Private health insurance

Gaining financial independence can be an exciting and empowering time for many young people. You might suddenly have a huge amount of freedom, but also new challenges to face, and one of these might be being prepared in case you get sick or have an accident.

Private health insurance might not be for everyone, but if you have more health issues than average, some spare cash, or want to put your mind at ease, it might be the right thing for you.

Do I need private health insurance?

It's important to understand what Medicare is and what it provides before talking about private health insurance. All residents of Australia and New Zealand can be members of Medicare for free and most of us are signed up by our parents as soon as we are born. Medicare is funded by the government and they either discount or completely pay for treatments, operations and hospital stays that we need if we get really sick or injured. Check out the Medicare fact sheet for more info.

However, there are many things that Medicare does not cover such as optical, dental and ambulance services. Check out Medicare Australia for a full list of services covered on Medicare. Also, because this system is free to all 24.5 million Australians and New Zealanders it means there can be long waits for services in public hospitals. People take out private health insurance so they can be covered for more services and don't have to wait as long because they can go to private hospitals.

But seeing as we are already covered by Medicare in emergencies and are young so don't get sick very often do we really need private health insurance? It depends on your own financial situation, health concerns and what gives you peace of mind.

How does private health insurance work?

Private health insurance is a contract between yourself and an insurance company. You agree to regularly pay them a certain amount of money and they agree to pay for a percentage of your medical expenses. What kind of medical expenses? That depends on the policy.

The policy outlines all the different services you are covered for and how much you can claim (get paid back).

There are a few types of policies:

• Just ambulance expenses
• Ambulance and hospital expenses
• Ambulance hospital and extra expenses (dental, optical etc.)
• Just extras.

Policies depend very much on the company and many can be tailored as close as possible to your specific needs.

The amount of money you can claim varies between policies and companies. For example, an insurance company may agree to pay for an entire ambulance bill but only 50% of your new glasses. Also, there is usually a maximum you can claim on each service in your policy. So, they might agree to pay 50% of your glasses bill but will pay no more than $200 per year for glasses.

Remember to read the fine print carefully. A policy might say it covers dental, but if you need more complicated work done like root-canal therapy (usually for older people) they might not necessarily cover that.

How much does heath insurance cost?

There are many different levels of cover ranging from $30 per year to over $1000 per year. Your health insurance will be cheaper if you join before June 30 in the year you turn 31.

How do I get private health insurance?

There are a couple of ways of choosing which company and policy suits you best. The easiest option is to use a free service such as iselect. You either fill out a questionnaire on their website or call them up and tell them what you want to be covered for and what you can afford. There can be a lot of complicated jargon so it can be helpful to have everything explained over the phone. They can also send off your application for you.

Another option is simply shopping around on the internet. Some websites explain their policies better than others so remember that you can always send them an email or call them up if you need further clarification.

The actual application process is quite simple, especially for young people as we are usually pretty healthy. You will need to provide your name, address and Medicare card number. If you are applying over the phone or internet you will need to use a credit card.

If you don't have a credit card you will probably need to go to a branch. Also, please be aware that many companies have a waiting period before you can make a claim - that means you need to join a couple of months before you plan on going to the dentist. For females, waiting periods also apply for pregnancy and birth related services so remember to update your health insurance in advance if you plan on starting a family.

The medicare levy surcharge and the 30% rebate

Medicare is funded by taxpayers (about 1.5% of our taxable income goes to the system) and it takes care of people who cannot afford private health insurance. People who can afford health insurance but choose not to purchase it are therefore required to pay an extra 1% in tax. If you earn more than $50,000 per year or your family earns more than $100,000 per year and you do not have private health insurance (including hospital cover) you will be required to pay the extra tax. This is known as the Medicare Levy Surcharge.

Of course, health insurance can be expensive so the government has sweetened the deal a little with the 30% rebate. If you take out private health insurance the government will pay 30% of it. So if your insurance costs $1,000 per year, you only pay $700. There are three ways of claiming the 30% rebate. The first (and easiest) is telling your health fund to automatically include it, the second is taking your health insurance receipt to Medicare and asking them for it and the third is claiming it on your tax return. Also make sure to remember the rebate when shopping around for health insurance as you may be able to afford more coverage than you first thought.

Something to remember

For some people it will make a lot of sense to get private health insurance, and for others you might have to do a bit more research before working out whether or not it's right for you. Remember to check out the different policies carefully to make sure you're getting the best deal for the insurance you want.