Health insurance… yes or no?

Sep 4, 2019 | Personal Finance, Private Wealth

The argument has been waged for many years – do I take out health insurance or do I invest the same amount each year and if I get sick, the money will be available (and it’s earning me interest!)? 

As with any type of insurance the decision is a personal one. Many people go without car, home or life insurance, thinking that the money is better spent or invested elsewhere… they are willing to take that risk. But how many of us have actually sat down and weighed up the differences between taking out health insurance or not, particularly with the government penalties on those not covered by a private health fund?

Could this be you?

Paul is a 30-year-old family man who pays $2,000 per year for basic health cover. By age 70 he would have contributed around $200,000 (adjusted for inflation). For this amount, he and his family are covered for hospital (with elective surgery) and ancillary medical costs, although still subject to his insurer’s hospital excess.

If Paul and his wife decided to cancel their health fund insurance and invest the $2,000 per year, assuming the $2,000 is indexed at 4% pa and the investment returns 7% pa, by age 70 their investment would be worth around $786,000! They would have to pay all of the costs of having a doctor of their own choice, in a hospital of their choice plus any other associated specialist costs. Paul will also pay the Medicare Levy Surcharge on his taxable income, which can be thousands of dollars (see below).

$786,000 sounds much better in your pocket than giving away $200,000 for something that will never usually cost that much… but how many of us are prepared to put away that amount of money and never touch it? That’s the tough question.

The Medicare Levy Surcharge

If you earn over $90,000pa as an individual or $180,000pa as a family and don’t have private health insurance, you will be charged the Medicare Levy Surcharge as outlined in the following table: 

 

No change

Tier 1

Tier 2

Tier 3

Single threshold

$90,000 or less

$90,001 – $105,000

$105,001 – $140,000

$140,001 or more

Family threshold

$180,000 or less

$180,001 – $210,000

$210,001 – $280,000

$280,001 or more

All ages

0.0%

1.0%

1.25%

1.5%

If you’re a high-income earner this could amount to a hefty sum and wipe out any potential tax refund at the end of each year (or you may even have to pay extra tax).

But it still might be worth sitting down and doing your sums. Another option is to take out the most basic hospital cover and invest the difference you would be paying for full private health cover in your “own health fund”. Then when you get your tax refund, add that to your growing kitty. You might not end up with as much as the above case study, but if you’re willing to work out the difference, you might still be well ahead.

Insurance should be seen as just that – Insurance. We always hope we won’t need it but it’s there in case we experience unforeseen emergencies.

There are always alternatives and their associated upsides and downsides. In the end, the decision is up to you. 

Sources:

www.health.gov.au/privatehealth

www.ato.gov.au Medicare Levy Surcharge

 Important:
This provides general information and hasn’t taken your circumstances into account.  It’s important to consider your particular circumstances before deciding what’s right for you. Although the information is from sources considered reliable, we do not guarantee that it is accurate or complete. You should not rely upon it and should seek qualified advice before making any investment decision. Except where liability under any statute cannot be excluded, we do not accept any liability (whether under contract, tort or otherwise) for any resulting loss or damage of the reader or any other person. 

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<a href="https://ugc.net.au/author/louis/" target="_self">Louis van Coppenhagen</a>

Louis van Coppenhagen

Louis is a Financial Adviser with 15 years experience, three university degrees and specialist qualification in Aged Care.

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