buying private insurance because they want to save levy surcharge but they are not using private hospitals, it makes no sense at all. That means it’s not a great policy," she says.

The government intervention

The federal government gives tax incentives to encourage people to buy private health insurance.

Singles earning over $90,000 and families over $180,000 have to pay Medicare Levy Surcharge between 1 and 1.5 per cent of their taxable income if they don’t have a private hospital cover.

Medicare levy surcharge rates and threshold

Income up to$90,000 for single, $180,000 for family  --No Medicare levy surcharge

$90,001- $105,00 (single), $180,001 - $210,000 (Family)                  1 per cent
$105,001 - $140,000 (single), $210,000 - 280,000 (family)               1.25 per cent
$140,001 or more (single), $$280,001 or more (family)                      1.5 per cent 

Your income includes
your taxable income
total reportable fringe benefits
any amount on which family trust distribution tax has been paid 

Melbourne University’s Professor of Health Economics, Yuting Zhang, says the other two forms of government intervention are rebates and lifetime health cover loading.

“Rebates provide a discount for people who buy private insurance if their income is below a certain threshold, and that varies by age as well as income,” she says.

“The lifetime health cover is designed to encourage people to buy private insurance early on, and for those who don’t have it but they decide to buy it later, they have to pay the penalty – a two per cent loading for each year for the years after they turned 31.”  

It depends on your income -- if your income is pretty high, you potentially save a substantial amount of money. 

You do not have to pay this loading if you were over 31 when you migrated to Australia and took out a private hospital cover within 12 months of your Medicare registration date.

Woman at a dental clinic
Private health insurance helps people avoid long wait times for non-urgent medical procedures.
Getty Images/Luis Alvarez

Medicare Levy Surcharge and lifetime health cover loading are designed to encourage people to take up private insurance in order to reduce pressure on the public health system.

However, Professor Zhang says there’s little evidence that these government initiatives have had much success in reducing hospital wait times.

She says the out of pocket costs associated with private insurance means that many people aren’t using it to pay for their medical care even though they have it.

When deciding whether or not to buy private health insurance, Prof Zhang suggests assessing the value of the cover if you need to use it.

“If  someone wants to give birth and it’s very important for her to have a private room, then she might be willing to pay a lot of money to buy private insurance cover just for that.”  

And if you are not going to use it, she suggests you do the calculation and see if it makes financial sense for you.

“Think about the rebates. Think about the actual tax you have to pay. A lot of people making decisions to avoid tax. And then some people may be willing to pay a little bit more tax to support public hospitals, and that’s fine.”

“So they are happy to pay Medicare levy surcharge.”

Also, keep in mind that you are not covered for ambulance service in Australia unless you purchase an ambulance cover or it’s included in your private health cover.  If you don’t have a private cover, you can buy an ambulance cover subscription from your state ambulance service.

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