Private Health Insurance

Define private health insurance

A type of insurance under which members pay a premium in return for payments towards health-related costs not covered by Medicare

-Optional form of insurance purcahsed in addition to Medicare

-Private hospitals provide 1/3 of all hospital beds and 40% of hospital separations.

What does the gold tier cover?

-Covers most categories of hospital treatment

(rehabilitation, brain and nervous system, heart and vascular system, assisted reproductive services).

What are the four tiers of private health insurance?

-Gold

-Silver

-Bronze

-Basic

What does the silver tier cover?

-The seond most categories of hospital treatment

(Rehabilitation, brain and nervous system, heart and vascular system)

What does the bronze tier cover?

-The second fewest categories of hospital treatment

(Rehabilitation, brain and nervous system)

What does the basic tier cover?

-The fewest categories of hospital treatment

Covers only rehabilitation.

What are the three options for private health insurance?

-Private hospital cover

-Generael treatment cover AKA extras (such as dental, physiotherapy, and chiropractic)

-Combined cover- both hospital and general treatment cover

What are extras in relation to private health insurance?

-Cover for general treatment on top of private hospital cover

-You can choose services such as dentists, physiotherapy and chiropractors which are generally not covered by Medicare.

-People choose what extras are covered, but the premium increases with each addition.

What are the key benefits of private health insurance?

-Can be admitted as a private patient in public or private hospitals

-Many medical expenses are covered by insurance

-Medicare still pays 75% of the doctor’s schedule fee in private hospitals

-Greater choice of hospitals and doctors

-Access to private hospital benefits (choice of doctor, private room, shorter waiting times for elective surgery)

How are fees paid for with private hospitals?

From the total fee payable:

-Medicare pays 75% of the schedule fee

-Private health insurance pays a majority of the rest

-Patient may have to pay the gap

What are the costs or financial limits of private health insurance?

-Private hospitals often charge above the schedule fee

-Insurance may not cover the full cost of treatment

-If costs exceed coverage, the patient must pay the remaining amount (the “gap”)

Private health insurance incentives

When Medicare was introduced, many people opted out of private health insurance because they could access essential treatments without having to pay expensive private health insurance premiums. This put a strain on the public health system because fewer people were using

PALM:

-Private health insurance rebate

-Lifetime health cover

-Medicare levy surcharge

-Age-based discount

What is the rebate incentive?

The rebate incentive refers to money given back to an individual.

The rebate incentive became income tested in 2012, meaning the amount of the rebate depends on a person’s level of income (lower income = higher rebate, higher income = lower or no rebate).

List the rebates for individual private health insurance policyholders

-Individuals with an income under $93 000 received a 25% rebate.

-Individuals with an income between $93 001 and $108 000 received a 16% rebate.

-Individuals with an income between $108 001 and $144 000 received an 8% rebate.

-Individuals with an income of $144 001 or above recieved no rebate

List the rebate threshold amounts for families

The threshold amounts are higher for families to reflect the extra expenses families incur compared to individials. In 2023:

-Families earning under $186 000 received a 25% rebate

-Families earning between $186 001 and $216 000 received a 16% rebate

-Families earning between $216 001 and $288 000 received an 8% rebate

-Families earning $288 001 or more received no rebate.

What additional rebate do older private health insurance policyholders receive?

-Eligible policyholders 65-70 receive ~4% extra rebate, and those over 70 receive ~8% extra rebate.

How can eligible policyholders access the private health insurance rebate?

They can pay a reduced premium wiht the government contributing the remainder, or pay the full premium and reclaim the rebate through their tax return.

How does the rebate impact access?

Althouguh the government funds a substantial amount, it increases the affordability of private health insurance, improving access.

How does the private health insurance rebate impact funding?

Although the government pays a substantial amount to fund this incentive, it increases affordability of private health insurance, increasing uptake and thus generating much-needed funds for the health system.

How does the private health insurance rebate improve sustainability of the health system?

It increases the propertion of people using the private system, reducing pressure on public hospitals, especially for elective surgery.

How does Lifetime Health Cover loading affect private health insurance premiums for people who take it out later in life?

If you take out private health insurance after the age of 31, you pay an extra 2% on premiums for every year you are over 30. For example, if you are 40 and take it out for the first time, you pay an extra 20%.

What is the maximum Lifetime Health Cover loading and how can it be removed?

The maximum Lifetime Health Cover loading is 70%, applied if first taking out PHI at age 65.

-if you hold PHI for 10 consecutive years, the loading is removed.

How does the Lifetime Health Cover loading influence behaviour and the health system?

It encourages younger people to take out PHI earlier and maintain it for life. Having more young people with private health insurance helps offset the cost of providing health care for older Australians, who are more likely to need it.

What is the medicare levy surcharge as an incentive?

-A third incentive is the Medicare levy surcharge. People earning $97 001 or more a year ($194 001 or more for families) pay an extra tax as a Medicare levy surcharge if they do not purchase private health insurance.

-The Medicare levy surcharge is calculated according to income and ranges from 1 per cent to 1.5 per cent. This encourages high income earners to take out private health insurance.

What is an age-based discount as an incentive?

Under this initiative, insurers have the option of offering young people aged 18–29 a discount of up to 10% for hospital cover.

-The discount allows for a 2% reduction in premiums for each year that the person is aged under 30, to a max of 10%

-Once you reach 41, your discount will reduce 2% each year until you have 0 discount.

List 4 advantages of PHI

-Enables access to private hospital care

-Choice of cdoctor while in public or private hospital

-Shorter waiting times for some medical procedures, such as elective surgery

-Helps keep the costs of operating Mediare under control

List 4 disadvantages of PHI

-Costly in terms of the premium that has to be paid

-Sometimes has a “gap”, which means that insurance doesn’t cover the whole fee and the individual must pay the difference

-Qualifying periods apply for some conditions such as pregnancy

-Policies can be complex to understand and thus create confusion for the average person.