Cheap health insurance: A quick fix that could cost you big
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A growing number of Australians are selecting low-tier hospital insurance to avoid an additional tax, sparking concerns about inadequate healthcare coverage. New research from Money.com.au shows that almost one in four Australians (24%) take out hospital cover mainly to dodge the Medicare Levy Surcharge (MLS), instead of focusing on their health needs.
The MLS targets higher-income taxpayers—singles earning above $93,000 and couples or families earning more than $186,000—who do not carry suitable private health insurance. While millennials lead this tax-focused approach at 29%, Gen X follows closely at 24%. Gen Z (21%) and boomers (16%) are less likely to choose hospital cover solely to avoid the surcharge.
Money.com.au’s General Manager of Health Insurance, Chris Whitelaw, highlights the pitfalls of this strategy: “Choosing a low-tier policy to dodge the Medicare Levy Surcharge when you’re young and healthy may sound like a good idea initially, until you realise it’s a junk cover that won’t provide adequate benefits if or when unexpected health issues arise,” he said.
Whitelaw points out that older Australians, often on lower incomes or in retirement, choose plans for better healthcare options instead of solely focusing on tax savings:
“We’ve seen cases where people on a basic policy unexpectedly needed surgery for a sports injury, only to discover their cover excluded certain procedures. As a result, they faced significant out-of-pocket costs for hospital stays or specialist care. This can turn a tax-saving plan into a financial pickle very quickly.”
According to the Private Health Insurance Intermediaries Association (PHIIA), younger Australians are increasingly buying low-level coverage. Basic hospital tier policies rose by 44.7% in 2023–24, while sales of Gold tier products dropped by 10%. More than half (58.2%) of these Basic-tier plans went to people under 40, with the highest uptake among those aged 25–29 (25.3%) and 30–34 (26.1%). PHIIA notes Gold coverage is the least popular option for Australians under 30, suggesting that many first-time health insurance buyers are prioritising low-cost plans—potentially at the expense of more comprehensive coverage.
While saving on tax is a powerful motivator for many, industry experts caution that opting for the cheapest plan can have long-term financial consequences if unexpected health issues arise. As Whitelaw advises, taking a closer look at what different tiers of hospital policies offer could prevent costly surprises in the future.
Ritchelle is a Content Producer for Healthcare Channel, Australia’s premier resource of information for healthcare.
