Unsure if “going private” with health cover is a wise idea? Relax, you’re not alone. It's not an easy decision at the best of times, and seismic shifts in government policy over the past 35-plus years have only added to consumer confusion.
Without boring you with the histrionics between 1984, when the Hawke government introduced Medicare, and the late 1990s, private health insurance uptake tanked from over half (54%) to around a third.
Then along came the Howard government’s attempt to throw the health insurance industry a lifeline, which it did by ‘coercing’ people into taking out private cover or copping a levy, seeing uptake bounce to just under half.
Let's fast forward to 2025, and the fix around whether or not ‘going private’ stacks up is well and truly in.
Coerced into cover
Recent surveys suggest the vast majority of Australians may – if it wasn’t for a government-mandated penalty – choose to abandon their private health insurance, on the basis that what they’re paying just isn’t value for money.
According to Graeme Hughes Consumer Expert at Griffith Business School, many Australians are reluctant to take out private health cover due to rising premiums, often outpacing wage growth, making the cost-benefit analysis less favourable.
“The limited choice and standardised nature of policies, particularly given the cost of living squeeze, is further dampening consumer enthusiasm,” he said.
Pay more, receive less
At face value, private health insurance may appear to be a good idea, especially if it’s around the same price as the Medicare levy, which for many people without private cover is 2%.
Trouble is, all policies contain exclusions, which due to the complexity of the system, can leave you unaware of what exactly you are covered for.
For example, while you might take private health insurance expecting to be able to choose a doctor, a private room, puffy pillows and to avoid waiting times for elective surgery, due to the ever-changing exclusions within policies, this isn’t always what you get.
Similarly, there’s been a large increase in the number of policies (now over 80%) containing excess or co-payments.
Diminishing value-higher insurer profits
This trend began with the introduction of what’s called lifetime health coverage.
Consumers chose lifetime health insurance as the cheapest way to avoid paying an extra 2% – for each subsequent year of cover – if they bought health insurance after July 1 following their 31st birthday.
If limited value wasn’t enough to put you off ‘going private’, a cocktail of recent profits, on the back of premium hikes – disproportionate to current wage growth – might be the tipping point you need to avoid private health insurance or cancel an existing policy.
It’s not unusual for Australians to pay billions more in private health insurance premiums than they get back in benefits – resulting in handsome pre-tax profits for the industry.
Out of pocket
Adding insult to injury, even when benefits are paid, they all too often leave those insured with out of pocket expenses.
According to analysis of Australian Prudential Regulatory Authority data by money.com.au, private health insurance benefits hit record lows as Aussies were forced to pay $1.37 billion in medical costs last year.
Private health funds only reimbursed 66.7% of medical costs after coverage from Medicare in 2024 — the lowest level since records began in 2008.
This is a huge drop from just five years ago when private health funds covered 75.7% of medical bills after Medicare contributions, while they covered 70.7% in 2008.
"The gap between what insurers should be covering and what they actually cover is growing,” notes Money.com.au’s general manager of health insurance, Chris Whitelaw.
“Five years ago, private health funds picked up three-quarters of the bill after Medicare — now, it’s closer to two-thirds.”
Money.com.au believes rising out-of-pocket costs are due to increasing medical expenses with Medicare and health funds covering a smaller chunk of the bill.
Interestingly, recent revelations about health insurance follow the Albanese government’s decision in February to approve an industry average premium increase of 3.73% with Health Minister Mark Butler arguing the increase was a “justified and proportionate” rise.
However, when Coalition leader Peter Dutton was Health Minister, he approved a 6.20% rise on Christmas Eve.
This marked the largest private health insurance premium increase in the previous 20 years.
Shop around
If you think private health insurance can stack up in your favour, it still pays to shop around to ensure you’re actually better off than relying on Medicare.
To allow for simpler comparison of health insurance products, all Australian health insurers are required by law to provide details of each of their products to the Private Health Insurance Ombudsman.
PrivateHealth.gov.au contains details of every health insurance policy available in Australia.
When searching, remember to enter the right level of detail, including who needs to be covered, where you live, and the type of cover you want, plus any specific hospital services or general treatments.
But before you start comparing one health insurance product with another, Oak Advisory director James Harper urges you to identify exactly what choosing the ‘best’ health insurance actually means to you.
As a case in point, private health insurance covers things Medicare won’t.
These include dental care, vision care, hearing aids, and long-term care, like nursing homes and an ambulance.
“If you don’t wear glasses, ensure you’re not paying for vision care as one of your extras,” Harper recommends.
“If you’re young and fit, you may also wish to forgo ambulance cover.”
Put your family’s needs first
Instead of matching the underlying needs of you and your family, Harper says too many Australians start by trying to compare competing health insurance products, neither of which may meet your family’s unique circumstances.
“It’s important to ensure you’re getting the level of private hospital and extras cover that’s right for you, and at an appropriate price,” Harper said.
“Determining how much cover is enough will depend on key variables, including your age, in some situations occupation, and whether you have any pre-existing conditions that you’re legally obliged to disclose.”
Overall, around 15 million Australians hold private health insurance cover, with a total of $29.9 billion paid in premiums in the 12 months to 30 September 2024.
The Albanese Government planned to provide $7.6 billion this year to Australian policyholders through the private health insurance rebate after reintroducing indexation of the rebate threshold last year.
