Is it worth self-insuring and what are the pitfalls?

It’s possible to go it alone with health insurance. Some people opt to set aside money for their future expenses rather than giving it to a health fund. For example, if you save $150 a month for 30 years, this would give you a kitty of $54,000, provided you didn’t dip into it along the way.

Choice health insurance expert Uta Mihm says in principle this works if you’re not earning more than $90,000 (see breakout above), but even then it comes with some big risks.

“You may have a claim [medical expense] early on without the savings to cover it and if you end up taking out hospital insurance after age 31, you will pay the lifetime cover loading surcharge,” she says.

Lifetime health cover (LHC) loading is a government incentive to get younger Australians

into the private system. Simply put, if you purchase hospital cover with a health insurer before July 1 following your 31st birthday you can avoid paying a loading.

If you wait until later to take out hospital cover, you will pay 2% extra on top of your premium for every year you are aged over 30, with the maximum loading being 70%. Increased premiums as a result of the LHC loading stop after 10 years of continuous hospital cover.

Choice has previously crunched the numbers, finding that Australians who are required to pay the Medicare levy surcharge benefit from taking out hospital cover and escaping the LHC loading.

However, for those who do not have to pay the surcharge, Choice found that in 99.8% of 85,000 scenarios you would save money by putting away cash as opposed to getting hospital cover earlier.

This can also work for extras cover, says Mihm, who recommends thinking of extras cover as a book of discount vouchers that lets you reduce certain out-of-pocket expenses.

“Whether you need extras, insurance comes down to whether you can get value out of it. If you’re diligent enough to keep claiming through the year and have several visits to the physio, for example, then extras can be for you. “If you’re just going to keep the card in your wallet until the once or twice a year you visit the dentist, save your money and just pay for it directly.”