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Why you could be wasting a lot of money on basic health insurance
By John Collett
Many who hold bare-bones basic-tier hospital policies to avoid paying the Medicare Levy Surcharge (MLS) could pay only a few dollars extra a month to have higher-level cover that provides real benefits.
Most basic policies offered by major health insurers only offer ambulance cover and a few “restricted” services, meaning you are only partially covered for those treatments, providing minimal value.
Paying a bit more for hospital cover can mean cover that is actually useful should you ever need to go to hospital.Credit: Nicolas Walker
Additionally, if you live in Tasmania or Queensland, the state already covers ambulance costs, says Kate Browne, head of research at comparison site Compare Club.
Analysis by Compare Club shows a 30-year-old earning less than $93,000, with basic-level policy and $750 excess, would have paid $78 a month in 2023, on average.
The same 30-year-old would have paid $91 a month for basic-plus policies and $98 for bronze hospital policies, on average, costing them only a little more, but providing them with much more coverage.
Some procedures commonly covered by basic-plus and bronze policies include gynaecology, hernias, and tonsil removal. Bronze-plus policies often include dental surgery for the removal of wisdom teeth or problem teeth.
“It’s easy to accidentally shortchange yourself by purchasing a basic level cover without knowing you could have far better coverage for just a few dollars more,” Browne says.
The penalties for not taking out basic hospital coverage include the Medicare Levy Surcharge of at least 1 per cent on the income of those earning more than $97,000 a year, or couples earning more than $194,000 during 2024-25.
The MLS is applied in income bands, with higher-income earners paying higher percentages. Some pay the surcharge when the cost of a bronze hospital policy is less.
There is also a lifetime health cover loading, or margin to the premium, that applies to those who do not buy at least basic hospital cover by July 1 following their 31st birthday.
For every year after 31 that a person does not have private hospital cover, they pay a 2 per cent loading. That means if you take out private patient hospital cover when you are 40 years old, you could pay an extra 20 per cent on the cost of this cover per year for 10 years.
The loading stops after 10 years of continuous hospital cover. If you wait until you are 50 years old, you could pay 40 per cent more per year for 10 years.
Many opt for cheaper basic-tier hospital coverage to avoid these penalties, often without realising how limited their coverage is, Browne says.
Hospital policies are tiered into gold, silver, bronze and basic to make them easier to compare.
Each tier specifies services and treatments that must be included. The higher the tier, the greater the number of categories covered; though insurers have added “plus” categories to each tier which makes them harder to compare.
A “plus” policy will cover at least one service more than normal basic, bronze or silver policies. The tiers do not apply to extras cover which is for items such as optical, dental and chiropractic treatment.
- Advice given in this article is general in nature and is not intended to influence readers’ decisions about investing or financial products. They should always seek professional advice that takes into account their personal circumstances before making any financial decisions.
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