There is a common misconception that having private health insurance means means you don’t need to pay when you go to hospital or use your extras. While it is possible that you won’t have to pay anything towards a hospital admission or your extras service provider, more than likely there will be additional costs.
Hospital excess or co-payment
Most policies will require you to make an upfront contribution to your hospital stay. This will either be in the form of an excess or a co-payment. An excess is a one-off payment (usually $250 or $500) per hospital admission, usually capped at one payment per person per year. Some policies have a $0 excess, but these are usually more expensive. A co-payment is similar to an excess, but rather than a single amount upfront, you are required to contribute to each day’s hospital stay. The co-payment will differ depending on the policy, but may be $50 a day, and there will often be a cap on the number of days that the fee is payable for. Many policies don’t have a co-payment component (excess seems to be more popular), and it’s rare that policies will have both.
Hospital gap or out of pocket
When your private health insurance covers you for a hospital admission, you will be covered up to a certain amount depending on your admission. Because each doctor can set their own fees, you may end up paying significant out of pocket costs to cover the difference between the total cost and what your insurer covers.
Many insurers have agreements with doctors where you will not need to pay any out of pocket costs – known as ‘no gap’. Often doctors and insurers will have other agreements where you will have a ‘known gap’ that is likely to be quite small. Some fees charged by doctors may be above the threshold for a ‘known gap’, and it is in these situations of an ‘unknown gap’ where you are at risk of being significantly out of pocket.
As of June 2018, the average contribution that privately insured patients needed to make towards their hospital stay was $308.73 (APRA). Note that this is the full patient contribution, and includes any excess, co-payment and out of pocket costs.
Extras out of pocket
Similar to hospital gap or out of pocket costs, you may only be partially reimbursed for extras services that you use. For example, you may receive $30 towards your physiotherapy appointment, $200 towards a pair of glasses, or $60 towards a dental check-up. If these amounts cover the full cost of your treatment/visit then you pay nothing, otherwise you will need to pay the difference.
Extras cover is often referred to as a budgeting tool rather than insurance. Whether you agree with this definition or not, it’s a useful way to frame what you may be able to get back (and what you may need to contribute) on extras. With extras cover, you are unlikely to get back significantly more than you paid in premiums – it’s certainly possible that you will, but it’s not likely. Hospital cover, on the other hand, may pay you nothing for many years (if you’re lucky enough not to go to hospital), but then it may cover you for tens of thousands of dollars if you need surgery. This is why a new pair of glasses is often mostly (or fully) covered by insurance, but you get back relatively little on major dental work that costs thousands.
Many insurers will also have owned, aligned or affiliated clinics or practices – you may have seen dentists and optometrists with insurer branding. If you take advantage of these providers, you can cut down on out of pocket expenses significantly, and get more value from your cover.