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About to reach your 30s and not sure if you need private health insurance? This is for you

08:16 UTC+8 April 5, 2017 | Michael Collett

Don't forget: you'll be covered by Medicare even if you don't have private health insurance. (Flickr: Threthny)

If you're about to hit your 30s and you haven't yet got private health insurance, we've got bad news: either you get it now, or it'll become increasingly more expensive if you ever do decide to get it down the track.

You can blame the "Lifetime Health Cover" initiative for that. Basically, the Federal Government is trying to force your hand.

We've done some of the legwork to help you decide if it's worth biting the bullet and getting coverage now. (Spoiler alert: there's a good chance it's not.)

When do I need to decide by?

If you want to avoid paying more in the future for private health insurance, you'll need to decide by July 1 following your 31st birthday.

How much more will private health insurance cost in the future if I don't get it now?

If you decide to get health insurance later, you'll need to pay an extra 2 per cent for each year you didn't have hospital cover over the age of 30.

It adds up. By the time you're 40, that's an additional 20 per cent.

The cost of top family hospital cover averages about $4,500 annually, while for singles it's $1,250. So a 20 per cent loading means you'd be paying an additional $900 and $250, respectively.

What's the point of the Lifetime Health Cover initiative?

The basic idea is that the more people who have private health insurance, the less reliance there is on the government-funded Medicare system. Currently, about half of all Australians have private health insurance.

But there's another reason the Federal Government wants younger people to have private health insurance: this makes it cheaper for everyone else.

That's because younger people are effectively subsidising the cost for older people, who pay the same amount for private health insurance but are more likely to be using it.

"Your young self is subsidising your older self, because in 50 years time you'll be wanting younger people to be subsidising your insurance," said Stephen Duckett, a health policy expert at the Grattan Institute.

Isn't there also a Medicare levy surcharge?

Yes.

Dr Duckett says this is actually the main thing you should consider when looking at whether private health insurance is worth it to you.

The surcharge kicks in at $90,000 income for singles and $180,000 for families. It starts at 1 per cent of your income and rises to 1.5 per cent for the highest earners.

But you don't have to pay this surcharge if you have private health insurance.

"It is sometimes cheaper to take out private health insurance than to pay the surcharge, depending on what your income is," Dr Duckett said.

So should I get private health insurance?

If you ask Professor Elizabeth Savage, a health economist at University of Technology Sydney, the short answer is no (unless you're doing it because of the Medicare levy surcharge).

She says there's a reason most health insurance advertising is aimed at young people and extras cover.

"That's because they're such good value for the insurers," she said.

Professor Savage says extras cover isn't worth it for anyone except those in very particular circumstances — for instance, if you require a lot of physiotherapy.

And she says extras cover is of particularly poor value for young people.

"Most people don't monitor how much they claim and how much they're paying," she said.

"If they did their sums, it's not good value."

Professor Savage says the only reason you should really want health insurance is for hospitals cover, but "you really don't need it when you're young".

When does hospital cover become worth it?

Professor Savage says unless you're a pregnant woman, hospitals cover is probably only going to become a net benefit to you once you're about 55.

She said young people would be "very unlikely to use it".

"If they have an accident – a car accident or a sporting accident – they're most likely to go to a public hospital anyway," she said.

That's because, as Dr Duckett points out, "most private hospitals don't have emergency departments", and they tend to specialise in elective procedures.

He says young people should be considering how much they earn, how tight money is, and whether they're saving for a house, for instance, when making your decision on private health insurance.

This is what Professor Savage has to say to young people who are considering taking out private health insurance now so that they don't have to pay more 20 years down the track:

"You're paying a hell of a lot of money in the meantime."

But what about waiting times in public hospitals?

Professor Savage says they're actually pretty short.

"Most of the things where waits are long in the public system are things like orthopaedics, hips and knees, and cataract surgery," she said.

And even then, these are "old people things".

"If you've got something serious, you're going to get in really fast," she said.

So how should I spend my money?

Professor Savage says if you're worried about future health expenses, you'd be better off putting your money into a savings account and paying them out of that.

"Save for a deposit on a house before you put money into private health insurance."

Dr Duckett makes a similar point:

"For most people, if you put the money that you would have spent on health insurance into the bank, you'll come out in front."

But he notes that most people don't put the money they would have spent on health insurance into the bank. So this approach does take discipline.

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