Demystifying
Private Health
Insurance:Understanding hospital cover

In Part One of this three-part series, we explored extras and ambulance cover, and the fine print that can make a policy less generous than it first appears.

Now we turn to hospital cover, where the bills can be bigger and the distinctions less obvious.

You might have the right policy, choose a hospital with an agreement with your fund, and still receive separate accounts after treatment. Understanding why starts with knowing what hospital cover actually pays for—and where its responsibilities end.

Hospital cover is designed to help with eligible treatment when you are officially admitted to hospital as a private patient. That could be in a private hospital or as a private patient in a public hospital.

Being “admitted” is the important part. Simply walking through the doors of a hospital does not automatically make you an inpatient—and staying overnight is not always required either. Some same-day procedures count as inpatient treatment, while hours spent in an emergency department may still be classified as outpatient care.

If you are treated as a public patient in a public hospital and are eligible for Medicare, your hospital treatment is provided without charge. The trade-off is that you generally cannot choose your doctor and may have to join a waiting list for non-urgent treatment.

Going private can give you more choice over your doctor and, for planned treatment, potentially more say over when and where it takes place.

But here’s the catch: having private hospital insurance does not necessarily mean every hospital bill will disappear.

Your policy needs to cover the type of treatment you are having. The hospital must also have an appropriate agreement with your health fund for that treatment. Even when those two boxes are ticked, you may still have an excess or co-payment to contribute.

HBF and HIF—the only two current health funds founded here in Western Australia—have agreements with many of the state’s major private hospitals. That does not mean they have agreements with every private hospital or day facility, and those arrangements can change.

Before any planned admission, it is worth making two calls: one to the hospital and another to your health fund. Ask them to confirm that the hospital is covered for your particular treatment and whether you will need to pay an excess, co-payment or any other hospital charges.

Then there are the doctors’ bills. Your surgeon, anaesthetist, assistant surgeon and other medical specialists can each charge separately. If their fees are higher than the amounts recognised by Medicare and your health fund, the difference—commonly called the “gap” or “medical gap”—may be yours to pay. We’ll explain more about medical gap later.

This is one of the most important distinctions in private health insurance: hospital cover is mainly for eligible treatment received after you have been formally admitted.

It does not usually cover everyday outpatient care such as GP or specialist appointments, radiology (e.g.  X-rays and scans), pathology (e.g. blood and urine tests), or treatment received in an emergency department.

Medicare may help with many of these outpatient services, but doctors and other healthcare providers are free to set their own fees. If they charge more than the Medicare Benefits Schedule (MBS) fee (in most cases they will), you may be left with an out-of-pocket cost.

If and when a provider (usually a GP) bulk bills, they accept the Medicare benefit as full payment, leaving you with no gap for that service.

A trip to the emergency department

An emergency admission is rarely the moment anyone feels like studying an insurance form.

If you are admitted through a public hospital’s emergency department, you may be asked whether you would like to use your private health insurance. Choosing private status allows the hospital to claim eligible benefits from your fund.

The choice remains yours. If you are eligible for Medicare, you can elect to be treated as a public patient even when you have private hospital cover.

Do not assume that choosing private status will automatically mean faster treatment, a private room or a different doctor. Ask what will actually change—and whether there will be any costs.

Nor should you assume that you will necessarily have to pay your policy’s excess. Some WA public hospitals offer arrangements that leave eligible privately insured patients with no out-of-pocket expenses following an emergency admission. South Metropolitan Health Service, for example, publishes such a guarantee. Confirm the arrangements with the hospital concerned.

Before signing the patient election form, ask:

When it is urgent, but not an emergency

Not every injury needs an emergency department. For urgent but non-life-threatening problems—such as a possible sprain or minor fracture, a cut requiring stitches, an insect bite, a minor burn, or a minor eye or ear problem—an urgent care centre or clinic may be a better fit and could very likely involve a shorter wait.

Of course, if the symptoms are serious, rapidly worsening or potentially life-threatening, call Triple Zero (000) or go straight to an emergency department.

Urgent care is still outpatient treatment, so it is not generally covered by private hospital insurance. There is, however, an interesting exception for some Western Australians.

HIF has partnered with St John Urgent Care to offer no-gap urgent care consultations to eligible members with domestic hospital or extras cover at their six centres across Perth. The consultation may be covered, but that does not necessarily mean everything is free. Medicines and medical equipment such as crutches or moon boots can still cost extra.

This is a small but useful example of why two policies that appear similar at first glance may not work in quite the same way.

A lower premium is easy to appreciate when the payment leaves your bank account. The trade-off may become clearer when you need treatment.

One consideration is the hospital excess: the amount you agree to contribute towards an eligible admission before your fund pays its benefits. A co-payment is different—usually a daily contribution towards your hospital stay. Some current policies have both, however co-payments are generally a legacy feature and most policies available for purchase now do not have co-payments as a feature, only an excess.

How often an excess applies, the annual limits and whether children are exempt depend on the health fund and policy level. Choosing a higher excess will often reduce the premium. For hospital cover to qualify for Medicare Levy Surcharge purposes, the permitted excess is no more than $750 for a singles policy or $1,500 for a couples or family policy over the relevant annual period. We will discuss more about the Medicare Levy Surcharge in part three of this series.

The bigger question is what the policy actually covers.

Hospital policies are grouped into Basic, Bronze, Silver and Gold tiers, with minimum requirements for the clinical categories each tier covers. “Plus” policies add benefits beyond their tier’s minimum requirements and the included clinical categories vary amongst health funds.

For example, heart and vascular treatment must be included under Silver cover, but is not a minimum requirement of standard Bronze cover. A Bronze Plus policy may include it, so the policy’s actual list of benefits matters more than the tier name alone.

Paying more does not automatically make a policy better suited to you. But paying less can mean accepting a higher contribution, fewer included treatments or restricted benefits.

Compare the saving in premiums with what you would be giving up—and what you could reasonably afford if you needed to claim.

Three words deserve particular attention when reading a hospital policy: included, restricted and excluded.

Included means the clinical category is covered under the policy, subject to its terms. Waiting periods, hospital agreements, excesses and medical gaps can still affect what you receive and what you pay.

Restricted means only limited benefits are payable. These are generally based on minimum benefits associated with shared accommodation as a private patient in a public hospital. They are not enough to meet the full cost of treatment in a private hospital, where substantial accommodation and theatre gaps may remain.

Excluded means the policy does not pay benefits for treatment in that clinical category.

Restricted cover is particularly easy to misunderstand. Seeing a treatment listed on your policy can be reassuring—until you discover that the amount payable falls well short of the hospital’s charges.

And even when a category is included without restrictions, that does not guarantee a bill-free admission.

To understand the remaining costs, we need to separate the hospital’s account from the doctors’ accounts.

You’ve checked your policy. Your procedure is included, and your hospital has an agreement with your health fund. So why might there still be bills to pay?

The answer starts with a distinction that’s easy to miss: hospital costs and medical costs are separate.

Hospital costs include accommodation, theatre fees, nursing care, meals and certain medicines used during your admission. Choosing a hospital with an agreement with your fund can help reduce or avoid hospital gaps, provided your treatment is covered and you’ve served any applicable waiting periods. But it doesn’t automatically mean every charge is covered. An excess, co-payment or charges for items outside the agreement may still apply. Ask the hospital and your fund to confirm these before admission.

Medical costs are the fees charged by the practitioners involved in your care. These may include your surgeon, anaesthetist, assistant surgeon, radiologist and pathologist. A specialist consulting within the hospital, or a scan performed there, may still generate a separate bill. Being under the same roof doesn’t mean everything falls under the hospital’s agreement with your fund.

For eligible medical services provided during a covered admission, Medicare generally pays 75 per cent of the Medicare Benefits Schedule (MBS) fee, and your health fund pays the remaining 25 per cent. As explained before, the MBS fee is the government’s scheduled fee for that service; it isn’t a limit on what your doctor can charge. If the doctor charges more, the difference may be yours to pay unless a medical gap cover arrangement applies.

This is where medical gap cover can make a difference. Under a no-gap arrangement, the participating doctor accepts the combined Medicare and health fund payment, leaving you with no gap for their eligible services. A known-gap arrangement allows the doctor to charge an agreed out-of-pocket amount within the scheme’s limits. Those limits vary, however most schemes cap the gap at $500 per doctor ($800 for obstetricians), which means separate gaps can add up when several practitioners are involved.

Doctors can also choose whether to use a fund’s gap scheme on a case-by-case basis. Finding your specialist on a participating-provider list is a useful starting point, but you still need to ask whether they’ll use the scheme for your procedure. Request a written estimate, and check the arrangements for the anaesthetist and any other practitioners involved. Pathology and radiology may have separate billing arrangements too.

There’s another distinction that can catch families out: being physically inside a hospital doesn’t necessarily mean you’re an admitted patient.

Newborn babies are a good example. A healthy baby staying with their mother after birth generally isn’t separately admitted. That means a paediatrician’s routine check may attract a Medicare benefit, but cannot be claimed under private hospital cover. A baby who needs additional medical care may be admitted separately, making eligible treatment claimable, subject to the policy and the fund’s rules for covering newborns.

My wife and I learnt this about 13 years ago, when we received a bill a week after returning home from the hospital, from the paediatrician who examined our daughter shortly after she was born.

We were confused. She was in a private hospital, and we had private health insurance. Why wasn’t the bill covered?

Our fund explained that our daughter hadn’t been admitted as a patient in her own right. The paediatrician hadn’t bulk-billed, so even after claiming from Medicare, we still had a gap to pay.

A few days after her birth, the same paediatrician performed a frenotomy, a short procedure to treat her tongue-tie. By then, our daughter had developed jaundice and been admitted for phototherapy—the special blue-light treatment used for newborn jaundice. This time, our health insurance paid benefits towards the procedure as our daughter was an inpatient at the time of treatment.

Same hospital. Same paediatrician. But a different admission status—and a different outcome for the bill.

Before a planned admission, ask your fund what your policy pays, ask the hospital about its charges, and ask each practitioner what you’ll need to pay yourself. Those conversations can make the costs clearer before the bills arrive.

There is another misconception worth clearing up: having hospital cover does not mean every specialist bill is covered.

Consultations, ultrasounds and scans received outside an admitted hospital stay are generally treated as outpatient services. Private hospital insurance does not normally pay benefits towards them. Medicare may contribute to eligible services—for a specialist consultation, the standard benefit is generally 85 per cent of the MBS fee—but you may still have an out-of-pocket cost if the provider charges more. If the service is bulk-billed, there is no gap to pay.

This can raise an understandable question:

The answer may have more to do with what happens after the appointment. If you need a procedure in a private hospital, the specialist may want to know whether you have insurance that could help cover eligible hospital and medical costs. Each practice has its own arrangements, so ask why the information is needed and what options are available if you do not have cover.

If you expect to have regular outpatient appointments—for example, with an obstetrician during pregnancy—it is also worth understanding the Medicare Safety Nets. Once eligible costs reach a threshold within a calendar year, you may receive higher Medicare benefits for certain out-of-hospital services for the rest of that year. Couples and families can register to have their eligible costs combined, even if everyone is already on the same Medicare card.

My wife and I saw the difference this could make during her pregnancy. Our obstetrician charged a $2,500 pregnancy management fee at around 30 weeks, which contributed to us reaching the Safety Net threshold. After that, we received higher Medicare benefits for eligible outpatient services for the rest of the calendar year. The amount returned depends on the service and the applicable rules, so it is still worth asking what you will need to pay.

It is tempting to think that years of membership mean you have finished with waiting periods.

That is generally true for benefits you already hold and have served the waits for. It does not automatically extend to additional cover you buy later.

If you upgrade to include a previously excluded treatment, or increase restricted benefits to a higher level, waiting periods can apply to the additional benefits—even when you stay with the same fund. During that period, you generally retain the benefits available under your previous level of cover.

For example, if your current policy excludes joint replacements and you upgrade to one that includes them, paying the higher premium does not necessarily make a joint replacement claimable straight away.

Conversely, waiting periods do not apply if you’re downgrading from a higher to a lower level of cover with fewer clinical categories, provided continuity of cover is maintained.

The government sets maximum hospital waiting periods:

These are maximum periods insurers may impose, rather than compulsory waits that must apply in every circumstance.

There is also an important exception for hospital psychiatric treatment. Eligible members who have served the initial two-month waiting period for restricted psychiatric benefits may use a once-in-a-lifetime exemption to upgrade without a further wait for the higher psychiatric benefits. Ask your fund whether you qualify.

Before upgrading, ask which benefits change, when those benefits become available and what you could claim in the meantime. A higher premium can start immediately. The higher benefits may take longer.

“I only found out about it after I joined. How can it be pre-existing?”

The answer lies in what the rule considers: signs and symptoms, rather than the date of diagnosis.

Under the private health insurance rules and according to the Private Health Insurance Act 2007, a condition may be considered pre-existing if, in the opinion of a medical practitioner appointed by the insurer, its signs or symptoms existed during the six months before you joined or upgraded.

You do not need to have known what the condition was. Neither does your doctor. A diagnosis made after joining does not, by itself, establish that the condition began after your cover started.

The insurer’s appointed medical practitioner must take into account information provided by your treating doctor when making the assessment.

This does not mean a pre-existing condition is permanently excluded.

The rule concerns the waiting period for otherwise covered treatment. Once the applicable wait has been served, benefits are payable according to your policy. Upgrading can introduce a new wait for additional benefits, but does not erase benefits you already held and had qualified for.

If you may need treatment during a waiting period, contact your fund early. Ask whether an assessment is required and what medical information it needs.

The date on a diagnosis letter may be clear, but for insurance purposes, the relevant history can start earlier.

Hospital cover can offer valuable choice and protection against substantial treatment costs. But its value depends on more than having an active policy and a membership card.

You need to know which treatments are included, which carry restricted benefits and which are excluded. You also need to understand when your benefits become available, how your excess works and whether your chosen hospital and doctors have arrangements with your fund.

Those are separate questions. A hospital agreement does not settle the surgeon’s bill, and an included treatment does not remove every possible gap.

Before a planned admission, bring the three parts together: ask your fund what it will pay, ask the hospital what it will charge, and ask each practitioner what you will need to contribute. Written estimates give you a clearer basis for making decisions before treatment begins.

As with extras and ambulance cover, the aim is to choose a policy whose benefits and limitations you understand before you need to use it. The premium is the regular cost you can see. The fine print helps reveal the costs that may follow.

In Part Three, we will turn to the price of cover itself: premiums, government incentives, tax rules, comparison websites, changing funds and the possible cost of staying loyal.