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Understanding Health Insurance
Understanding Health Insurance
Written by
Madeline Pettet
Edited by
Laura Crowden
Reviewed by
Andres GutierrezCompare Health Insurance Policies
Save time and effort by comparing a range of Australia’s health funds with iSelect
Long story short
You purchase health insurance (policies) from health insurers or funds
For a regular payment (premium), you can claim money back from your fund for different health services.
Health insurance can offer cover Medicare generally doesn’t
This might be for certain services, like seeing the dentist or physio.
Health cover can give you peace of mind
Hospital cover means you can choose your own doctor for surgery, while extras cover can encourage you to be proactive about your health.
Your gender and health history don’t affect your health insurance premium
Instead, your premium mostly depends on what your policy includes and how many family members it covers.
There are many reasons to get health insurance
For instance, you might want to make the most of tax incentives or to be seen sooner for elective surgery.
What is private health insurance and how does it work?
Private health insurance, or health cover, lets you claim back money on eligible treatments and procedures. You pay a regular premium to do so.
Who are health insurers?
Private health insurers or health funds are the ones who offer health cover policies. You claim money back on health services from your health fund.
Australia has over 30 different health insurance funds.1Commonwealth Ombudsman – State of the Health Funds Report, p13 Some may be restricted (they only accept certain people, like members of a profession), while others may be unrestricted (anyone can become a member). Some health funds are not for profit, meaning any money they make goes back to their members, like having lower premiums or offering greater cover.
Ten funds make up about 92% of the market in Australia. However, you can choose another fund – it’s not a popularity contest.
Source: Australian Prudential Regulation Authority – Operations of private health insurers annual report
What kinds of health insurance are there?
There are two main types of health insurance: hospital and extras.
In 2023–24, approximately 55% of Australians were covered by either a hospital or extras policy, or a combination of both.2Australian Prudential Regulation Authority – Annual private health insurance membership and benefits statistics
Hospital cover
This is for when you need to go to hospital. You can choose to be admitted as a private patient and your insurance will pay some of the bill.
Hospital insurance comes in four tiers, with each higher tier adding further services to the cover.
Extras cover
This is for out-of-hospital treatments, like seeing a dentist or physiotherapist.
Insurers and policies may cover different services. How much you get back also depends on your policy.
In 2023–24, dental was the most common type of extras claim – almost 55% of claims were for some kind of dental service.3Private Healthcare Australia – Annual report 2023 – 2024, p6
Optical, physiotherapy, and chiropractic services were the next most common services claimed.4Australian Prudential Regulation Authority – Annual private health insurance membership and benefits statistics
How does private health insurance work with Medicare?
Medicare is Australia’s universal health care scheme. However, Medicare can’t cover every service and, outside of public patients in a public hospital, it doesn’t always cover the full bill. Otherwise, the scheme would be unsustainable for taxpayers (Australian taxpayers pay the Medicare Levy – 2% of their taxable income – to help fund Medicare). So, private health insurance exists to fill in the gaps.
Health insurance also helps to reduce the burden on Medicare and the public health system. For instance, if you used your private health insurance at a public hospital, the cost of your care doesn’t entirely come from the hospital’s government allocation of funding – your health fund would chip in too. Plus, your payment may help pay for service improvements at the hospital, like research, specialised equipment, and updates to infrastructure.
If you use your health insurance as a private patient at a private hospital, you also help to keep public hospital beds available for those who can’t afford health insurance. This helps stop public hospitals from being overwhelmed.
Generally, you need to be an Australian citizen or permanent resident to be covered by Medicare. If you have unrestricted access to Medicare, you can also opt to have private hospital insurance. But what about if you aren’t eligible for Medicare? That’s where overseas visitor health insurance comes into the equation. It covers overseas visitors in case they need to see a doctor or go to hospital. Otherwise, they might head home with a huge bill.
How did Medicare and health insurance compare in 2023–24?
Medicare
27.1 million people were enrolled in Medicare with 15.7 million active Medicare cards.5Services Australia – Annual report 2023–24, p67
Medicare patients made almost 460 million claims, averaging 19.5 claims each.6Department of Health and Aged Care – Medicare annual statistics – State and territory (2009–10 to 2023-24)
Private health insurance
Almost 14.9 million Australians were covered by some kind of health insurance policy.9Australian Prudential Regulation Authority – Annual private health insurance membership and benefits statistics
Health fund members made 5.01 million hospital claims and 104 million extras claims.10Private Healthcare Australia – Annual report 2023 – 2024, p4
Health insurers paid $24.4 billion in claims11As above with members receiving $2,058 in hospital benefits per treatment and $598 in extras benefits, on average.12Australian Prudential Regulation Authority – Annual private health insurance membership and benefits statistics
The average out-of-pocket cost for hospital treatment was $437.51, while it was $58.43 for extras treatment.13Note: Hospital out-of-pocket costs do not include excesses or co-payments. Australian Prudential Regulation Authority – Quarterly private health insurance statistics: June 2024, p8
Are there advantages to having health insurance?
If you’re the kind of person to be kept awake by worries and what-if scenarios, health insurance could give you invaluable peace of mind. But there are some tangible advantages that make health insurance worthwhile too.
Hospital insurance
Hospital cover gives you the ability to pick your doctor. It can also mean you could skip longer waiting lists for elective surgery. Additionally, you are more likely to have a private room in hospital. And those are just some of the perks of being a private patient.
Even if you don’t need to go to hospital, it can still be advantageous to have hospital cover. If you have hospital cover with an excess of $750 or less (or $1,500 or less if you have a family policy) and your taxable income is over the threshold, you won’t need to pay the Medicare Levy Surcharge, which is an additional tax paid by higher income earners on top of the Medicare Levy that all taxpayers pay.
Extras insurance
With extras cover, you could claim on services Medicare doesn’t usually cover. For instance, you could get money back on visits to the chiropractor or remedial massages. So if you’re looking to holistically treat or manage an issue, an extras policy could help.
Similarly, extras insurance could encourage you to be proactive about your preventative health care. Knowing you can claim back money on different services could help you address medical problems when you first notice them, rather than letting them progress.
How much does health insurance cost?
Unlike many other types of insurance, your gender, where you live, or your health history don’t affect your health insurance premium. For many people, age also isn’t a factor for their premiums (unless they’re taking advantage of the age-based discount or are working through their Lifetime Health Cover (LHC) loading). Instead, the key factors that can make your premium go up or down are what your policy covers and how many people it covers.
The graph shows the average monthly cost of private health insurance for singles-only combined cover policies in October 2024.
Your premium may also change as the industry adapts to fluctuating market conditions. Keep an eye out for talk about annual premium rate rises, which generally happen on April 1 each year. This can be a good time of year to review your policy. If you find a policy that offers a better fit, you could also lock in your health insurance premium for the next twelve months by paying the annual amount in one hit.
If you’re concerned about cost or just love a great deal, there are also government incentives available. For instance, if you have a taxable income below the threshold, you can claim the Private Health Insurance Rebate to help pay for your health cover. Young Australians can also receive an age-based discount if they take out hospital insurance before 30. Taking out hospital cover before you turn 31 can also mean you aren’t saddled with the Lifetime Health Cover loading down the track.
Remember, it’s unlikely you’ll always need cover for every service. Instead, you might want to consider what health concerns are more likely given your current life stage and choose health insurance that matches.
If your policy covers anyone else, think about their life stage too. For instance, younger kids and teens may have different health needs to older dependents.
Helpful tip:
It might not be the best birthday present in the world, but making time to review your health insurance each year could help ensure you’re only paying for cover you need. Sit down with a cup of tea (and some birthday cake) to review your recent claims to help you decide if it’s time to add or remove services from your cover or even switch funds entirely to get better value.
Andres Gutierrez
General Manager – Health
Do I need health insurance?
You know yourself, your health, and your financial situation best. However, we can share some of the reasons so many Australians choose to take out health insurance, like:
- claiming on services Medicare doesn’t regularly cover
- being seen for elective surgery sooner
- being prepared for expected and unexpected health needs, like a baby or an accident playing sports
- having greater control of their healthcare
- making the most of tax benefits and government incentives.
You might want to think about if your policy will cover more than just yourself. For instance, you may want to pick a couples policy or find health insurance for your whole family.
How do I choose a health insurer?
Forget walking the tightrope, a balancing act we all need to practice is weighing up the positives and costs of different insurers and health policies.
There are lots of things you might look for when picking the best health fund for you. These could include:
- claiming for niche services
- having no, known, or small gap payments
- if you can claim with any service provider or only preferred providers
- if the fund is not for profit
- how happy other members are with the fund.
Of course, what matters to you could be different from what the next Aussie thinks. Knowing your priorities can make it easy to compare, particularly if you let iSelect handle the legwork.
Frequently asked questions
What’s a waiting period?
A waiting period is the time you’ll need to wait between purchasing your policy and when you can start claiming.
The government mandates hospital waiting periods, while insurers can decide the waiting periods for extras policies themselves.
What does ‘no gap’ mean?
When you’re a private hospital patient, Medicare pays 75% of the Medicare Benefits Schedule (MBS) fee – this is a set fee for a certain service. Your insurer then pays the remaining 25% of the MBS fee.
Sometimes, your doctor might charge more than the MBS fee. This can mean you have to pay the gap – the difference between what Medicare and your insurer has covered, and what your total bill is. But if your insurer has a no-gap arrangement or scheme with them, your health insurance will cover what’s left on the doctor’s bill.
Of course, you probably don’t want to find out if you have a gap payment at bill time. Speaking with both your health fund and chosen doctor ahead of time could help you avoid a nasty shock.
What’s the advantage to changing my excess amount?
Your excess is the amount you agree to pay if you’re admitted to hospital (although, usually, you’ll only need to pay it once a year, even if you’re admitted to hospital multiple times). By agreeing to a higher excess, your insurer may lower your health insurance premium. Similarly, opting for a lower excess could mean a higher premium.
It might be a good idea to think about how likely it is you’ll need to go to hospital before changing your excess amount.
Do you need private health insurance for pregnancy?
Many Australians opt to have babies through the public hospital system. However, having pregnancy cover can mean you can enjoy some extra benefits as a private maternity patient. These include choosing your own obstetrician which gives you invaluable continuity of care throughout your pregnancy and an increased likelihood of a private room when the big day comes (meaning your partner can likely stay with you and bub too).
Even if you have cover for pregnancy, you may still have out-of-pocket costs from your treatment and hospital stay.
How do I make a claim with my health insurance?
Claiming on your health insurance is typically straightforward.
If the service provider has HICAPS, you can swipe your membership card to charge your claim to the health fund directly. Then, you just need to settle the gap.
Alternatively, you can pay for the service in full and then claim through your fund’s online portal or app. You’ll need to include your receipt.
You may also be able to make a claim at a physical branch of your fund or through snail mail. Again, make sure you have that receipt handy.
Do I need health insurance if I’m visiting Australia?
It really depends on where you’re travelling from and how long you’re staying for. Some countries have Reciprocal Health Care Agreements (RHCA) with Australia. This means residents of these countries can use the Australian public health system. The catch is that the RHCA only applies to immediately necessary medical treatment. Anything else would need to come out of your pocket as an overseas visitor, unless it could be covered by your travel insurance.
If you’re from a country that doesn’t have an RHCA with Australia, even immediately necessary medical treatment would need to be paid by you (or your travel insurer).
Depending on how long you’re staying for, travel insurance may not cut it either. If you have a visa that allows you to stay Down Under for a while, you’ll need to look into overseas visitors health cover (and having it might even be a condition of your visa).
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