Private Health Insurance vs Medicare: What's Actually Covered?
Australia’s healthcare system is one of the best in the world. Medicare covers a huge amount, and plenty of people get by without private health insurance. But “getting by” and “being well covered” aren’t the same thing — especially once you’ve got a family. Here’s a clear look at what Medicare handles, what it doesn’t, and when private health insurance is worth the cost.
What Medicare covers
Medicare is Australia’s public health system, funded through the Medicare levy (2% of your taxable income). It covers GP visits (bulk-billed or with a gap), public hospital treatment as a public patient, specialist consultations (Medicare pays a percentage of the fee), most pathology and diagnostic imaging, some allied health through Medicare-funded programs, and prescription medicines through the PBS.
For many healthy individuals, Medicare alone is perfectly adequate.
What Medicare doesn’t cover
This is where the gaps show up, and they tend to matter more for families:
- Private hospital stays and choice of doctor or surgeon
- Dental — check-ups, fillings, orthodontics, none of it
- Optical — glasses and contact lenses
- Physio, chiro, podiatry and most allied health outside Medicare programs
- Ambulance — not covered in most states (this catches people off guard)
- Most psychology beyond Medicare-subsidised sessions
If you’ve got kids who might need braces, a partner who sees a physio regularly, or you’d prefer to choose your obstetrician — Medicare alone won’t cover those costs.
The Medicare Levy Surcharge: the tax reason to consider PHI
Here’s a practical consideration many people overlook. If you earn above a certain threshold and don’t hold private hospital cover, you’ll pay the Medicare Levy Surcharge (MLS) — an extra 1% to 1.5% of your taxable income on top of the standard 2% Medicare levy.
For the 2025-26 financial year, the MLS kicks in at:
- $93,000 for singles
- $186,000 for families
If you’re a couple earning a combined $200,000, the MLS without private hospital cover would cost you $2,000 to $3,000 a year. At that point, a basic hospital policy often costs about the same — and you get actual cover on top of avoiding the surcharge.
Running the numbers on MLS vs a basic hospital policy is one of the most practical first steps when deciding about private health insurance.
What private health insurance adds
Private health insurance in Australia comes in two parts:
Hospital cover pays for treatment in a private hospital (or as a private patient in a public hospital). You get shorter waiting times for elective surgery, choice of doctor and specialist, and cover for services like psychiatric care, rehabilitation, and pregnancy-related care with your chosen obstetrician.
Extras cover handles the out-of-hospital services Medicare misses: dental, optical, physiotherapy, remedial massage, chiropractic, podiatry, and psychology beyond Medicare-subsidised sessions.
You can hold hospital only, extras only, or both — and most families find a combined policy offers the best value.
Lifetime Health Cover loading: why your age matters
This is one of the least understood rules in Australian health insurance, and it’s worth knowing about.
If you don’t take out private hospital cover by 1 July after your 31st birthday, you’ll pay a 2% loading on your premiums for every year you’re late. This loading stays for 10 continuous years of holding cover.
So if you first take out hospital cover at age 40, you’d pay 18% more (9 years late x 2%) on top of the standard premium — for a decade. That can add up to thousands of dollars over those 10 years.
If you’re in your late 20s or early 30s and have been putting off private health cover, this is worth factoring in. The earlier you start, the less you pay long-term.
Families with young kids: what to focus on
For parents with young children, certain features tend to deliver the most value:
- Pregnancy and birth cover if you’re planning more kids (watch for 12-month waiting periods on obstetrics)
- General dental for the whole family — kids’ check-ups and fillings add up quickly
- Orthodontics if your kids are approaching their teens
- Ambulance cover — one ambulance call-out in most states can cost $1,000 or more without cover (note: Queensland and Tasmania provide free ambulance to residents)
- Optical — kids’ prescriptions change frequently
- Physio and allied health if anyone in the family uses these regularly
Don’t pay for extras you won’t use. Policies with lower premiums that cover the services your family actually needs will always beat premium policies packed with features you’ll never claim.
How to compare without overpaying
With dozens of providers and hundreds of policies, comparing properly means looking at what’s actually covered (including sub-limits), waiting periods, excess and co-payments, the PHI rebate (a government rebate on your premium based on income and age), and annual limits on extras.
The smartest approach is to work out what cover your family actually uses, then compare policies that match those needs. A comparison tool can sort through the options far faster than visiting each insurer’s website individually.
Private health insurance isn’t right for everyone. But for Australian families — especially those with young kids and an income above the MLS threshold — it often makes financial and practical sense. The key is finding the right level of cover, not just any cover.