Will private health insurance save you money? | CHOICE

Daniel Graham

Uta Mihm

Uta Mihm


Last updated:

06 May 2024


Checked for accuracy by our qualified fact-checkers and verifiers. Find out more about fact-checking at CHOICE.

Many Australians took out private health insurance during COVID-19, but with household budgets now stretched by cost of living pressures, it’s time to take stock. 

You can compare health insurance policies to check whether you could get a better deal, or consider dropping your health insurance altogether. 

The two main reasons why you might want to keep your health insurance are to save money on tax and to avoid lengthy elective surgery waiting lists.


Do I need health insurance?

Some people will save money at tax time by buying health insurance. Find out if you’re one of them.

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Tax and health insurance

Depending on your income, you have to pay extra tax if you don’t have private health insurance. 

Medicare Levy Surcharge

The Medicare Levy Surcharge (MLS) is an additional 1–1.5% tax paid by singles earning over $93,000 and couples/families earning over $186,000 who don’t have private hospital cover. It begins at $970 a year for singles and increases the more you earn. 

If you only want health insurance for tax reasons, you can simply take out the cheapest hospital policy in your state or territory, which can cost less than paying the Medicare Levy Surcharge. The more you earn, the more you’ll save.

Note: For the 2024–25 financial year, the income threshold will increase to $97,000 for singles and $194,000 for couples/families.

Lifetime Health Cover loading 

The Lifetime Health Cover (LHC) loading affects you if you take out hospital cover after your 31st birthday, or if you have any long gaps between cover. If you take out hospital cover for the first time after you turn 31, you’ll pay an extra 2% on your premiums for every year you waited up to a maximum loading of 70%, and you’ll pay the loading for 10 years. 

If you turned 31 after 1 July 2023, you have until 1 July 2024 to take out hospital cover without a surcharge

If you never get private health insurance, the LHC loading will never affect you. 

Keep in mind that you don’t need to get extras cover (dental, optical, etc.) to avoid either of these penalties – getting hospital cover will do just fine.

Cheapest Basic health insurance policies to save on tax

Elective surgery waiting lists

In 2022–23 elective surgery waiting times were at the highest level in 20 years with nearly 10% of patients waiting for surgery for a year or more, according to the Australian Institute of Health and Welfare.

If you have private health insurance, you can get your surgery done by the doctor of your choice in a private hospital with normally much shorter waiting times.

If surgery is called ‘elective’, it just means it’s not emergency surgery and isn’t immediately needed to save your life.

Elective surgery is necessary surgery and even includes cancer surgery, and your condition could worsen if you have to wait too long. It’s even possible that you could become disabled while waiting, like for hip or knee replacement surgery, or your ability to enjoy and live your life could be severely limited, like if your eyesight worsens while waiting for cataract surgery.

Do you need extras cover?

Unlike hospital insurance, which covers you for treatment in hospital, extras insurance helps pay for services outside of hospital, like dental care, glasses and treatments like physio or chiro. When you take out health insurance, your insurer will probably sell you a hospital and extras policy. 

What health funds don’t tell you is that you aren’t required to have extras insurance to avoid paying tax and loadings. And while you get benefits paid when you have treatments, it’s often less than what you pay in premiums.

Most extras policies only pay a percentage or a capped amount towards the cost of these services. According to APRA*, on average:

  • you’re out of pocket by about $59 for each extras service
  • the benefit for a service is $66 for dental, $39 for physiotherapy and $81 for optical
  • you only get $463 per person per year in total from your extras policy, so for the average person, a premium of over $39 per month for extras insurance means you’re paying too much.

If your extras insurance doesn’t pay out more than your extras premium, it’s worth either switching to a better policy or dropping it altogether. Use our tool to compare health insurance to see if you can score a better deal.

*APRA quarterly health insurance statistic, December 2023.

The cheapest health insurance policies

Tips to avoid getting ripped off by health insurers

  • Take our Do I need health insurance? quiz to see if you’re financially better off taking out a policy (not everyone is).
  • If you already have health insurance, compare your health insurance options to see if you can get a better deal. Also, make sure you aren’t paying for services you don’t need.
  • Consider increasing your excess. Insurers can now offer cheaper policies with a $750 excess, up from the previous $500 maximum.
  • Check whether you can join a restricted membership health fund for your industry.
  • Think of extras cover as a budgeting tool. If you’re getting back less in benefits than you’re paying in premiums, it may not be worth the money.

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We care about accuracy. See something that’s not quite right in this article? Let us know or read more about fact-checking at CHOICE.

Stock images: Getty, unless otherwise stated.

Source: choice.com.au

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