As Australians get closer to tax time, many are once again left wondering whether private health insurance is worth it. Whether this expensive coverage is worth it is receiving increasing scrutiny. Recent changes in premiums and government policy have kindled this controversy. Financial experts, including Mark Blades and Stephen Duckett, provide insights into the complexities surrounding private health insurance and its implications for individuals and families.
According to Mark Blades, an industry veteran who has consulted with successful funds, the minimum standard hospital cover can’t provide the best value possible. For people who earn over $97,000 and couples or families over $194,001, he points out they’ll incur a Medicare Levy Surcharge (MLS). This new tax will be between 1 percent and 1.5 percent of their income. This ill-advised tax piles more complexity on top of the already murky decision-making process surrounding private insurance.
The financial burden doesn’t stop there with premium payments. Blades notes that providers are shocked when the consumer who is on or using their insurance as intended ends up shouldering additional cost. They frequently encounter median excess fees upward of $750 even for limited coverage, not to mention potential gap fees for other services. With these extra costs in mind, most Australians don’t agree that the benefits are worth the cost.
Demographics and Usage Trends
The private health insurance landscape is changing—especially for younger people. Before the past few years, just 30 percent of 30 somethings had private health insurance. A 2023 report by EY for the federal government found dramatic differences in hospital claims according to age. For Australians over 75, average hospital claims exceeded $7,000 per person, while those aged 40 to 45 averaged only $850.
This large inequity begs the question of why younger Australians need private coverage at all. Duckett minimizes the weaknesses of the private system while highlighting the strengths. He contends it doesn’t seem like a sustainable route for younger people who generally require less medical care.
“You didn’t get it in your 20s because you were healthy, you didn’t get it in your 30s because you couldn’t afford it, and then in your 40s, you finally look at it,” – Mark Blades
The addition of the LHC loading further complicates things. This policy penalizes those who do not obtain private hospital cover by age 31, imposing an additional 2 percent charge for each year without coverage, up to a maximum of 70 percent. Blades cautions that a lot of folks experience this rude surprise of a penalty during their 40s. This reality makes their choices regarding health insurance exceedingly difficult.
Recent Changes and Premium Hikes
In March 2023, private health insurance premiums jumped record-breaking amounts. It produced the biggest average increase in seven years and affected around 15 million Australians. This development has raised new questions about the affordability of private insurance and its relevance in today’s rapidly changing healthcare landscape.
Duckett argues that the way the current system is set up incentivizes people to buy insurance when they should not be buying it. He characterizes the LHC loading as a device to provide greater risk pooling in the private system. It forces those who are least likely to use the services to pay through the nose for them.
“It is quite bizarre that we say this product is so bad that we want to force you to take it out,” – Stephen Duckett
The discussion continues to boil over about this strategy. Is it really what Australians need or is it just adding to the burden with higher costs? Duckett claims that the private healthcare system produces a number of positive outcomes. People need to do a better job of weighing their own unique health requirements when making coverage decisions.
The Case for Private Health Insurance
In light of this difficult and sometimes inequitable landscape, experts concede several situations in which private health insurance works to everyone’s advantage. Duckett points out that private coverage increases access to elective procedures more quickly. This is a significant improvement which increases patient choice while potentially reducing wait times in our public hospitals.
“We must remember what it does; it’s essentially a mechanism to allow elective procedures to be done.” – Stephen Duckett
Many health professionals, including former Treasury Department official and prominent economist Greg Jericho, warn against thinking of private health insurance as a magic bullet. He points to another big shift—in the past, only around 65 percent of policies had exclusions. Originally published on Transportation for America in the year 2000, that share was only 3 to 4 percent. This only continues to signal that Australians may be overpaying for insurance. Unfortunately, those benefits provide little safety net when they need care the most.
Jericho goes on to underscore that even basic cover can be too expensive for the scant care it offers. He clarifies that unlike property insurance, where individuals might face significant financial loss, the public healthcare system will likely remain accessible as a primary option for Australians if a serious medical issue arises.
“Private health insurance is not like house insurance, because if the worst does occur, the public system will likely be your first port of call and you will be covered.” – Greg Jericho
