Private health insurance helps Australians manage the cost of medical treatment. It's reassuring to know that if you need to go to hospital, your private health insurance will generally foot the bill. Many medical insurers offer packages to cover extras (or ancillary services), but a lot of consumers are unsure what they can and can't claim for. A lot of Australians take out extras cover to help with dental bills, but they don't always get what they expect. Learn how extras cover works, and find out if this sort of insurance is worth the investment.

About extras cover

You can buy two types of private health insurance in Australia – hospital cover and general treatment cover. Hospital cover comes in four tiers, which pay for some or all the cost of medically necessary treatments, according to the policy you buy. General treatment policies insure you for treatments outside a hospital. Examples include physiotherapy, optical, wellness and dental cover. Most people refer to this type of insurance as extras cover.

You can buy three tiers of extras cover – basic, medium and comprehensive. Medium and comprehensive policies must include cover for general dental, major dental and endodontic treatment. If you buy comprehensive cover, the government obliges your insurer to give you a benefit limit at or above the average for the industry.

The price you pay for extras cover varies from one insurer to another. Similarly, the way the policy works differs as well. For example, you may have a higher out-of-pocket payment with one insurer, but the treatment the policy covers aligns across the industry.

Extras cover and the Medicare Levy Surcharge

The Australian government applies a financial penalty to tax payers above a certain income if they don't take out a general private health insurance policy. Without private insurance, these people have to have medical treatment through the public system (Medicare), so the government applies a Medicare Levy Surcharge (MLS) to force people to contribute more. The surcharge rate increases from 1 to 1.5 percent, according to the family's income.

Extras cover has no effect on the MLS. As long as you have the right hospital cover, the government will not apply the surcharge. This means you can stop paying for extras cover without incurring a tax penalty.

Is extras cover worth the investment?

For many families, extras cover is unnecessary, and annual premiums far exceed the cost of treatment claimed. Many experts believe that families should keep their hospital cover and get rid of any extras cover. Indeed, one report suggests that getting rid of this cover could save the average family between $500 and $1,000 a year.

Extras cover is popular with Australian consumers. The Private Health Insurance Administration Council reports that 55 per cent of people have extras cover, while 47 per cent have hospital cover. This is due, in part, to marketing activity by private insurers, but many people also fail to realise the limitations of extras cover.

While hospital cover will generally meet the full cost of major surgery, extras cover has strict benefit limits. The insurance may meet the cost of one or two annual check-ups, but if you then need further treatment, you'll probably have to pay most of the cost yourself. Even comprehensive extras cover will only pay for part of the cost of many major dental treatments. In most cases, your insurer will apply an annual benefit limit. Once you hit this limit, you must pay all remaining costs yourself.

For many Australian families, extras cover doesn't make financial sense. When you consider the cost of the annual premium, it's often cheaper to pay for dental check-ups yourself. What's more, it's also important to check every year if your extras cover is still worthwhile. For example, some comprehensive policies include a lifetime limit on orthodontics. As such, once your claims hit a certain threshold, your extras cover becomes almost worthless. Ask your insurer for an annual claims statement, to help you work out if you need to change your cover.

Private health insurance is a good way to protect your family, but extras cover isn't always as good as you might think. Shop around for the best cover you can find, and talk to your dentist about other types of dental insurance that could better meet your needs.