Health insurance

Contributed by AlisonPhillis and current to 1 May 2019

Types of health insurance

Medicare is a taxpayer-funded health cover scheme that gives all permanent Australian residents a basic level of health insurance for medical care and prescription medicines purchased at pharmacies. It provides a rebate on medical costs associated with being a private patient in a public hospital (75% of the government recommended fee known as the schedule fee), a rebate on fees charged by general practitioners, specialists and optometrists (85% of the schedule fee), and subsidised prescription medications purchased at pharmacies.

If a doctor bulk bills the government, there is no charge to the patient. If the doctor doesn't bulk bill, the patient is responsible for the shortfall between what the doctor charges and what Medicare pays - this is often referred to as 'the gap'. Medicare does not lower the cost of emergency ambulance services. Public hospital services are provided free of charge by state and territory governments pursuant to the National Healthcare Agreement.

Private health insurance gives cover for treatment as a private patient in a public or private hospital, and some out-of-hospital services not covered by Medicare.

The difference between public and private patients

When a person is admitted to a public hospital, the hospital should ask the patient whether they wish to be treated as a public or private patient, and explain what the difference is. Everyone has the right to choose to be treated as a public or a private patient regardless of whether or not they have private health insurance. Someone who doesn't have private health insurance can choose to be treated as a private patient and will be billed for accommodation by the hospital and for medical services by the doctor. A person who has private health insurance can choose to be a public patient for hospital treatment and won't have to pay fees, but they won't be able to choose their doctor; they will be treated by a doctor who is on duty at the hospital at the time.

Hospital accommodation and theatre fees

A person who wants to be treated by a doctor of their choice can choose to be a private patient. The hospital will then charge for each day in hospital. In a public hospital, the accommodation fees charged by the hospital are fully covered by private health insurance if the patient has this cover.

Private hospitals are more expensive, and there may be additional fees, such as theatre fees. Even the highest level of private health insurance may not cover the whole cost, and patients may face expenses over and above those covered by the policy. A person about to go into a private hospital should find out what the fees will be and what is covered by private health insurance.

Treating doctors fees

As well as hospital fees, private patients in both public and private hospitals are charged fees by the treating doctors. Some treatments, such as surgery, can require more than one treating doctor. These fees are covered by Medicare and private health insurance up to the level of the government recommended schedule fee. Medicare covers 75% of the schedule fee and the private health insurance covers the remaining 25%. Many doctors charge above the scheduled fee, however, and patients have to pay any extra costs themselves. Patients should check with their doctors what the fees will be.

In some cases, private health insurers, private hospitals and doctors have established agreements, which mean there are no gap payments, or gap payments that are known in advance, for patients being treated in some private hospitals. Patients should ask their private insurer whether they have any such agreements, and whether there will be additional expenses in the hospital where they are planning to be treated.

If you are in hospital for more than 35 days in succession, you will be regarded as a nursing home-type patient unless your doctor specifies otherwise. Generally, all nursing home type patients have to pay part of the cost of the hospital accommodation. The National Health Act 1953 does not allow health funds to insure for this part of the cost.

Private health insurance

The main benefits of having private health insurance are:

• cover for some or all of the expenses associated with choosing a particular doctor or a particular hospital
• better accommodation in some private hospitals, for example, a better standard of meals and a private room
• access to private hospitals for non-urgent (elective) care - there is frequently a waiting list for public hospital treatment for non-urgent care
• cover for services not available under Medicare, for example, physiotherapy and dental care - these are called ancillaries or extras.

Private health insurance does not and is not intended to give a person priority of treatment over public patients in public hospitals.

What does private health insurance cover?

Private health insurance can be purchased for a single person, a couple, a single parent family or for a couple with children (family membership).

Types of private health insurance

There are two main types of private health insurance:

• Hospital Cover: from 1 April 2019 hopsital cover is categorised as Gold, Silver, Bronze and Basic, and there are minimum services that each tier must cover. Insurers can offer products with coverage for additional services, in which case the pollicy will be described as the tier with a "plus" or "+", for example "Basic +" or "bronze plus+"
• General cover: general cover policies are also described as "ancillary" or extras" policies and provide cover for non-hospital services such as physiotherapy, dental, and optical treatment. It is available separately, or packaged with hospital cover. From 1 April 2019 Insurers are no longer able to provide coverage for some natural therapies such as naturopathy, homeopathy, tai chi and yoga. Different policies offer different annual limits and cover different services.

Additional benefits

Some insurers offer policies with additional benefits such as:

• Gap Cover: many funds have entered agreements with hospitals and doctors to provide products that cover all hospital and medical costs. However, these agreements
  do not apply to all hospitals and doctors, and it is important to check which hospitals and doctors are covered.
• Broader Health Cover : this can provide coverage for hospital substitute treatment such as wound care and IV therapy provided in the patient's home, chronic disease management programmes such as diabetes management and smoking cessation, and exercise programs.

Excesses and co-payments

Private Health Insurance companies may offer policies with options to reduce the premiums payable:

• Front end deductible or excess cover: in return for lower premiums the member agrees to pay a certain amount up front if they use their private health insurance. For example, a member with a $400 front end deductible has to pay the first $400 if they use their private health insurance.
• Co-payment: policies with a co-payment mean that the member contributes an agreed amount per day for their care while in hospital. For example, a patient might agree to pay the first $100 for each day's hospital accommodation.

The cost of private health insurance is partially offset by the premium reductions scheme. This is described in more detail below.

Financial incentives for taking out private health insurance

The Premiums Reductions Scheme and Private Health Insurance Offset

Since January 1999 the Federal Government has provided a rebate on premiums paid for private health insurance. The rebate covers all private health insurance cover (hospital, extras and combined cover), and means that the cost of private health insurance is reduced. Since 2015 eligibility for the rebate has been income tested. The rate of the rebate is dependent on income, whether the insurance holder is single or a member of a family, and the age of the oldest family member. The applicable rate is available at the Department of Health's website.

The rebate can be claimed:

• as a reduction on the premium, by registering this choice with the fund‚
• as a tax rebate in an individual's annual income tax return.‚

Medicare levy surcharge

High income earners are further encouraged to take out private health insurance through a surcharge on top of the normal 1.5% Medicare levy, unless they hold private hospital insurance. The surcharge is between 1% - 1.5% of income, depending on which income tier they fall into. The income tiers are adjusted annually, and are available on the Private Health Insurance Ombudsman's website. The family income threshold increases by $1500 for each dependant child after the first. The surcharges also apply to those with incomes above the threshold if they hold a policy with a front-end deductible or excess of above $500 for singles, or $1000 for families and couples.

Lifetime Health Cover

On 1 July 2000 a new arrangement known as Lifetime Health Cover commenced. Lifetime Health Cover provides consumers an incentive to take out private health insurance before age 30, by allowing health funds to charge members different premiums according to their age when they first took out hospital cover. Those who joined after 15 July 2000 pay an additional 2% premium loading above the base rate premium for every year that their age at entry exceeds 30. The maximum loading that a person could pay is capped at 70%. People born on or before 1 July 1934 are not affected by Lifetime Health Cover.

A person can drop their hospital cover for up to 24 months (cumulative) without this affecting their certified age of entry. After 24 months their certified age of entry increases by one year for every year they do not have hospital cover. The Lifetime Health Cover loading can be removed after ten years of continuous cover. Ancillary products are not affected by Lifetime Health Cover.

Discounts for young people

Health insurance in Australia is community rated, which means that funds cannot offer different premiums on the basis of health status, age or claims history. However, from 1 April 2019 funds can offer premium discounts of up to 10% for people aged between 18 and 29. The discount will be phased out once the person turns 41.

Choosing between health insurance packages

There are many different health insurance packages available and packages are tailored to the needs of different consumers.The main difference between most private health insurance products is in terms of the trade-off between premiums and excesses; that is, consumers may prefer to take out a product with higher premiums so they don't have to pay an excess when they use their cover.

The large range on offer can make it difficult to understand what is covered, and to compare different funds and packages. Insurers are required to provide Private Health Information Statements (PHIS) about each of their policies, and these are available on the Private Health Insurance Ombudsman website. While the PHIS will only provide a summary, it is useful when comparing policies.

Limits, restrictions and exclusions and excesses

It is important to be clear about what is covered by the package, to check whether there are annual limits on the benefits paid for ancillary services, or whether an excess applies. It is also important to consider your anticipated future health needs and healthcare philosophy. For example, older people might choose a policy that excludes pregnancy and birth related hospital services in return for a reduced premium, whilst some people may choose a higher level of ancillary cover in order to be covered for complementary health services such as Chinese medicine and massage therapy.

Waiting periods

All funds have waiting periods before benefits will be paid for some services. For pre-existing conditions requiring psychiatric care, rehabilitation or palliative care the waiting period is two months, however consumers can upgrade their existing policy with no waiting period for inpatient psychiatric services. This is only available once during the consumers lifetime.

For other pre-existing conditions and for obstetric care, the waiting period is 12 months. Consumers planning a family and intending to take out private health insurance should join as early as possible to ensure they are covered if the baby is born prematurely. It might also be necessary to upgrade to "family" or "single parent" cover 3 - 12 months before the birth to ensure the newborn is covered should they require treatment immediately after birth.

For other hospital services the waiting period is two months, but waiting periods for ancillary services vary depending on the fund and the type of service. Consumers should check what waiting periods apply to the package they are considering.

Many health insurance funds apply waiting periods rigorously. The waiting period for pre-existing conditions is rarely waived, even in special promotions that waive other waiting periods. If you wish to change funds insurers are required to honour waiting periods served with other insurers for equivalent policies.

Self-insurance

Some people choose to self-insure. Given that private health insurance can cost a family almost $3000 a year, choosing to earmark this amount each year for a number of years in a term deposit may be cheaper, particularly for ancillary cover. However, it is more risky because people have very little control over the timing of major medical expenses. It also requires self-control not to spend the saved amount.

Tax benefits

The combined effect of the surcharge on the Medicare Levy, the Premium Reduction Scheme and Lifetime Health Cover means that some high income earners may find that it is cheaper to take out private health insurance cover even if they never intend to be treated as a private patient.

Getting help

The Federal Department of Health maintains a website with up-to-date information regarding private health insurance at www.health.gov.au.

People who have problems with private health insurance fees or claims for refunds should first try to resolve the matter with their health insurance fund. If this is not successful, they should contact the Private Health Insurance Ombudsman (see Contact points ). The Ombudsman has been established to deal with complaints about private health insurance arrangements, and is independent of the private health funds, public and private hospitals and government.

Contact Points

The Commonwealth Ombudsman

The Commonwealth Ombudsman is also the Private Health Insurance Ombudsman. The ombudsman's office maintains a website with information about private health insurance, and investigates disputes between consumers and private health insurers, hospitals or medical practitioners, provided the complaint relates to private health insurance. A complaint can be made by contacting the ombudsman's office on the numbers below, or by completing the online form.

Complaints: 1300 362 072
Indigenous Line: 1800 060 789
www.ombudsman.gov.au (complaints)
www.privatehealth.gov.au (for more information about private health insurance).