Private health insurance basics (Australia)

Private health insurance in Australia comes with its own vocabulary — hospital and extras, the Medicare Levy Surcharge, LHC loading, the rebate — and the tax rules attached to it trip up a lot of people. Here is a plain-English guide to how the pieces fit together, without the jargon.

Hospital vs extras cover

There are two main building blocks, and you can hold one or both:

• Hospital cover pays towards being treated as a private patient in hospital — your choice of doctor where available, a private room where possible, and treatment for the services your policy tier includes.
• Extras (ancillary) cover pays towards services outside hospital: dental, optical, physiotherapy, chiropractic and other allied health, up to annual limits.

Hospital policies are grouped into Basic, Bronze, Silver and Gold tiers, which standardise what clinical categories each level must cover — making it easier to compare like with like.

The three tax and pricing rules to understand

These are where health insurance interacts with your tax, and where the real money decisions are:

• Medicare Levy Surcharge (MLS). Higher-income earners without appropriate private hospital cover pay an extra surcharge at tax time. Holding eligible hospital cover can remove it — which is why many people buy hospital cover primarily for tax reasons.
• Lifetime Health Cover (LHC) loading. If you first take out hospital cover after a certain age, a loading is added to your premium that grows the longer you delay. Taking out cover earlier avoids it.
• Private health insurance rebate. The government contributes towards your premium depending on your income and age, either as a reduced premium or a tax offset.

Waiting periods

You cannot claim certain benefits the moment you join. Waiting periods apply — typically longer for pre-existing conditions, pregnancy and major dental. The upside: if you switch funds to an equivalent or lower level of cover, you generally do not have to re-serve waiting periods you have already completed, so switching to save money is usually penalty-free.

How to compare policies

• Match the hospital tier to the clinical categories you actually want covered
• Check the excess you pay per hospital admission
• On extras, compare annual limits and rebates for the services you use
• Confirm any exclusions and restricted services on the policy
• Factor in the rebate you are entitled to and whether the cover avoids the MLS