In Australia, private health insurance is a voluntary form of insurance that provides financial assistance for the cost of specified health services. Depending on the type of cover, private health insurance can fully or partly cover the costs of hospital services and or the costs of other general treatment health services, such as physiotherapy and dental treatment (PHIO 2019).

The role of private health insurance

For Australians wishing to access private health care, the private health insurance system helps them mitigate the risks associated with, potentially large, unexpected health care costs. Unlike other types of insurance such as car and life insurance, the Australian private health insurance system is not ‘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 that private health insurers are not allowed to charge people more for the same level of cover just because they are more likely to use the health services covered by their policy.

Types of cover

Hospital health insurance cover is generally for the cost of in-hospital treatment and other hospital costs such as accommodation and theatre fees, in either public or private facilities.

General treatment health insurance cover is generally for non-hospital medical services that are not covered by Medicare, such as dental, optical, physiotherapy, other therapies and ambulance. It is also known as ‘ancillary’ or ‘extras’ insurance.

In Australia, private health 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, as well as diagnostic testing.

When a person signs up to private health insurance or changes their private health insurance policy, they may be required to serve a waiting period before they can 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 form of private patient hospital cover, and 13.6 million (53%) had some form of general treatment cover (APRA 2019).

The proportion of the population covered by some form 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%) (APRA 2019).
 

This figure shows the number and percentage of persons insured by sex and age. Trends for both males and females were similar. Generally, for those aged 30 and over, the percentage of people insured increased with age, however began declining around 75. The percentage of people insured was significantly lower for those aged between 20 and 34. The number of people insured was more varied between age groups, however was highest for those age brackets between 35 and 59.

People living in Major cities are the most likely to have private health insurance (ABS 2019b). In 2019, the Australian Government introduced reforms to allow private health insurers to offer travel and accommodation benefits for hospital policies, aimed at benefiting patients living in regional and rural areas who need 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 do not 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 private health insurance rebate to subsidise the costs of private health 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 health insurance premium rebate. It should be noted that this rebate amount differs from figures published by other organisations, as the former removes management expenses and other costs not directly related to the provision of health goods and services (AIHW 2019a).

There are 2 ways to claim rebates on private health 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, for which they are 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 health 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 range of initiatives to encourage individuals to take out private health 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 health insurance membership (with hospital cover) declined for the first 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) continue to rise (Figure 2) (AIHW 2019a).
 

This figure shows an overall increase in private health insurance membership, total net benefits paid and net benefits paid per person covered from 1997–98 to 2017–18. Overall private health insurance membership (with hospital cover) increased from 5.8 million in 1997 to 11.3 million in 2017. Over the same period, total net benefits increased from $7.5 billion to $16.6 billion.

What services do private health insurers cover?

General treatment

In 2018–19, dental (53%) and optical (17%) services were the 2 largest areas of expenditure by private health insurers for general treatment (Figure 3) (APRA 2019).

Medical services in hospitals

In 2018–19, the largest areas of expenditure by private health insurers for hospital services were anaesthesia (25%) and medical specialists, including consultant physicians and psychiatrists (9.2%) (Figure 3).
 

For the general treatment cover, the largest proportion of the benefits paid was dental services while ambulance represented the smallest proportion of benefits paid. For the hospital cover, proportions of benefits paid for anaesthesia, other services and specialist services made up approximately 50% of all benefits paid. The remaining was distributed relatively evenly among pathology, orthopaedic, colorectoral surgical, diagnostics, general surgical, ophthalmology, obstetrics and cardiothoracic services.

In 2017–18, about 1 in 8 (13%) hospitalisations in public hospitals were for patients who used private health insurance to fund all or part of their admission. During the same period, more than 4 in 5 (83%) hospitalisations in private hospitals were funded by private health insurance (AIHW 2019b).

The number of private patients being treated in public 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) (Figure 4) (AIHW 2017).
 

The number of private health insurance funded separations in private hospitals increased from 2.4 million in 2007–08 to 3.6 million in 2015–16. Over the same period, the number of admissions to public hospitals increased from 0.4 million to 0.9 million. Annual growth rates in private hospital admissions ranged between 3.1% to 7.5% for 2007–08 to 2015–16. Annual growth rates in public hospital admissions were more volatile and ranged from 3.7% to 17%. 

How much do private health insurers spend?

In 2017–18, private health insurance funds spent $16.6 billion, or 9.0% of the total of $185 billion spent on health across Australia (AIHW 2019b).

The largest area of spending was on private hospitals ($8.2 billion), followed by primary health care ($2.9 billion) (including $2.0 billion on dental services, $887 million on other health practitioners), and other services (including patient transport services, aids and appliances, and administration, $2.5 billion). This pattern of spending by private health insurers has been consistent over the past decade (Figure 5).

Spending data in this section

This section presents health spending by private health insurers on health services. This excludes the private health insurance rebate amount provided by the Australian Government as this is considered Australian Government spending. In this context, it also does not count spending by individuals and families on private health insurance premiums as direct health spending. This approach is consistent with data presented in the AIHW’s Health expenditure Australia 2017–18 report. As a result of this approach, the results presented here may differ from those published by the Australian Prudential Regulation Authority (APRA), the Australian Taxation Office (ATO) and other sources.

In 2017–18, the highest proportion of spending by private health insurers was on private hospitals at 49%. Primary health care and other services received 18% and 15% of spending respectively. The proportion spent on referred medical services and public hospitals were 10% and 7.5% respectively. All spending proportions have remained relatively constant since 2001–02.

Across Australia, private health insurers spent an average 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.

Where do I go for more information?

For more information on private health insurance, see:

References

ABS (Australian Bureau of Statistics) 2019a. Australian demographic statistics, December 2018. ABS cat. no. 3101.0. Canberra: ABS.

ABS 2019b. Patient experiences in Australia: summary of findings, 2017–18. ABS cat. no. 4839.0. Canberra: ABS.

AIHW (Australian Institute of Health and Welfare) 2017. Private health insurance use in Australian hospitals, 2006–07 to 2015–16. Cat. no. HSE 196. Canberra: AIHW.

AIHW 2019a. Health expenditure Australia 2017–18. Cat. no. HWE 077. Canberra: AIHW.

AIHW 2019b. Admitted patient care 2017–18. Cat. no. HSE 225. Canberra: AIHW.

APRA (Australian Prudential Regulation Authority) 2019. Quarterly private health insurance statistics. Sydney: APRA. Viewed 28 October 2019.

ATO (Australian Taxation Office) 2019. Medicare levy. Canberra: ATO. Viewed 1 November 2019.

Department of Health 2017. Private health insurance reforms: improved access to travel and accommodation for general and rural consumers. Canberra: Department of Health. Viewed 28 October 2019.

Department of Health 2018. Private health insurance reforms: private patients in public hospitals. Canberra: Department of Health. Viewed 28 October 2019.

Department of Health 2019a. Private health insurance laws. Canberra: Department of Health. Viewed 28 October 2019.

Department of Health 2019b. What is covered by private health insurance? Canberra: Department of Health. Viewed 16 January 2020.

Department of Health 2019c. Private health insurance reforms: discounts for 18 to 29 year olds. Viewed 28 October 2019.

PHIO (Private Health Insurance Ombudsman) 2019. How health insurance works. Canberra: PrivateHealth.gov.au. Viewed 18 October 2019.