Turning 31 soon with no health insurance? Find out what your 31st birthday means for your health insurance costs.
Lifetime Health Cover (LHC) is a Government initiative that encourages people to take out hospital insurance early in life and penalises those who fail to do so before their 31st birthday.
The aim of LHC is to encourage those who can afford private health care to take out cover earlier on in order to relieve the pressure on the public health system. LHC does not apply to those born on or before 1 July 1934 and it ceases after you’ve had continuous private hospital cover for 10 years.
Once you turn 31 you can be affected by the LHC loading, which impacts your health insurance premiums in the following way:
- Adds 2% per year to the cost of your premiums for every year over the age of 31 that you don’t have private hospital cover.
- This 2% loading increases every year that you don’t have cover until it reaches the maximum allowable threshold of 70%.
- Once you have held continuous cover for ten years, the loading is removed altogether.
So, if you’re about to turn 31, this birthday has special significance for you, because if you fail to act now, you’re going to have to pay more for your private health insurance. If you have turned 31 recently don't panic, you have until 30 June following your birthday to take out cover so you may still have time.
The health insurance you take out doesn’t need to be comprehensive cover either but must include hospital cover. A stand alone extras policy does not exempt you from the LHC.
The date 30 June has special significance for two reasons:
- It’s your last chance after your 31st birthday to avoid the LHC loading.
- As this date is also the end of the financial year, taking out health cover can avoid paying more tax due to the Medicare Levy Surcharge (MLS).
The LHC loading has already been explained, but what is the Medicare Levy Surcharge (MLS)? Lets give you a breakdown:
- The MLS is a tax of between 1% and 1.5% levied each year on those high income earners who don’t have hospital cover. So if you earn over $90,000 p.a. for a single or $180,000 p.a. for couples and families, taking out basic hospital cover can help you avoid this levy.
- It’s charged on a pro-rata basis, so if you take out cover mid-way through the financial year, you will only be charged for the part of the year that you weren’t covered.
- So, with 30 June being the end of the financial year, the sooner you take out cover before this date, the less tax you will be charged in the current financial year. You will also be protected from the levy in the next financial year and beyond once you have hospital cover.
The LHC loading accumulates by 2% per year for every year above the age of 31 that you don’t have hospital cover. So, for example:
- If you wait until you are 40 to take out cover, you will pay an additional 20% on your premiums.
- If you wait until 50 and you will pay 40% more and so on.
If you take out a couples or family policy, the loading is averaged out between both policyholders. If one has an LHC loading of 10% and the other has 20%, the joint policy will attract an LHC loading of 15% (10% + 20% = 30%, divided by 2 = 15%).
To give you an idea of how this percentage increase translates into dollars out of your pocket, this chart shows the additional amounts you will pay at different ages if you delay taking out health insurance.
What is the Lifetime Health Cover Base Date?
The Private Health Rebate is a rebate given each year to taxpayers who have private health cover to assist them with the cost of their premiums. However, the portion of your premium that contains the LHC loading (e.g. 20% if you were 40 before you got private hospital cover) does not attract the rebate.
So, in effect, you are being penalised twice for not taking out cover at 31. The cumulative rebate that you will miss out on when added up over the years can be substantial, which is another good reason to avoid the LHC by taking out cover early in life.
There are some circumstances in which you will not have to pay the LHC loading. These include:
- If you had hospital cover on 1 July 2000 and you have maintained it since then.
- If you were born on or before 1 July 1934, in which case you can take out health cover at any time and will not be charged the loading.
- If you were aged 31 or older and were overseas on 1 July 2000, you are considered to have held private hospital insurance, and have 1,094 days once returned to Australia to purchase private hospital insurance without incurring the LHC loading.
- If you are overseas on your LHC Base Day (1 July following your 31st birthday), you will not have to pay the LHC loading, as long as you take out hospital cover within a year of returning to Australia.
- If you are a member of the Australian Defence Forces (ADF) or hold a Department of Veterans' Affairs (DVA) Gold Card, you do not have to pay the loading, as you are considered to have hospital cover.
The following are a few important details that you should know about the Lifetime Health Cover loading:
- If you take out hospital cover on or before your 31st birthday, you will continue to avoid the LHC loading for as long as you maintain that cover (until 10 years of continuous cover, after which the loading will no longer apply).
- You can be without hospital cover for small periods during that 10 years, as long as they don’t add up to more than 1,094 days in total (approximately three years).
- Health insurance portability rules mean you can take your current LHC loading with you if you switch insurers, but you may need a Clearance Certificate showing your current LHC rate (your new insurer can usually take care of this for you).
In summary, here are the main tips to remember in relation to LHC loading:
- The loading begins accruing at 2% per year for every year after your LHC Base Day that you don’t have hospital cover.
- The loading ends after 10 continuous years of cover.
- You cannot be without hospital cover during this time for more than 1,094 days in total.
- The maximum you can be charged is 70%.
- Your LHC rate travels with you between insurance providers.
- The minimum hospital cover you will need to avoid the LHC loading must not have an excess of more than $500 for singles and $1,000 for families.
- The loading is averaged out between both policyholders in a couples or family policy.
- There is no Private Health Rebate for the portion of your premium that contains the LHC loading.