Should you cancel your health insurance?

Without private hospital cover, the cost of being treated in a private hospital can be prohibitively expensive. This means that you’ll most likely need to rely on the Australian public health system for any in-hospital medical treatment.

When you’re treated as a public patient for an elective surgery, you’ll spend some time on a public waiting list. The amount of time you’ll need to wait will depend on the severity of your condition and the overall demand. If your condition isn’t considered urgent, you might have to wait a considerable amount of time before your surgery.

If you earn over the income threshold and cancel your private hospital insurance, you’ll need to start paying the Medicare Levy Surcharge (MLS) at tax time. The MLS is an additional tax of either 1, 1.25 or 1.5% that you’re required to pay depending on your income.

To avoid the MLS, you need a hospital insurance policy from a registered health fund with an excess of $750 per person or less. If you’re a family earning above the family income threshold, every family member will need to be included on the policy to avoid the levy.

The MLS is applied as a pro-rata amount for every day of the financial year that you do not hold an appropriate hospital insurance policy, so you will need to hold cover for the full year to avoid the MLS entirely.

Depending on your income, you could save money by taking out a policy that exempts you from the MLS. Consider the MLS thresholds listed below:

The Lifetime Health Cover (LHC) loading is an additional cost added to your hospital insurance premiums if you do not hold hospital cover by 1 July following your 31^st birthday. This accrues at 2% for every year over the age of 30, up to a maximum of 70%. Unfortunately, if you cancel your health insurance (including your hospital cover), your LHC loading may start to accrue again.

If you’re over 31 and choose to cancel your hospital cover, you’re allowed a total of 1094 days without cover before the loading starts to accrue again for your next policy. That amounts to one day less than three years. While this might seem like a lot, these days of absence are over your entire lifetime, so if you use them up now, they won’t be available in the future.

If you think you might want to be covered again in the future and don’t want to use up your days of absence, you could consider either suspending your cover or changing to a cheaper hospital policy.

When you’re switching heath insurance, health funds are required to carry over any waiting periods served for private hospital cover and your served waiting periods for extras cover, although you will likely need to wait to use any upgraded cover.

Unfortunately, if you choose to cancel your cover without taking out a new policy within a set period of time, you could lose the ability to transfer your served waiting periods. This means that if you choose to take out cover again in the future, you may have to serve the same waiting periods again.

One of the first things you should consider before cancelling your health insurance is if you could change your policy to better fit your circumstances instead. Here are a few ways that you can change your health insurance depending on your needs.

• Type of cover. There are two main types of health insurance, hospital and extras. If you feel like your health insurance doesn’t suit your healthcare needs, you might want to consider changing types. For example, if you’re comfortable with the public health system but want cover for dental check-ups, you might want to switch to extras cover only. Just keep in mind, this could have implications on your waiting periods, MLS and LHC.
• Level of cover. Depending on your reason for cancelling, changing your level of cover may be a better option. For example, if you feel like you’re paying for cover you’re not using on your current policy, you could switch to a lower level of cover with a lower premium that still covers the services you use.
• Who’s covered. When you’re on a couples or family policy, everyone on the policy is covered for the same services and the cost per adult is typically comparable to separate singles policies. By switching to individual singles policies, you can better tailor your cover to your personal needs, and potentially reduce your premiums.
• Excess. Your excess is an amount you pay out-of-pocket on a private hospital admission with hospital insurance. Many health funds will let you reduce this amount in exchange for higher premiums and vice versa. If you have an idea of how often you expect to claim on your policy, you could save money by changing your excess.

While it can provide some comfort to stick with a health fund you know and trust, you shouldn’t assume you’re already on the best policy in the market. Each year, health funds update their premiums by different amounts in the health insurance rate rise, meaning the best value policy for you last year may no longer be as competitive.

For example, in 2024, one health fund increased premiums across all their policies by an average of 5.82%; with another fund the increase was only an average of 0.27%. This is why it’s a good idea to compare health funds regularly.

Many health funds offer special deals or promotions to encourage new members to take out cover, which could also make it worth switching.

If you’re considering cancelling your health insurance because of financial hardship, you might want to consider suspending your cover instead. When you suspend your cover, you can’t make any claims but you don’t have to pay health insurance premiums either.

When you suspend your cover instead of cancelling, you don’t use up the days of absence for the LHC loading and your waiting periods don’t reset. Suspending your cover can also be a good idea if you’re going to be out of the country for an extended period of time.