Medicare vs private health insurance

What’s the difference between private health insurance and Medicare?

Medicare

Medicare is a public healthcare program run by the Australian Government. Established in 1984, its primary goal is to give Australian residents access to free or low-cost medical services and hospital care. Medicare covers a range of health care costs for hospital, medical and pharmaceutical expenses and entitles you to be treated publicly in a public hospital for treatments listed on the Medicare Benefits Schedule (MBS). However, you don’t get to choose when or where you’re treated and who performs your procedure.

Private health insurance

Those with private health insurance can still elect to use the public health system for treatment. However, they also have the option to go privately. This means they can seek treatment in a private hospital with less out-of-pocket fees than those without an appropriate level of hospital cover.

Private healthcare also gives you a say in who you’re treated by (subject to availability) and the option of having your own private room where available. You can usually avoid lengthy public waiting lists and generally have more say in your treatment with private hospital insurance. There are also some health services and costs that aren’t covered by Medicare (such as physiotherapy and prescription glasses) that an extras health insurance policy may cover.

There are three types of policies you can take out through the private health system, either individually or together through a combined cover policy. These options are:

• Hospital cover: Pays a benefit towards the hospital costs for medically necessary treatment you receive as an inpatient at hospital.
• Extras cover (also known as ancillary or general treatment): Covers out-of-hospital treatments that aren’t included in Medicare, such as physiotherapy, dental, optical and more.
• Ambulance cover: Pays for ambulance costs in some states and territories.

Is private insurance better than Medicare?

Whether private insurance is better than Medicare depends entirely on your circumstances. Medicare provides fantastic benefits to all Australians and treats many common issues. Meanwhile, private health insurance goes further by covering additional treatments, reducing wait times and giving you more control. Here are some of the benefits of private cover to consider when comparing Medicare and private health insurance:

• Get seen quickly. When you’re a private patient, you may avoid lengthy waits that public patients need to serve for the same surgery or procedure.
• Save money on out-of-hospital treatments. Do you need a dental check-up or new glasses? Extras cover can be excellent value for money when you take full advantage of your policy’s claimable benefits.
• Choose your own doctor/specialist. Private hospital cover ensures you can select a doctor you know and trust as your healthcare specialist (subject to availability).
• Enjoy your own private hospital room. Provided that a room is available, you can enjoy the perks of being a private patient by having more control over your privacy during your hospital stay.
• Avoid paying the Medicare Levy Surcharge (MLS). If you’re a high-income earner, you may avoid paying up to 1.5% of your taxable income by taking out private health insurance. Read more about the Medicare Levy Surcharge.
• Benefit from private health insurance rebates.  The Australian Government’s private health insurance rebate may cover some of the costs for your private cover. The rebate is income- and age-tested and can be claimed as a reduced premium or as a rebate at tax time.

What they cover

What does private health insurance cover that Medicare doesn’t?

While Australia’s healthcare system is one of the best in the world,¹ Medicare doesn’t cover all treatments and you’re often subject to lengthy hospital wait times. This is where private health insurance may be beneficial.

The table below details some medical costs Medicare will and won’t cover. Depending on the private health policy you take out, your insurer may cover all or part of the cost for services Medicare doesn’t pay for.

Medicare also reimburses 100% of the MBS fee for trips to the GP and 85% for specialists (private health insurance does not pay a benefit towards trips to the GP and outpatient specialist appointments). The MBS is a list of costs for medical treatment that the government deems a fair price for each service listed; however, medical professionals, doctors and clinics can set their fees above the listed MBS price. When the price of a treatment is higher than the MBS fee, you may still have out-of-pocket costs even if you have private health insurance.

What’s more, you may not pay anything if your healthcare provider bulk bills.

How does private insurance work with Medicare?

If you choose to be treated as a private patient, Medicare still plays a significant role in your procedure. Medicare will cover 75% of the MBS fee for any treatment listed on the MBS, while your insurer will pay the remaining 25%.

You may ask, “If Medicare covers such a large percentage of healthcare costs, what’s the point of getting health insurance?” The answer is simple: while Medicare does offer many benefits, it doesn’t cover everything.

In a private hospital, you may still need to pay for:

• Accommodation
• Additional tests
• Theatre fees
• Medication and dressings
• Prosthetics
• Further inpatient doctor fees.

Depending on your level of cover, some or all of these costs could be paid for by private hospital insurance. However, you may still pay out-of-pocket if the hospital or doctor charges more than the MBS fee for their services; this is known as the gap payment. However, some doctors have gap agreements with insurers. This is where the treating doctors agree to only charge the amount Medicare and your health fund will pay (no gap), or a set amount above what Medicare and your health fund will pay (known gap). It’s a good idea to speak with your doctors and health fund prior to a hospital admission to understand if they participate in any no gap or known gap agreements.

Pros and cons of Medicare and private health insurance

Advantages of private health insurance

• Peace of mind if you, your partner or family members unexpectedly require surgery as soon as possible as an inpatient in hospital.
• More choice when it comes to the treatment you receive, where you receive it and who performs surgery (subject to availability).
• Depending on your policy, you may be covered for additional health services that aren’t offered through Medicare. These range from dental examinations to chiropractic and podiatry services.
• Cut wait times by avoiding public hospital waitlists.
• The option of recovering in your own room at a private hospital (subject to availability).
• The choice of being treated privately with reduced out-of-pocket expenses (compared to what those without private health insurance would have to pay if they were treated in a private hospital).
• With a private hospital insurance policy, you can avoid the Lifetime Health Cover loading (LHC) if you take it out before 1 July following your 31^st birthday. If you’ve already accrued LHC loading, you can stop further increases by taking out a private hospital insurance policy.

Disadvantages of private health insurance

• Coverage comes at a cost, and premiums can increase yearly.
• Depending on your policy, you may not be covered for the treatment you require. It’s important to take your time in choosing the right level of cover.
• When taking out or upgrading coverage, you’ll most likely be subject to waiting periods before you can claim. Waiting periods for hospital treatment typically range from 2-12 months. Many extras services will also incur a 2-12 month waiting period, although they could be higher. For the full details, refer to our waiting periods page.
• You may still incur further out-of-pocket costs in addition to the premium you pay every month.
• You may have to pay an excess and/or co-payment (agreed upon when you take out your policy) if you’re admitted to hospital as an inpatient.

Advantages of Medicare

• Receive treatment with no up-front bills or at a reduced cost.
• You could save money if you’re prepared to wait for elective surgery.
• Most common health conditions are listed on the MBS and will be covered up to 75% by Medicare when treated in a private hospital or 100% when treated as a public patient in a public hospital.
• In most instances, you’ll be seen quickly for emergencies.
• There are no yearly premiums or excess to pay for insurance.

Disadvantages of Medicare

• The treatment you require may not be covered, such as dental treatment or physiotherapy.
• You could be subject to longer wait times.
• No choice of when and where you’re operated on and who performs the surgery.
• Depending on your income and circumstances, you may need to pay the MLS.