In Australia, private insurance may be a voluntary sort of insurance that gives financial assistance for the value of specified health services. Depending on the sort of canopy , private insurance can fully or partly cover the prices of hospital services and or the prices of other general treatment health services, such as physiotherapy and dental treatment

The role of private health insurance

For Australians wishing to access private health care, the private insurance system helps them mitigate the risks related to , potentially large, unexpected health care costs. Unlike other sorts of insurance like car and life assurance , the Australian private insurance system isn't ‘risk-rated’ but is ‘community rated’. This means that insurance cannot be refused to any person, regardless of their risk profile (such as having pre-existing conditions or smoking) and likely usage of health services (Department of Health 2019a). It also means private health insurers aren't allowed to charge people more for an equivalent level of canopy simply because they're more likely to use the health services covered by their policy.

Types of cover

Hospital insurance cover is usually for the value of in-hospital treatment and other hospital costs like accommodation and theatre fees, in either public or private facilities.

General treatment insurance cover is usually for non-hospital medical services that aren't covered by Medicare, like dental, optical, physiotherapy, other therapies and ambulance. It is also known as ‘ancillary’ or ‘extras’ insurance.

In Australia, private insurance cannot cover services that are provided outside hospital and are listed on the Medicare Benefits Schedule (MBS) (Department of Health 2019b). This includes some services provided by general practitioners and medical specialists, also as diagnostic testing.

When an individual signs up to non-public insurance or changes their private insurance policy, they'll be required to serve a waiting period before they will claim benefits under the new policy. The maximum waiting periods an insurer can impose are regulated by legislation.

Who has private health insurance?

At June 2019, 11.2 million Australians (44% of the population) had some sort of private patient hospital cover, and 13.6 million (53%) had some sort of general treatment cover (APRA 2019).

The proportion of the population covered by some sort of hospital cover (including those covered by a combined hospital and general treatment policy) was lowest for those aged 25–29: 26% of females were covered, and 21% of males (Figure 1). As an incentive to encourage more young people to take out private health insurance, from 1 April 2019 insurers are able to offer up to 10% discount on premiums for people aged 18–25, and similar discounts to those aged 26–29 (Department of Health 2019c).

The proportion of the population covered increased from age 30, when ‘lifetime health-care cover’ loadings apply (see box below). The highest proportion of males covered was those aged 65–69 (55%) and for females was 70–74 (58%)

People living in Major cities are the most likely to have private health insurance (ABS 2019b). In 2019, the Australian Government introduced reforms to permit private health insurers to supply travel and accommodation benefits for hospital policies, aimed toward benefiting patients living in regional and rural areas who got to travel for treatment (Department of Health 2017).

Government surcharges and incentives

Medicare levy

The Medicare levy partially funds services provided through Medicare. The levy is 2.0 % of a person’s taxable income. An additional Medicare levy surcharge is applied if people have taxable income above a specified level and don't have private patient hospital cover. The surcharge is levied on a scale between 1.0% and 1.5% depending on taxable income (ATO 2019).

Private health insurance rebate

The Australian Government offers a personal insurance rebate to subsidise the prices of personal insurance premiums. Introduced in 1999, the rebate applies to policies for hospital, general treatment and or ambulance cover. In 2017–18, the Australian Government spent $5.9 billion on the private insurance premium rebate. It should be noted that this rebate amount differs from figures published by other organisations, because the former removes management expenses and other costs indirectly associated with the provision of health goods and services (AIHW 2019a).

There are 2 ways to say rebates on private insurance premiums:

People pay the full premium, and claim the rebate as a tax offset at the end of the financial year.

Insurers offer members a reduced premium, that they're reimbursed directly from the Australian Government (PHIO 2019).

Lifetime Health Cover

Lifetime Health Cover (LHC) aims to encourage younger people to buy and maintain private hospital insurance cover. People who take up insurance early in their adult life will avoid paying the LHC loading. Those who take up insurance later in life will pay a 2.0% loading on top of their premium for every year they are aged over 30. LHC applies to hospital cover only (PHIO 2019).

Over recent decades, the Australian Government has introduced a variety of initiatives to encourage individuals to require out private insurance . The number of people with private health insurance hospital cover increased 33% in 2000 when the private health insurance rebate and LHC changes were introduced, and continued increasing from 2004–05 to 2016–17. In 2017–18, private insurance membership (with hospital cover) declined for the primary time since 2003–04 (APRA 2019). The proportion of population with hospital cover decreased from 2015–16 to 2017–18. The net benefits paid by private health insurers (both total and per person covered) still rise.

What services do private health insurers cover?

General treatment

In 2018–19, dental (53%) and optical (17%) services were the two largest areas of expenditure by private health insurers for general treatment (Figure 3) (APRA 2019).

Medical services in hospitals

In 2018–19, the most important areas of expenditure by private health insurers for hospital services were anaesthesia (25%) and medical specialists, including consultant physicians and psychiatrists

In 2017–18, about 1 in 8 (13%) hospitalisations publicly hospitals were for patients who used private insurance to fund all or a part of their admission. During an equivalent period, quite 4 in 5 (83%) hospitalisations privately hospitals were funded by private insurance (AIHW 2019b).

The number of personal patients being treated publicly hospitals has increased in recent years (2012–13 to 2015–16). Between these years, private admissions in public hospitals have grown faster than the rate of admissions for private hospitals (8.3% and 4.6% respectively, on average)

Across Australia, private health insurers spent a mean of $1,470 per person covered by a hospital treatment policy (AIHW 2019a). Spending was highest in South Australia ($1,607), and lowest in the Australian Capital Territory ($855), and has increased in all states and territories since 2007–08.