As Australians gear up for tax season and assess their finances, many are questioning whether private health insurance is worth keeping — or getting in the first place.
For some, it’s not just about healthcare access, but also about avoiding tax penalties tied to income thresholds.
Earlier this year, premiums rose for around 15 million Australians after the federal government approved the largest average increase in seven years.
So, how do you decide if private health insurance is a good choice for you? Here’s what to consider.
What Is the Role of Private Health Insurance?
Private health insurance is designed to work alongside Medicare, easing pressure on the public system. Those who can afford it are encouraged to seek private treatment, which usually comes with shorter wait times and choice of doctor.
Over time, various policies—like the Medicare Levy Surcharge (MLS)—have been introduced to encourage people to opt into the private system.
As Australia’s population ages, the strain on public hospitals is growing. A 2023 federal report by EY revealed that people over 75 had hospital claims averaging over $7,000, while those aged 40–45 averaged around $850.
Stephen Duckett, a health policy expert and former federal health department secretary, explained the system is mainly there to support elective procedures. But in order to remain profitable, insurers have often reduced benefits, raised excess fees, and increased premiums—leading many to question whether health cover is worth the cost.
Is Private Health Insurance Worth It?
It depends on your personal circumstances—your age, income, and health needs.
For younger, healthier individuals, private health insurance may offer limited value. Some plans, often called “junk insurance,” offer minimal benefits and exist mainly to help avoid the MLS tax.
The MLS is a tax on higher earners without private hospital cover:
- 1% to 1.5% of income
- Starts at $97,000 for singles or $194,001 for couples/families
You can estimate your surcharge using the ATO’s calculator. It’s calculated annually when you lodge your tax return and depends on how many days of the year you held coverage. Partial-year coverage may still result in a tax liability.
Junk Insurance and Value Concerns
Economist Greg Jericho from The Australia Institute said private health insurance is not a good deal for many younger Australians unless they’re engaged in high-risk activities, like competitive sports. He noted a dramatic rise in policies with exclusions or high excess payments—many of which offer little value when actually used.
In 2000, only 3–4% of policies had exclusions; today, it’s around 65%.
Similarly, around 85% of policies now include excess payments.
Understanding Lifetime Health Cover (LHC) Loading
The LHC loading system penalizes those who delay taking out private hospital cover past age 31. For every year after turning 31 without coverage, you pay 2% extra—capped at 70%—on your premium. The loading is removed after 10 years of continuous cover.
This policy was introduced under the Howard government to encourage younger people to sign up early. While it initially boosted uptake, that momentum has faded.
Choice insurance analyst Mark Blades warned many people don’t consider private cover until their 40s—when it becomes more expensive due to the LHC loading.
Weighing the Costs of Basic Cover
Blades cautioned that basic policies designed only to dodge tax penalties often offer minimal value.
“You could end up paying an excess of $750 and still face out-of-pocket costs from gap fees,” he said. “There are so few services they actually cover that it becomes a policy you can’t really use.”
Jericho agreed, saying most people only take out private health insurance to avoid penalties, not because they see real value in the product. He stressed that, unlike home insurance, public hospitals will still treat you if something goes wrong.
Government Rebate and Who Qualifies
The government provides around $7.5 billion annually in rebates for private health insurance. These subsidies range from 8% to 32%, depending on your income and age.
However, individuals earning over $151,001 and couples earning over $302,001 are not eligible. The rebate has also been gradually reduced in recent years, dropping to 24.3% this year.
Shopping Around and Maximizing Value
Switching health insurance providers can be tricky due to waiting periods and the loss of unused benefits, especially for high-level policies. But comparing options is still worth it.
Use official websites, including government comparison tools, to check your current cover through your Private Health Insurance Statement and evaluate other providers.
Consider exclusions, waiting periods, and whether extras cover is bundled into hospital-only policies. Blades emphasized that if you’re only taking out a policy to avoid the MLS, factor in potential costs if you end up needing to use it.
