Lifetime Health Cover

Lifetime Health Cover (LHC)

Not sure what the LHC loading is or what you will have to pay? Read on to find out.

Lifetime Health Cover (LHC) is just one of the initiatives the Australian government has in place to try and encourage more people to take out private health cover. Essentially it is a loading that is charged on top of every year that you do not have private health insurance in place after turning 30.

This guide looks at what it is, how it works and what can happen if you choose to ignore it.

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What is the LHC?

Lifetime Health Cover (LHC) was initiated on 1 July 2000 and is designed to encourage Australians to take out private hospital insurance at an early age and to maintain their cover for life. It applies to all Australian citizens and permanent residents (apart from some limited exceptions discussed later in this guide) and is an age-based levy imposed on those who fail to take out hospital cover until later in life.

The LHC is levied at 2% per year and is capped at a maximum of 70% and the loading is removed altogether after you have held hospital cover for a period of 10 continuous years, after which it remains at 0% for as long as you continue to hold cover.

What you will pay after turning 31

Basically, here’s how it works. If you don’t have hospital cover on what is known as your Lifetime Health Cover Base Day (1 July 2000 or 1 July following your 31st birthday – whichever is later) and you then take out cover later in life, you will pay a 2% loading on your insurance premium for every year you are aged over 30 (e.g. at age 40 you will pay 20% more, at age 50, 40% more and so on).

Not only does this create an incentive to take out health cover early, but it also creates a dis-incentive to delay taking out cover until you are older and more likely to need it, because if everyone were able to do that, private health insurance would quickly become unworkable.

The chart below shows how what your premium may be at different ages using an example base rate of $800

What does permitted days without hospital cover mean?

Even though you must hold private hospital cover for 10 continuous years before the LHC loading is removed, you are allowed a certain number of days during that time in which you are not required to have cover. These are known as Days of Absence and you are allowed a total of 1,094 days (almost three years) without affecting your LHC status.

Reasons for needing Days of Absence might include switching health funds, during which you may be temporarily without cover, or leaving Australia for at least one year to travel overseas, although providing you don’t return for longer than 90 days at a time during that period, this will not count towards your 1,094 days.

If you use up all your Days of Absence, you will have to pay an additional 2% loading to rejoin private hospital cover and this increases by 2% for every year you fail to take out cover after your 1,094 days have expired.

When does the LHC cease?

As mentioned above, after 10 years of continuous hospital coverage, your LHC loading is removed and remains at 0% for as long as you continue to maintain cover after that. However, it should be noted that, even though you have 1,094 Days of Absence, those days do not count towards your 10 years, so if you were to use all of them for various reasons, you would still have to serve another 3 years to complete your 10 years of continuous cover. And if you were to use more than your 1094 days, not only would you have to pay an additional 2% to rejoin a health fund, but you would have to start your 10 years of continuous cover from scratch.

 


Who doesn’t have to pay the LHC?

There are some special circumstances in which you are not required to pay the LHC loading. These include if you:

  • Had hospital cover on July 1st 2000 and have maintained it since then.
  • Were born on or before July 1st 1934, in which case you can take out health cover at the base rate at any time.
  • Were aged 31 or older on July 1st 2000 and were overseas on your LHC Base Day, providing you take out hospital cover within 12 months of returning to Australia.
  • Are a member of the Australian Defence Forces (ADF), in which case you are considered to have hospital cover.
  • Hold a Department of Veterans' Affairs (DVA) Gold Card, in which case you are considered to have hospital cover.

How can I minimise the loading?

The obvious way to minimise the effect of the Lifetime Health Cover loading is to take out hospital cover on or before July 1st following your 31st birthday and to maintain cover for 10 continuous years after that.

However, if you are not able to do that for any reason, you can decrease the impact of the loading by joining a health fund as quickly as possible after that time to prevent your premiums rising by 2% every year. You can also ensure you don’t pay more than you have to by not using up all of your 1094 Days of Absence and having to start over again.


How is the loading applied to a couples/family policy?

Where people take out couples or family health insurance policies, the LHC loading is averaged out between the two policyholders. For example, if one person has an LHC loading of 10% (an LHC age of 35) and the other has an LHC loading of 20% (an LHC age of 40), then the joint policy attracts an LHC loading of 15%.

The formula used to calculate this average is 10% + 20% = 30%, divided by 2 = 15%)

Is the LHC the same thing as the MLS?

The short answer to this question is no. The Medicare Levy Surcharge (MLS) is an income-based tax levied on those who earn above a certain threshold ($90,000 pa for singles and $180,000 pa for families). It ranges from 1% to 1.5% and penalises those high income earners who don’t have adequate private hospital cover.

The Lifetime Health Cover (LHC) loading is a levy based on age that penalises those who don’t take out hospital cover until later in life. How much you earn per year has no bearing on how much LHC loading you will pay.

Still not clear? Some questions you might still have

If I take out hospital cover before I turn 31, will I pay even less?

No, you will pay the same base rate premium as someone aged 31.

If I only have extras cover, is that enough to maintain my LHC status?

No, you must have hospital cover. either instead of or as well as extras cover.

If I only have extras cover, is that enough to maintain my LHC status?

No, you must have hospital cover. either instead of or as well as extras cover.

How do I calculate my LHC age?

There is a free online calculator available on the government website at www.privatehealth.gov.au

How do I know how much LHC loading I am currently paying?

It should be on your policy statement or you can contact your insurer for clarification.

How is my LHC loading affected if I switch from singles cover to a family policy?

It becomes an average of you and your partner’s combined LHC ages.

I can’t afford hospital cover. What are my options?

You are entitled to public health care under the Medicare system. You will still receive hospital treatment, but will not be able to choose your own doctor and may have to go on a waiting list for treatment.

I have just moved to Australia, will I be charged the LHC loading?

If you have recently migrated to Australia, you will not be required to pay the LHC loading, providing that you take out private hospital cover before July 1st following your 31st birthday or within 12 months of registering for Medicare. Whichever is the later date becomes your LHC Base Day.

It is important to note that Overseas Visitors Health Cover, Overseas Student Health Cover and international forms of insurance are not considered to be hospital cover for LHC purposes. So if you have one of these types of insurance and are planning to become a resident, you would be wise to take out private hospital cover as soon as you are eligible to do so.

What happens if I miss the LHC deadline?

If you miss the LHC deadline, there is very little you can do to avoid paying the additional 2% a year loading. You can either rely on the public health system for your hospital treatment, without a choice of doctor, hospital or admission time, or you can join a health fund as quickly as possible and pay the loading that applies for your current LHC age. The important thing is not to delay, because the sooner you commence your 10 year period of continuous cover, the sooner your LHC loading will return to 0% and your premiums will become more affordable again.

Compare your options and avoid the LHC

Rates last updated December 8th, 2016
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Basic Hospital
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Bronze Hospital
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Public Hospital
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Picture: Shutterstock

William Eve

Will is a personal finance writer for finder.com.au specialising in content on insurance. While he cannot give personal advice to clients, Will enjoys explaining the intricacies of different types of protective cover to help individuals and businesses find affordable cover that won't leave them underinsured.

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