Celebrating someones 30th at the pub

Lifetime Health Cover (LHC) loading

Ever heard of the LHC? Discover why turning 31 might make you consider health insurance.

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's a premium loading that is charged on top of every year that you do not have private health insurance in place after turning 31.

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

All hospital cover from the 30+ funds available for comparison avoid the LHC


What is the LHC?

The 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 if you don't take out cover early in life.

The LHC increases your premium by 2% per year and caps at a maximum of 70%. The loading is removed 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.

When do I have to start worrying about the LHC?

Once you've blown out 31 candles you should start to think about the implications of the LHC, since if you reach your Lifetime Health Cover Base Day (1 July 2000 or 1 July following your 31st birthday – whichever is later) and have not taken out hospital cover you'll incur a 2% premium increase each following year.

The health insurance you take out doesn’t need to be comprehensive cover but must include hospital cover. A stand alone extras policy does not exempt you from the LHC.

Once you start earning over $90,000 ($180,000 for couples and families), the MLS starts impacting you at tax time. It initially adds a 1% surcharge on top of the standard Medicare Levy for every day of the financial year that you don't have hospital cover, up to a maximum of 1.5% depending on your taxable income.

So, if you've recently turned 31 and have reached the MLS threshold you can avoid both the extra tax and the premium increase by taking out hospital cover sooner rather than later. The MLS is calculated on a pro-rate basis, so if you take out cover mid-way through the financial year you'll only be charged for the part of the year that you weren’t covered.

What if I miss the deadline, or if I'm older than 31?

Unless you are eligible for a special exemption or are able to use any Days of Absence, you'll have to hold hospital cover continuously for 10 years before the premium increase is removed. Picking up cover as soon as possible can at least stop your premium from rising any further, and have the loading expire at the earliest possible date.

What does permitted days without hospital cover mean?

Even though you must hold private hospital cover for 10 continuous years before the LHC penalty 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). Permitted days with hospital cover can include:

  • Temporary gaps in cover. If you are switching from one health fund to another, the period where you are not covered are deducted from your Days of Absence.
  • Temporarily suspending membership. If your fund approves a suspension for overseas travel, that period is not deducted from your Days of Absence..
  • Going overseas for an extended period. If you cancel your cover after the 30 June deadline to travel overseas for a year or more, no Days of Absence are deducted. You can even travel back to Australia and still be considered overseas, providing your stay doesn't exceed 90 days.

If you use up all your Days of Absence, you will have to pay an additional 2% on top of any existing loading, and the LHC rules apply as normal until you take out hospital cover.

Does a two percent increase really make a difference?

While two percent on it's own doesn't mean much, once it starts stacking up it can result in a substantial amount of money being lost to the LHC. If you wait until 40 to take out hospital cover, you pay an extra 20%, while waiting until 50 results in an increase of 40%.

So while it may seem minor at first, if you compound the amount of additional earnings paid for health insurance over time, the value of avoiding the LHC become apparent, especially to young Australians struggling with a rising cost of living and an increasingly expensive housing market.

The dollar cost of taking out health insurance later

Find out if you can reduce your cost of health insurance further with the government rebate

Who doesn’t have to pay the LHC?

  • You were overseas when you turned 31. If you were living outside of Australia on your 31st birthday and that birthday occurred after 1 July 2000, you do not have to pay an LHC loading. You must purchase hospital cover within a year of moving back to Australia, but you are able to return to Australia for up to 90 days and not be penalised.
  • You were overseas on 1 July 2000. 1 July 2000 was the date that the LHC loading was introduced. If you were overseas on this date and over the age of 31, you have 1,094 days from the time you return to Australia to purchase hospital cover. If you still don't have cover once this period ends the LHC applies as normal.
  • You’re over 81 years of age. Australian permanent residents born before 1 July 1934 are exempt from the premium loading when they first take out hospital cover. Even if you’re well past your 81st birthday, you can still take out cover today and not have to worry about forking out more for premiums.
  • You’re serving in the Australian Defence Force (ADF). If you are currently serving you automatically receive hospital cover from the ADF, which means you don't have to worry about purchasing a policy before your 31st birthday. If you leave the ADF following 1 July after your 31st birthday you have 1,094 days to take out hospital cover before the LHC applies. However, if you are discharged before your 31st birthday the standard rules apply.
  • You have a Department of Veterans' Affairs Gold Card. Department of Veterans' Affairs Gold Card holders automatically receive hospital cover too, so the LHC does not apply to them. However, if you have held a card since 1 July 1999 and it's withdrawn, this will be taken into account when determining when the LHC loading impacts you.
  • You recently migrated to Australia. If you migrate to Australia after 1 July following your 31st birthday, you have one year from the day you register for Medicare benefits to take out hospital cover and avoid the LHC.

Is the LHC calculated differently with couples or family policies?

The premium loading for couples and family policies are 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%)

Still not clear? Some final questions you might have.

No, you will pay the same base rate premium rate if you take out cover at 18 or if you take out cover at 31.
No, you must have hospital cover, either as a stand alone policy or packaged with extras.
It should be on your policy statement or you can contact your health fund for clarification.
If you are a permanent resident of Australia you are entitled to free hospital treatment under Medicare, but you won't be able to access a private room, choose your own doctor and may have to go on a waiting list for procedures.
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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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