Private health vs Medicare: What you need to know

When it comes to private health cover versus the public system, there’s a lot to consider and much of it can leave people confused and even out of pocket.

With pensioners around the country struggling to make ends meet, many have told us they’re wondering if forking out the money for private health care is really worth it.

Australia is lucky to have a robust and inclusive public heath care system that ensures everyone is eligible for cover and care in an emergency. As we age however, our health needs diversify and there are certain things many want to be covered for that only a private health insurer can provide.

The trap many fall into is one of confusion around how much they’re paying for the Medicare levy compared to how much they would pay for private health cover.

How much is the Medicare levy

Taxpayers who earn over a certain amount must pay the Medicare levy every year. The government divides taxpayer earnings into different tax brackets. If you earn under a certain amount, you do not have to pay the Medicare levy; if you earn between a certain amount you are eligible for a Medicare levy reduction; if your taxable income is more than a certain amount you must pay the Medicare levy and an additional payment called the Medicare levy surcharge (MLS) if you do not have the appropriate level of private hospital insurance – this is to encourage people to take out private health cover.

Interestingly, the earnings are calculated at a higher rate for seniors and pensioners, meaning you have to earn more than younger taxpayers to be eligible for a discount come tax time. The rates are:

• You do not have to pay the Medicare levy if your taxable income is equal to or less than $21,335 ($33,738 for seniors and pensioners).
• You will pay only part of the Medicare levy if your taxable income is between $21,335 and $26,668 ($33,738 and $42,172 for seniors and pensioners).
• The base income threshold (under which you are not liable to pay the MLS) is $90,000 for singles and $180,000 for families.

The government will also chip in on your private health costs related to hospital cover. According to the Australian Tax Office:

“Private health hospital cover insures you against some or all of the additional costs of being a private patient in either a public or private hospital. Medicare will cover 75% of the Medicare Benefits Schedule (MBS) fee for associated medical costs. Provided you have the appropriate private health insurance policy, your health fund will cover the remaining 25% of the MBS fee.”

Is private health cover a good idea?

Laura Crowden from iSelect says private health cover can be a valuable asset, but you have to be diligent in staying informed about what you’re paying for and know how to get the most out of your provider.

Nearly a third of baby boomers haven’t made changes to their private health cover in the past 10 years, meaning many are paying for benefits they don’t even need.

“The biggest mistake we see with older customers is they stay with the same private health insurer for many years and don’t update or review as their health needs change,” Crowden told Starts at 60.

“A very obvious example of that is people in their 60s who still have top cover that includes pregnancy.

“So when your baby-making days are over that’s a really easy way to reduce the cost of your premium because pregnancy does obviously keep the cost up and there are now more important things to be insured for.”

Whether you’re covered correctly or not, the problem for many is still the price.

“For older customers we know affordability is becoming more on an issue for private health,” Crowden said. If you’re as fit as a fiddle and don’t have any niggling health issues keeping you from living a comfortable and pain-free life, Medicare is a reasonable option.

But for many over 60s, there are new health issues arising that require some kind of medical attention that can leave you out of pocket.

Different types of private health cover

There are two main types of private health insurance: hospital cover and extras cover.

Hospital cover allows you to be treated in a private or public hospital with a doctor of your choice. While your private insurer will cover most of the costs associated with your hospital stay, there are fees that can occur and leave patients out of pocket.

If your hospital stay is longer than 35 days, the hospital may charge you an accomodation fee. Some surgeries, like certain elective cosmetic surgeries, are not covered by some private health insurers either.

Crowden says there is a way around it though, called Informed Financial Consent.

“Asking for informed financial consent is getting information from your doctor and hospital in advance as to the likely cost of how much you’re going to be left out of pocket,” she said. “That not only enables you to be able to prepare for that, but if it’s more than you expected or more than you can afford you may be able to see if your insurer has a relationship with the hospital that may be able to reduce the out of pocket cost.

“So they have relationships with some providers, especially in your extras, where they do no-gap agreements with certain providers.”

She said the biggest coup in private health cover comes with elective surgery.

“The real benefit of private health is with elective surgery,” she said. “Elective surgery by definition is something that is not life threatening, but it can cause severe ongoing discomfort.

“For example a hip replacement isn’t considered an emergency, that’s elective surgery. So if you don’t have private health insurance you’ll have to go through the public system and you could be facing a long wait depending on where your live.

“While it’s not life threatening, if you’re a 65-year-old or a 70-year-old who lives by themselves and you’re waiting 18 months to have your hip replaced, that is a huge inconvenience on you.

“That’s why as you get older those elective surgery needs like spinal surgery and eye surgery and joint replacement actually become more likely.”

What should I do?

Crowden’s advice is to shop around. If you’re in your 60s, you’re more likely to need health care relating to your eyes, joints, dental and more. Elective surgery may be on the cards in future to.

If you already have private health cover but feel you’re paying too much, review your policy to see what benefits you’re paying for and if you really need them. If you still think your provider is charging too much, get a quote from another provider and ask them to price match.

You can also split your hospital and extras cover between different providers if you find you’ll get a better on each with different companies.

With premiums set to go up on April 1, 2017, now is the best time to lock in private health cover at a lower rate. Crowden also advises reviewing your private health cover every time you go through a major life change, like retirement, to make sure you’re being covered for what you need and not forking out extra for benefits you don’t use.

This is the first article in a series of stories Starts at 60 is writing about health care cover. If you have any particular areas you would like us to address, let us know in the comments below.

Do you pay for private health cover? Do you think it’s worth it? How have you found the public health system over the years?