Title: Medicare vs Private Health Insurance in Retirement — Do You Still Need Both?

One of the questions I hear most often from people heading into retirement is this: now that I'm no longer working, do I still need private health insurance? Or can I just rely on Medicare?

It's a fair question — and an important one because private health insurance premiums add up to thousands of dollars a year. Getting this decision wrong in either direction costs money. So let me break it down as clearly as I can.

First — what does Medicare actually cover?

Medicare is Australia's public healthcare system, helping Australians access health and hospital services for little or no cost. It subsidises the costs of health services and products listed on the Medicare Benefits Schedule (MBS).

In practical terms, Medicare covers:

Free treatment as a public patient in a public hospital — including emergency treatment, most surgeries and procedures, and follow-up care
GP visits — fully covered if your doctor bulk bills, partially covered if they don't</li>
Most specialist consultations— Medicare pays a rebate, though you may have an out-of-pocket gap
Diagnostic tests — X-rays, blood tests, MRIs and similar tests ordered by your doctor</li>
Prescription medicines — through the Pharmaceutical Benefits Scheme (PBS), which subsidises a wide range of medications
Eye tests — by registered optometrists

That is genuinely comprehensive coverage for the basics. For many Australians, particularly those on a full Age Pension, Medicare provides everything they need for day-to-day healthcare.

What Medicare does NOT cover

Here is where things get important. Medicare doesn't cover the cost of ambulance services and it generally doesn't provide benefits for out-of-hospital services such as dental and physiotherapy.

The full list of what Medicare doesn't cover includes:

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Dental treatment of any kind (beyond limited emergency public dental in some states)
Ambulance services — this surprises many people</li>
Physiotherapy, chiropractic, podiatry, and similar allied health (except under a GP care plan, which is limited)
Optical — glasses and contact lenses
Hearing aids
Private hospital accommodation — as a public patient you get treatment but not a private room or your choice of doctor
Elective surgery waiting times — public hospital waiting lists can be long

For retirees, dental and optical alone are often reason enough to keep some level of extras cover. As we age, dental costs in particular can become significant.

What does private health insurance add?

Private health insurance gives you more choices and helps with costs Medicare doesn't pay. It lets you skip the waiting lists — public hospitals prioritise by urgency, so for something like a knee replacement you could wait months. Private health insurance lets you get treatment faster. You can also choose your own specialist, rather than being assigned whoever is available. Finder

Private health insurance comes in two forms:

Hospital cover — covers you as a private patient in hospital, giving you choice of doctor, access to private hospitals, and typically a private room where available.

Extras cover — covers out-of-hospital services Medicare doesn't cover, such as dental, optical, physiotherapy, hearing aids, and similar. This is what most retirees find most valuable day-to-day.

You can hold one or both, depending on your needs and budget.

The Medicare Levy Surcharge — does it apply to you in retirement?

This is the tax penalty that applies if you earn above certain thresholds and don't have private hospital cover. The Medicare Levy Surcharge costs 1% to 1.5% of your income if you earn over $93,000 (singles) or $186,000 (families) and don't have private hospital cover. Choose Energy

For most retirees on a full or part Age Pension, income will be well below these thresholds — so the surcharge is not a factor. But if you are a self-funded retiree with significant superannuation income, investment income, or rental income, it is worth checking with your accountant whether dropping private hospital cover might actually cost you more through the surcharge than the premiums you would save.

The government rebate — are you getting it?

If you do hold private health insurance, you may be entitled to a government rebate that reduces your premiums. The rebate is income and age tested — and importantly, it increases with age. Australians aged 65 to 69 receive a higher rebate than younger people, and those aged 70 and over receive the highest rebate of all.

The rebate can be claimed as a premium reduction (so your insurer charges you less each month) or as a tax offset at the end of the year. If you hold private health insurance and haven't checked whether you're receiving the right rebate for your age and income, it is worth doing so — you may be overpaying.

My honest take — what makes sense for most retirees

After thinking carefully about this for myself and speaking with others who have retired, here is my honest view:

Full Age Pensioners: Hospital cover may be difficult to justify financially. However, a modest extras policy covering dental, optical, and physiotherapy is often worth keeping — those costs add up quickly, and the government rebate reduces the premium significantly at this age.

Part-pensioners and self-funded retirees: Both hospital and extras cover deserve serious consideration. Elective surgery waiting times in the public system have grown significantly, and being able to choose your own specialist and your own timing matters more as health needs to become more complex with age.

Everyone:Ambulance cover is essential and often overlooked. In Queensland, ambulance cover is provided free to pensioners and Queensland Health Care cardholders. In other states, you either need to hold private health insurance that includes ambulance cover, or take out a separate ambulance subscription — because an ambulance callout without cover can cost over $1,000.

Practical tips before you make any changes

Don't drop cover impulsively. If you cancel private health insurance and later want to rejoin, you may face new waiting periods before you can claim — even for conditions you already have.
Review your policy annually. Many people are paying for a level of cover they no longer need, or missing out on benefits they don't know they have. Call your insurer and ask what you're actually entitled to claim.
Check the government rebate calculator on the ATO website — it shows exactly what rebate you should be receiving based on your age and income.
Use privatehealth.gov.au — the government's independent comparison website — to compare policies. It is the most reliable source and has no commercial bias.
Consider downgrading rather than cancelling. If premiums feel unaffordable, dropping from comprehensive to basic cover, or keeping extras only, may give you the benefits you actually use at a lower cost.
Ask your insurer about hardship options. Many funds offer reduced premiums or payment plans for members experiencing financial difficulty — but you have to ask.

The bottom line

Medicare is genuinely excellent for the basics — and as an Australian retiree, you should be proud that you've contributed to a system that gives everyone access to free hospital care when they need it most. But it has real gaps, particularly around dental, optical, and allied health — areas that become more important, not less, as we get older.

Whether private health insurance is worth keeping depends on your income, your health needs, and how much you value choice and shorter waiting times. For most retirees, I'd suggest at least a decent extras policy is worth holding — and if budget allows, hospital cover gives real peace of mind as health becomes more unpredictable with age.

If you've decided about private health insurance in retirement that worked out well — or didn't — I'd love to hear about it in the comments below.

This article is general in nature and does not constitute financial or medical advice. Private health insurance details, rebate thresholds and Medicare coverage can change. Always check directly with Services Australia, the ATO, or a qualified financial adviser for advice specific to your situation.