Private health insurance — do you actually need it?

This is separate from and additional to the ordinary 2 per cent Medicare levy that almost everyone pays. The surcharge applies if your income for surcharge purposes exceeds a threshold and you do not hold an appropriate level of private hospital cover for the whole year.

The rate is 1 per cent, 1.25 per cent or 1.5 per cent depending on which income tier you fall into. Income for surcharge purposes is broader than taxable income — it includes reportable fringe benefits, reportable super contributions, net investment losses and exempt foreign income, which catches people who assume their taxable income is the relevant figure.

The practical consequence is arithmetic: for many people just over the threshold, a basic hospital policy costs less than the surcharge would. That makes buying insurance the cheaper option even if you never claim on it.

Extras cover — dental, optical, physiotherapy — does not exempt you. Only hospital cover with an excess at or below the specified limit counts.

Thresholds are indexed and the rules change; check the current thresholds and rates with the ATO before relying on any figure.

This is the second rule, and it works on age rather than income. If you do not take out private hospital cover by 1 July following your 31st birthday, a loading of 2 per cent is added to your premium for every year you were without it, up to a maximum of 70 per cent.

So taking out hospital cover for the first time at 40 means a 20 per cent loading on top of the base premium. At 50, it is 40 per cent.

The loading is removed after ten years of continuous hospital cover. There are also permitted breaks — you can be without cover for a cumulative period without incurring loading, and time spent overseas is treated separately.

People who arrive in Australia after their 31st birthday get a grace period: loading is calculated from the date they become eligible for Medicare rather than from age 31, provided they take out cover within a set period.

Hospital cover buys access to private hospitals, choice of doctor, and a private room where available. It does not make treatment free — there are excesses, and specialists commonly charge more than the combined Medicare and insurer contribution, leaving a gap that can run into thousands for surgery.

The main practical benefit is elective surgery waiting times. Public elective surgery is prioritised clinically, and for non-urgent procedures — hip and knee replacements, cataracts, hernias — public waits can be long, while private is scheduled at your convenience. For anything urgent or life-threatening, the public system treats you immediately and treats you well.

Hospital policies are tiered as Basic, Bronze, Silver and Gold, with defined minimum inclusions at each level. Pregnancy, cardiac and joint replacement sit only in higher tiers, and a policy that does not include a service will not cover it regardless of medical need.

Extras cover pays a proportion of dental, optical, physiotherapy, psychology and similar services up to annual limits. It is worth having only if you use it: the honest test is whether your expected annual claims exceed the premium, since extras is closer to a prepayment plan than to insurance.

Waiting periods apply — typically two months for most services, twelve months for pre-existing conditions and for pregnancy. Buying cover after a diagnosis generally does not work.

Use PrivateHealth.gov.au, the government comparison site run by the Commonwealth Ombudsman. It lists every policy from every insurer, filterable by tier and inclusion, and takes no commission. Commercial comparison sites show only insurers they have arrangements with.

When switching insurers, waiting periods you have already served are recognised for equivalent cover. You do not restart them. If you move to a higher level of cover, waiting periods apply only to the additional benefits.

The government rebate reduces premiums on an income-tested basis, claimed either as a reduced premium or as a tax offset. Higher incomes receive a smaller rebate, and above the top tier, none.

Premiums typically rise annually on 1 April, and prepaying before that date locks in the old rate for the prepaid period — a legitimate and commonly used saving.

For complaints about an insurer, the Private Health Insurance Ombudsman handles disputes free of charge, including about waiting periods, gap payments and policy downgrades.