Do you really need private health insurance? Here’s how to decide…

Do you really need private health insurance?  Here's how to decide...

The Medicare Levy Surcharge kicks in at 1 per cent of your taxable income for singles earning $90,001 and above, and families earning more than $180,001.

A higher surcharge of 1.25 per cent starts for singles at $105,001 and $210,001 for families; and a 1.5 per cent surcharge rate applies to singles earning $140,001 and above and families earning more than $280,001.

Take a single person earning $110,000 in taxable income. If they don’t have eligible private health insurance coverage, they would pay a MLS of $1375 come tax time (1.25 per cent of $110,000). This would either increase their tax bill or decrease their tax refund by that amount.

Alternatively, it is quite possible to pay less than $1000 a year for basic hospital-only cover with a $750 excess, depending on your level of rebate.

If our single earning $110,000 does this, not only are they effectively getting the insurance for “free”, they are also saving a couple of hundred dollars in tax – no brainer.

The trick is that you only need to take out “basic” level hospital cover – and not extras cover – to be exempt from the overload. You could simply call insurers and ask: “what is the cheapest policy you can offer me that means I’m exempt from the Medicare Levy Surcharge”?

Of course, coverage matters if you intend to claim on the policy. If you know for sure you will be wanting private coverage for an upcoming medical event – ​​such as childbirth – you will need to carefully consider what level of hospital coverage you want. If you don’t have private cover, of course, you will be treated in the public hospital system.

Most accidents and emergencies are treated in the public system anyway. If, however, you particularly value a choice of doctor, hospital or the ability to bypass waiting lists for elective surgery procedures, you might consider private health insurance coverage for that.

As for extras, only pay for coverage of particular items if you can see that you would receive as much, or more, back in claims than you would pay in premiums. Keep track of your spending on dental, optical, physio etc and do your sums to see if you’re ahead.


Beware some introductory offers from insurers, which may force you to take out bundled top-level hospital and extras coverage to be eligible. If you don’t actually need that higher cover, the savings are illusory.

Also, be careful with the hype around the “Lifetime Health Cover” loading. This kicks in at an extra 2 per cent added to your premium for every year after age 30 you wait to take out coverage.

The loading increases by 2 per cent each year, reaching 20 per cent by age 40 and maxing out at 70 per cent if you wait until age 65 or beyond.

If you do ultimately take out coverage, you pay this loading for 10 years before it is removed.

So, consider an insurance policy with a $1000 annual premium. If you take it out at age 30 to avoid the loading and pay it until age 65 (so, 35 years) you pay $35,000 in total premiums (not adjusted for inflation).

Consider instead you don’t take out insurance until you’re 65 and so you pay the full 70 per cent loading for 10 years. Instead of paying $10,000 over those 10 years, you pay $17,000. That is still substantially less than if you paid $35,000 for coverage you did not want or need for those 35 years. If you instead invested your money during that time, the difference would be even greater.


All this is academic, of course, for anyone earning above the MLS income thresholds – you’ll be better off with the cheapest hospital cover. But it’s worth noting for anyone earning below those thresholds.

Of course, to further limit premium costs, there’s all the usual tricks: shopping around, opting for a higher excess (the highest possible is $750 for singles and $1500 for families) and prepaying annual premiums at old rates to beat price rises (if you have the spare cash).

And mums, don’t forget to downgrade your cover once you’re sure you don’t need maternity any more.

Small savings on big bills really do add up.


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