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Turned 31 recently? It’s time to decide about health insurance

Posted: 3 June 2020 9:52 am

If you don't buy health insurance before 1 July, you could be paying a penalty for 10 years.

In late May, the government started sending its annual reminder letters to thousands of (relatively) young Aussies. The message was supposed to be clear: if you don't have hospital insurance before 1 July, you could end up paying more due to Lifetime Health Cover loading.

However, the message doesn't always come across so clearly and it seems the majority of Australians aren't sure what Lifetime Health Cover loading is. In fact, a 2019 Finder study found that over half (61%) of people aged 25-39 don't understand the penalty or how it impacts them.

So what is it?

Lifetime Health Cover loading applies a 2% fee on top of your health insurance premium, for every year you don't have hospital insurance over the age of 30.

That fee accumulates, so if you go without hospital insurance until you're 40, you'll be hit with a 20% fee. That fee stays in place until you've held hospital insurance for 10 years.

Age Loading Premium without LHC loadingPremium with LHC Loading Difference

*The table above uses $2,000 as a starting premium price. This may vary between insurers. Future prices take into account a 4.1% annual price increase, which is the average increase over the last five years.

You can avoid the penalty by taking out an 'appropriate level' of hospital insurance before 1 July, immediately following your 31st birthday. An 'appropriate level' means any hospital policy with an excess of $750 or less for singles.

Is it worth it?

While you'll start paying for health insurance earlier, you may be able to offset much of the cost by choosing your policies carefully.

For example, if you decide you want a gold standard policy when you reach 50, you could easily be paying around $180 a month, plus the extra 40% loading fee. That would mean you're handing over more than $70 extra every month, just because you bought insurance late.

However, if you bought hospital insurance "with an appropriate level of cover" before the deadline, you'd avoid that trap. It doesn't have to be a gold standard policy. You can find an eligible policy for around $70 a month, and upgrade whenever you want the extra benefits.

What if you never want health insurance?

If you never get health insurance, you won't have to pay the Lifetime Health Cover loading fee. However, it's worth noting that a large proportion of Aussies do have hospital insurance, so consider whether you might change your mind in future.

According to the Australian Prudential Regulation Authority (APRA), 48.3% of Aussies held hospital insurance in the first quarter of 2020. That's over 11 million people.

Even if you're fit and healthy right now, there might come a time when you're making more trips to the hospital. Private insurance means you can skip lengthy waiting lists and choose where you'd like to have your treatment.

Tips for health insurance newbies

If you're thinking about buying private hospital insurance so you can avoid the Lifetime Health Cover loading, there are a few things you can do to make sure you're getting the best value for your money:

  • Only get the cover you need. You'll need a policy with "an appropriate level of cover" at a bare minimum. That's any policy with an excess of $750 or less for singles, or $1,500 or less for couples and families. You can upgrade later if you decide you need more cover, but you only need the bare basics to avoid future fees.
  • Compare providers. Health insurance comes in different tiers - basic, bronze, silver, and gold - but there are still variations within each tier. Make sure you compare specific benefits and prices before making a decision.
  • Look for deals. Some health funds offer free cover for a few weeks if you bundle your hospital insurance with extras cover. An extras policy gives you cash back for things like optical, dental, physiotherapy and even massage.

Get a quote

If you're looking to avoid Lifetime Health Cover loading, the tool below can help. Remember, you only need hospital cover to avoid the penalty in future, and the policy must have an excess of $750 or less.

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