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Biggest benefits to private health insurance in Australia

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Private health insurance can be an expensive investment. These are six things to know when making a decision about whether to take out cover.

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Public or private? The question of whether to take out a health insurance policy or rely on the public system isn’t easy or straightforward to answer.

Spokesperson from health insurance comparison service iSelect, Sophie Ryan, said the pandemic had shown the benefit of having private health insurance but the cost could be difficult during these times.

“We know Australians still really value the peace of mind they get from private cover but many families are struggling to afford private health insurance along with other cost of living pressures, especially those households who have experienced loss of income or employment due to COVID-19,” Ms Ryan said.

“The past two years has highlighted the importance of health and access to quality healthcare.

“Now more than ever there is value in having private cover as elective surgery wait times continue to blow out.”

From government incentives to tax penalties, to freedom of choice and less waiting time, we’ve compiled a list of some of the long term benefits that come with investing in a private health insurance policy.

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1. You may avoid paying the Medicare Levy Surcharge

The Medicare Levy surcharge (MLS) is a tax penalty for higher income earners who don’t have private hospital cover but earn over a certain taxable income.

Not to be confused with the similarly named Medicare Levy, which is a compulsory 2 per cent tax that all Australians must pay regardless of their total taxable income, the amount of MLS higher income earners will pay each year at tax time depends on how much they earn. There are two income thresholds – single and family – and ranges across four income tiers, with the amount of MLS you pay increasing with the more you earn.

You can check out if you need to pay MLS and how much with this calculator:

The MLS kicks in when a single person earns more than $90,000 or a family’s combined taxable income is more than $180,000. For families who have two or more dependent children, the family income threshold is increased by $1,500 for each child after the oldest.

To avoid paying the MLS, higher income earners can invest in eligible private health insurance policies, which must be with a registered Australian health insurer, cover the fees and charges for a stay in hospital and have a maximum excess of $750 for singles and $1,500 for families. It must also be for hospital cover – not extras only cover, general treatment cover, overseas visitors cover or overseas student health cover.

2. You’ll benefit from the private health insurance rebate

You can reduce the cost of your private health insurance in the long term with the private health insurance rebate. This is the amount the Australian government contributes towards your premium and can be reimbursed directly with your insurance provider to reduce the cost of your premiums throughout the year, or as a lump sum when you lodge your tax return with the Australian Taxation Office.

Eligibility and the total amount you can expect to be reimbursed is based on your single or family’s total taxable income. The rate changes every year.

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3. You’ll have choice over and consistency of care

Another excellent incentive for investing in private health cover is the ability for private patients to choose their own health care providers, which can ensure a consistency of care in the long term.

While public patients can expect excellent service and care using Medicare, their health practitioners are assigned for them and the availability of individual health practitioners, as well as appointment times and accommodation options, are limited and will depend on the availability of public resources at any given time.

4. You won’t have to wait as long for surgery

Public patients can expect to ‘wait in line’ for elective surgery and treatments and their order in the queue is determined by the urgency of their condition. Patients on public waiting lists are treated in the same order in which they are added to that waiting list.

Wait times will vary considerably, depending on the urgency of your condition as well as your public hospital and its available resources, although many public hospitals may still be working through wait lists following delays caused by COVID-19.

Private patients, on the other hand, can choose their own specialist and if surgery is recommended they are limited only by their surgeon’s schedule, which will inevitably reduce waiting times and offer patients ongoing control and peace of mind.

5. You could save money be skipping lifetime health cover loading

Lifetime health cover loading (LHC) is a government incentive for Australians to invest in private hospital insurance from a young age and to maintain it long term.

On July 1, at the start of the financial year, Australians aged 31 years and over who don’t have private hospital cover have their LHC loading increased by another 2 per cent.

This means that if you hold out for 20 years and then decide to invest at age 51, for example, you can expect your premium to cost an additional 40 per cent (20 years x 2 per cent) more than what you would’ve been paying had you held hospital cover since you were 31.

So, it could be argued it may be in your long term interests to have a private health insurance policy from an early age. Thankfully, you will only need to pay additional loading for 10 years; thereafter, your premiums will return to normal rates.

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6. You could get money back on massages

Extras cover can cover a wide range of out-of-hospital healthcare services and products that Medicare doesn’t cover.

These can vary from policy to policy, but some common extras may include therapies and treatments such as:

Podiatry

Psychology

Physiotherapy

Dental

Optical

Remedial massage

Exercise physiology

Speech therapy

Occupational Therapy

Chiropractic

In the long term, extras cover will only offer savings for a family or individual who uses these types of services regularly. If they only use them sporadically, it may prove to be more expensive than paying for these health care providers in full. That’s why it’s important to make the most of your extras throughout the year.

Extras cover often comes with annual limits on how much you can claim and also waiting periods, which is the amount of time you must wait on signing up for a policy before you can make a claim. These vary depending on policy and insurance fund so always do your homework.

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