One in four Australians are buying hospital cover so they can avoid paying the Medicare Levy Surcharge, but experts have warned opting for a Basic policy might not be cheaper in the long run.
In a survey for Australian financial comparison platform Money.com.au 24% of respondents said financial savings, rather than healthcare, was the most important reason for having hospital cover.
General manager of health insurance Chris Whitelaw said younger Australians in their career prime and earning higher incomes might end up with subpar coverage if they took out hospital cover just to avoid the surcharge.
“Choosing a low-tier policy to dodge the Medicare Levy Surcharge when you’re young and healthy may sound like a good idea initially, until you realise it’s a junk cover that won’t provide adequate benefits if or when unexpected health issues arise,” he said.
“We’ve seen cases where people on a basic policy unexpectedly needed surgery for a sports injury only to discover their cover excluded certain procedures.
“As a result, they faced significant out-of-pocket costs for hospital stays or specialist care. This can turn a tax-saving plan into a financial pickle very quickly.”
The surcharge applies to taxpayers who do not have a suitable level of private health cover, are single and earn more than $93,000, or are couples or families who earn more than $186,000.
The surcharge is separate from the Medicare levy, which is paid by most Australian taxpayers.
RELATED: Young uptake on health insurance
The survey found that 29% of Millennials and 24% of Generation X were most likely to have low-tier hospital cover. In comparison, 16% of Boomers and 21% of Generation Z were the least likely to opt for hospital cover to save on tax.
Mr Whitelaw said older Australians, many of whom are retired or on lower taxable incomes, were more likely to choose coverage based on their need for quality healthcare.
Money.com.au’s survey found that 18% of Boomers selected hospital cover to have the option of being treated in a public or private hospital, compared to only 15% of Millennials.
According to the Private Health Insurance Intermediaries Association, the sale of basic hospital tier policies increased by 44.7% in 2023-24.
Meanwhile, sales of Gold tier products fell by 10% compared to the previous year.
More than half (58.2%) of Basic tier policies were sold to people under 40, with the highest sales among those aged 25-29 (25.3%) and 30-34 (26.1%).
PHIIA data also showed that Gold tier policies were the least common among those under 30, which could indicate that younger Australians, particularly first-time health insurance buyers, were opting for minimal policies