If you have private health insurance, are you getting value for money?

Given that insurance is usually only used when things go wrong, it’s a difficult question, but many people are challenging the relevance of private health insurance in the Australian market.

Insurers use a carrot and stick approach to get you into their system, based around age. If you are over 31, the cost of your premium goes up every year you delay, to the point that premiums are 20 percent higher for over 40s.

Did someone say rip-off?

In the media recently there was the case of a source from not for profit provider HCF, who claimed that people paying $270 per month for top hospital cover were 70 percent in deficit. This means that for every $1000 the family spent, they received only $300 in benefits.

All Australians are covered by the national health scheme Medicare if they are in an emergency situation, but in recent years many people have taken out private health insurance to fund options such as elective surgery or benefits such as eye-wear or dental care.

Medicare is part funded from the 2 percent Medicare Levy paid by all taxpayers, but higher income earners also pay a Medicare Levy Surcharge of an additional 1 to 1.5 percent if they earn above a certain threshold and don’t have private health insurance.

These thresholds are $90,000 for a single person and $180,000 for a family, with the threshold increased by $1500 for each child.

So, in raw financial terms, if you are a single person earning $90,000 a year, and you don’t have private health insurance, you will pay an additional 1 percent of your income in the Medicare Levy Surcharge, or $900 per year.

Private health insurance varies significantly in price, and is dependent on the level of cover, but basic private health cover for hospital care can be had for around $1500 per year, or $600 more than the person on $90,000 per year would pay for their surcharge.

If you are a family of four with combined family income of $180,000 per year, the equation is different. Top level family cover is likely to cost between $3000 and $3500 per year, against a Medicare Levy Surcharge of $2655 (remembering the rebate for the children).

In both cases, the private care is more expensive than Medicare, which seems reasonable enough.

But is it worth it? You won’t be alone if you are bamboozled by the table of benefits contained in the blurb produced by the private health insurers.

It is confusing and often not very transparent, and often people find they are not covered when they think they are, and they later find there are things they could claim for which they didn’t know about.

For the very wealthy, private health insurance is probably a no-brainer. If you are a single earning $300,000 per year, you will be paying a surcharge of 1.5 percent of $4500. The tax system has virtually forced you into private health insurance, and that is perhaps fair enough.

For the rest of us, it’s a game of snakes and ladders, with a bit of risk management, some knowledge about your health conditions and maybe fingers crossed that things won’t go wrong.

It is certainly worth doing some calculations, and doing your best to find a transparent and well explained private health policy which can suit your needs.

Otherwise, the reality is that you be joining the ranks of those who consider private health a rip off.

Do you have more questions about the current state of private health insurance? Drop us a line on our Ask A Question forum and our experts will get right on it.

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