The Con(s) of Private Health Insurance

I was offered a 12-month New Graduate Speech Pathologist role in a large city hospital in early December, which I will commence at the beginning of February. Over the break, I’m considering things that full-time work necessitates thinking over: investments, salary-packaging, tax and insurance.

When I turned 25 a few years ago, I ceased being covered by my parents private health insurance (PHI). I took out ambulance cover, but really didn’t investigate the implications of not having insurance. After careful study over the past few weeks, I have decided not to take out PHI for the foreseeable future.

Advantages of PHI

Many websites (e.g. here) list the benefits of PHI. The most prominent are financial reasons:

  • Avoiding the Medicare Levy Surcharge (MLS) if your income is above ~$90000.
  • Lifetime Health Cover: for every year you delay taking out PHI from the age of 30, your eventual provider can charge an additional 2% on your premiums for the first 10 years of your policy.

Next on the list is ancillary services or ‘extras’ such as allied health, massage, complementary and alternative medicine (CAM), optometry and dental.

Next (and it’s interesting these reasons are on the bottom of most lists), medical reasons:

  • Shorter waiting lists for elective surgery (remember ‘elective’ surgery is that which you can wait >24 hours for)
  • Ability to choose your physician/surgeon.
  • Ability to be treated in a private facility.
  • Decreased exposure to healthcare costs if you become seriously ill.

In an interesting conversation on facebook, I saw people list a few more reasons:

  • Better quality of care in private system.
  • Ethical necessity to use private system if you have capacity to do so, in order to take pressure off the public system.

I’ll explain why each of these reasons was insufficient for me:

Financial

  • I don’t (yet) exceed the threshold. I can’t find the figures but I remember hearing that lots of people pay the surcharge anyway, even if it would be cheaper for them to take out PHI.
  • Obviously if you never take out PHI, Lifetime Health Cover won’t affect you. If you instead invest the money that you would spend on premiums at a rate exceeding inflation, you will always end up ahead, even if you take out PHI in the future. I’ll spare you the equations, but remember if you take out PHI at age 40, you’ve saved $10,000 (in today’s money) that you would have otherwise spent on premiums, which exceeds the 20% penalty on your premiums for 10 years.

Extras

  • One would never take out PHI to cover extras only. Extras are ‘icing’ on your PHI cake, but you’ll never come out ahead.
  • The average copayment for ‘ancillary’ services was ~$46 in 2014 (source) – this affects the benefit-cost consideration further.
  • One can always access Allied Health through the community health sector. During my community health placement, it was interesting to see how many high-income families chose community health over the private sector. They reported they were driven by lower costs, and a perception of greater quality in community health.
  • I’m more than happy to pay for dental and optometry services out of pocket entirely, as I know I will never pay more for these over my lifetime than PHI premiums.

Care

  • Waiting lists for elective surgery are bandied about in the media as a sign of the impending collapse of life on earth. I really don’t know a lot about this process, but I do know that:
    • Elective surgery under PHI still involves a copayment (average $285/episode), which can be significant.
    • Elective surgery statistics can not be naively converted into an expected wait time.
    • I live in a big city with lots of services. In Tasmania things would be different.
  • Ability to choose your physician/surgeon:
    • This was a tricky one for me. For most Australians, I’m surprised this is a big deal. There is a substantial information asymmetry in healthcare. How do people know who’s a good doctor and who’s not? Through my job however, I’m more likely to develop a better idea of who to see and who to avoid.
    • That being said, all doctors and surgeons operate under extremely strict regulations. I see no reason to trust one more than another.
    • Also, if I really wanted to see a particular doctor (say, for a knee replacement), I could fund that surgery myself using my fund (which will probably be in the order of $300,000 by the time I’m 70, enough to cover a $30,000 knee replacement).
  • Ability to be treated in a private facility.
    • Lots of people like the ‘luxuries’ of a private hospital (private rooms, TVs, better food, etc.) – Point blank, I don’t think these luxuries are worth the premium investment. It’s like air travel – I’m sure business class seats are more comfortable, but at the end of the day I still get to London, it’s a miniscule proportion of my life, and I pocket the difference.
    • Lots of private patients are treated in shared rooms (it was one of the biggest complaints nurses reported when I had my private hospital placement).
    • No study has shown a significant difference in public vs. private quality/safety outcomes that could not be explained by patient mix (public hospitals tend to treat sicker, poorer, more vulnerable patients).
  • Decreased exposure to healthcare costs
    • A lot of people reported ‘not wanting to be out of pocket’. I found this odd. When I took my housemate to emergency at my (now new) workplace, he was admitted within six hours and had his appendectomy within ten hours. Total cost: $0.
    • He did not report being a private patient and thus avoided the gap.
    • If I had taken him the few kms further to the Epworth, he would have been liable for a gap (Private hospital funding comes from Medicare, the insurer and out-of-pocket costs; as opposed to public hospitals, whose funding comes predominantly from healthcare agreements between the federal government and the states).

Other reasons

  • Better quality of care in the private system
    • Someone reported that private hospitals have no incentive to kick you out before you are ready after surgery given the strains on the public system.
    • As far as I understand, most private hospitals are funded by insurers on a per diem basis (rather than a per admission basis like public hospitals). Thus they also have an incentive to over-service you, and keep you longer than necessary.
    • I personally don’t believe a public hospital would discharge someone if such a discharge presented a safety risk – or that they would be more likely to do so than a private hospital.
  • Ethical necessity to use private system if you have capacity to do so, in order to take pressure off the public system.
    • I was a bit surprised at this point. I already pay the Medicare Levy, GST, and income tax. The companies I purchase goods from pay company tax. All these taxes contribute to our public health system.
    • I don’t pay tax as charity. I pay tax to contribute to the public institutions that are set up to benefit all Australians, regardless of income.
    • If wealthier Australians left the public system to the poorest and most vulnerable, one could see how the system would be viewed as the province of ‘leaners’ instead of ‘lifters’ – subject to increasingly harsh efficiencies.
    • I don’t want to create a two-tiered system for rich and poor, as is happening in the education sector.
    • And neither did the politicians who set up Medicare and the Health system. Essentially, a universal system is designed to achieve equality of access (if not necessarily equality of outcomes).

Things may change in the future, but I see no reason to enrol now.

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