Hospital, extras or both

There’s a lot of confusion when it comes to private health insurance, what you’re actually getting for you premiums, and the differences between hospital and extras coverage.

For example, it’s not uncommon to hear ‘I want to make sure I get money back when I get a new pair of glasses, and that I’m covered for physio as well”. Optical and phsyiotherapy would both be covered as ‘extras’ (compared to ‘hospital’). There’s certainly nothing wrong with valuing extras, but many people don’t realise that if they take out a hospital and extras policy, the hospital component will usually contribute more to the cost than extras!

It’s important to understand the difference between hospital and extras, what you’re likely to be covered for, and the different tax treatments between the two.

Hospital cover

As mentioned above, hospital cover is usually more expensive than extras. This is largely due to the fact that insurers need to charge more because the value of each claim could be much higher. If you need to go to hospital and are seen through the private system, your insurer may contribute tens of thousands of dollars towards your treatment.

Regardless of whether you think you will use hospital cover, you will first want to consider the tax implications of not being insured, and the Lifetime Health Cover loading.

Remember, even if you have extras cover, if you don’t also have hospital cover you won’t be exempt from the Medicare Levy surcharge and you won’t be avoiding the Lifetime Health Cover loading. The only way to avoid these is to take out a complying hospital policy.

On top of the financial benefits of being insured, you will also want to ask the following questions to guide what type of hospital cover you need, or whether you need it at all:

  • What is your overall level of health, and how much risk are you prepared to take? Obviously if there are any health issues (or likely health issues) that you are aware of that may put you in hospital, this will increase the potential value of insurance
  • How important is it that if you are admitted to hospital you are able to choose your own doctor, avoid public hospital waiting lists, and potentially be more comfortable during your stay?
  • Do you live in an area that will allow you take advantage of the benefits of private health insurance hospital cover?
  • Are you comfortable with the potential out of pocket costs that you may need to pay if you use your private health insurance hospital cover?

The type of policy you take out will depend on whether your decision is solely motivated on the tax/financial implications of not being covered (a basic complying policy), or whether as you work through the points above you see greater value in hospital cover (a more comprehensive policy to meet your needs).

If you decide to take out a hospital policy, features to consider include price, coverage, waiting periods, any excess or co-payment, and the extent to which the insurer covers most or all of your hospital costs (although this last one can be tricky to know without going into the detail of the procedure and treating doctor).

Extras cover

Extras cover is a little bit simpler than hospital cover. Firstly, there is no tax or financial benefit/penalty to having/not having extras cover. This means that you should take out extras cover if it works for you, and leave it if it doesn’t.

The easiest way to work out if extras cover is going to work for you is to consider what services you are likely to use. Unlike hospital cover, where determining value often requires gazing into a crystal ball, you probably have much greater certainty about which extras you may claim on in a given year.

While circumstances can and do change and you can never be certain, you probably already know how regularly you go to the dentist, whether you need glasses, whether you have physio sessions, etc. Do some rough calculations on the services you are likely to use, how much they cost, and what you may get back from insurance.

But when following this approach, be cautious about overconfidence in knowing what extras services you will use. You may not have been to a physio for years, but that could change very quickly with an injury. Maybe you’ve got healthy teeth that have only ever needed a regular check-up, but all it takes is one unlucky bite to need major dental surgery. You are, after all, taking out insurance to protect against the unknown.

When evaluating extras policies, also pay attention to limits and sub-limits. These can get a bit complicated and tricky, but often categories will have a high overall limit with restrictive item limits. For example, if you have up to $1,000 for remedial massage but you only receive $20 towards each massage, you’d need almost one massage a week to actually get that $1,000.

If the numbers don’t add up and you decide not to take out cover, it’s a good idea to regularly put money aside. Setting up a ‘rainy day’ fund for your medical expenses will ensure that if or when the time does come, you’re financially prepared.

Pro tips

If you decide to take out both hospital and extras cover, don’t limit your search to a policy that combines both. Most insurers off hospital only policies and extras only policies, and you may find that you get better value putting separate hospital and extras policies together compared to an already bundled policy.

This next suggestion takes a little bit more work and isn’t for everyone. But if you really want the best value cover, consider taking out hospital and extras cover with two different insurers. Sure, you will have a bit more paperwork upfront and two separate recurring payments. But there’s no penalty if you take this approach, and you can potentially get much better bang for your buck.
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