Medicare & private health insurance

Written and accurate as at: 9 February 2017

The ongoing debate about private health insurance appears to be a constant one among Australians, especially when premium increases each year come to the forefront. From 1 April 2016, private health insurance premiums increased by a weighted industry average of over 5%. There are several potential reasons to consider retaining or taking out private health insurance.  

On 1 February 1984, Medicare was established; a federal government funded public healthcare program that allowed Australians access to free or low-cost medical, optical and hospital care.


Broadly speaking, under the Medicare Benefits Schedule (MBS), Medicare covers:

  • free or subsidised treatment by health professionals (e.g. doctors, specialists, optometrists and, in specific circumstances, dentists), and to a certain extent allied health practitioners (e.g. exercise physiologists and physiotherapists);
  • free treatment and accommodation for public Medicare patients in a public hospital; and,
  • 75% of the Medicare Schedule fee for services and procedures if you are a private patient in a public or private hospital (this does not include hospital accommodation and items such as theatre fees and medicines).

Unfortunately, Medicare doesn’t cover the cost of every healthcare service you may require, such as ambulance services, prescription pharmaceuticals (non-PBS), dietary advice, most dental examinations and treatment, most physiotherapy, glasses and contact lenses, and hearing aids to name a few. Whereas, depending on your private health insurance policy, you may be covered in part or fully for the abovementioned services and more.

Other benefits of private health insurance

Elective Surgery & Waiting Periods

In 2014–15, Australia’s public hospitals admitted almost 698,000 patients from elective surgery (conditions that aren’t life-threatening) waiting lists. 90% of these patients were admitted after waiting an average of 253 days.

Furthermore, if you were one of those patients, you may have found that you were still required to pay a gap amount and your choice of facilities, treatments or hospital physician were limited. On the other hand, if you entered as a private health patient, you may have found:

  • your waiting period was shortened,
  • you had the option of choosing your medical team and treatments, and
  • Medicare covered 75% of the Medicare Benefits Schedule fee and, depending on your individual health insurance policy, the remaining costs may have been partially or fully covered by your insurer.

Medicare Levy Surcharge (MLS)

The Medicare Levy Surcharge (MLS) is charged by the ATO when you don’t have private hospital cover. For example, most singles with a taxable income over $90,000 ($180,000 for families) will be charged an extra 1% surcharge on their taxable income. This increases to 1.25% if you earn over $105,000 ($210,000 for families) and 1.5% if you earn over $140,000 ($280,000 families). By having private health insurance, you may save on your total tax payable.

Lifetime Health Cover (LHC)

The Lifetime Health Cover (LHC) is a financial loading that can be payable in addition to the base rate premium for your private health insurance hospital cover. If you join after 1 July following your 31st birthday, you may be required to pay a 2% loading on top of your premium per year for every year you are aged over 30 and do not have private hospital cover. For example, if you wait until you are 40, you could be paying an extra 20% on the cost of your hospital cover. If you wait until you are 50, you could pay 40% more; and so on, up to a maximum of 70% more*. Consequently, it is important to note that you could end up paying more for private health insurance cover over your lifetime if you don’t take out hospital cover prior to 1 July following your 31st birthday. This encourages Australians to start with their private health insurance early.

Ultimately, private health insurance is not compulsory in Australia, nor does it affect your ability to access Medicare. However, regardless of the tax incentives and saving on premium loadings, choosing appropriate private health insurance and putting a plan in place, can help put your mind at ease – having the capacity to weather the unexpected, and increased control over the type of medical services you receive and the timing of those particular services.


*However, the Private Health Insurance Act 2007 now includes a provision requiring private health insurers to stop the inclusion of the loading to the basic premium after ten years of ongoing hospital cover.