Key Takeaways
- Lifetime Health Cover (LHC) loading is a government penalty that adds 2% to your private hospital insurance premiums for each year after you turn 31 and don’t have cover, up to a maximum of 70%.
- Keeping your hospital cover for 10 years removes any LHC loading you’ve accumulated, and a 1,094-day grace period (one day less than three years) means temporary lapses aren’t penalised.
- Exemptions exist for certain groups (e.g. veterans, new migrants and Australians living overseas).
Understanding Lifetime Health Cover (LHC)
Lifetime Health Cover (LHC) loading is an initiative that the government put in place to encourage Australians to take out private hospital insurance earlier in life – and maintain that cover.
The concept itself is straightforward, but there are rules and implications you’ll need to understand in order to know how it works, its impact on your premiums and ways to manage it over your lifetime.
What is Lifetime Health Cover loading?
Introduced way back on 1 July 2000, Lifetime Health Cover loading is a financial penalty that applies to Australians who only take out private hospital cover after their 31st birthday. The penalty increases your hospital insurance premiums by 2% for every year thereafter that you don’t have hospital cover, with the maximum loading capped at 70%.
Let’s say you are 41 years old and have never held private hospital insurance. You would incur a 20% loading on your premium because 10 years have passed since your base age. A $200 monthly premium would increase to $240 because of this loading.
Bear in mind that LHC loading only applies to the hospital portion of your insurance premiums and doesn’t affect extras cover. Now that you know the basics around LHC loading, here are some of the key parts you’ll want to pay attention to:
1. Base Day Calculation
Your base day is 1 July following your 31st birthday. If you take out hospital cover on or before this date, you will avoid LHC loading altogether. If you delay, a 2% loading is added for each year after your base day.
2. Grace Period
You are given a 1,094-day grace period (just under three years) to lapse your hospital cover without incurring extra loading. The good news is this grace period can be used in one stretch or broken up over multiple instances. However, once it’s been used up, it won’t reset.
3. Capped Loading
LHC loading is capped at 70%, which means even if you delay taking out hospital cover beyond age 65, the maximum loading you will face is 70%. Although that’s a sizeable addition to your premiums if you are already struggling with the cost of living.
4. Removal after 10 years
If you hold private hospital cover for 10 consecutive years, any LHC loading that was applied to your premiums will be removed.
Who is exempt from Lifetime Health Cover loading?
Several groups are exempt from LHC loading, including:
- Australians born before 1 July 1934: This group is entirely exempt from LHC penalties.
- New migrants to Australia: You have 12 months from the date you receive full Medicare entitlements to take out hospital cover before LHC loading applies.
- Returning Australians: Time spent living or working overseas is treated as equivalent to holding hospital cover. Upon your return, you’ll also have 12 months to take out cover to avoid LHC loading.
- Australian Defence Force members and DVA Gold Card holders: Time spent serving in the ADF or holding a DVA Gold Card is considered equivalent to holding private hospital cover.
Portability
Don’t re-serve waiting periods when you switch to a new health fund or policy
“John was immediately covered for a hip replacement in private hospital because he had already served his waiting periods for joint replacements on his old policy”
How LHC loading is calculated
The formula for calculating LHC loading is very simple:
- (Current age – 31) x 2% = LHC loading percentage
Let’s make up an example. If you’re 46 years old and have never held private hospital cover, here’s the equation you’d use:
- (46 – 31) x 2% = 30% LHC loading
So, if your base premium is $150 per month, your insurance premiums with loading ($45) would be $195. If you’re part of a couple or in a family, the LHC loading applied to your shared policy is the average of the individual loadings for both adults. So if one partner has 20% loading and the other has 10%, the average applied to the policy would be 15%.
4 things that can contribute to your Lifetime Health Cover loading
1. Stay covered: LHC stops accumulating once you take out hospital cover. Your loading percentage is then ‘locked in’, and no extra penalties are added as long as you keep your cover continuously.
2. Switching health funds: If you switch between health funds, your LHC loading will carry over.
3. Overseas travel: Australians living or working overseas are exempt from accumulating LHC loading during their time abroad. However, they must return and take out hospital cover once they’ve arrived back in Australia. Also be aware that any periods of 90 days or more you are back in Australia will be deducted from the 1,094 grace period. In other words, if you stay in the country less than 90 days you don’t need to get insurance, but if you stay more than 90 days you will start to eat into your 1,094 days and potentially incur penalties once the grace period has expired.
4. Suspending your policy: Some health funds will let you suspend your policy temporarily (e.g. for extended holidays). This is handy because suspensions don’t count towards your grace period or LHC calculations.
How to minimise or avoid LHC loading entirely
The simplest way to avoid LHC loading is to take out private hospital insurance before your 31st birthday. And if you ever need to cancel your policy temporarily, make sure you keep an eye on the remaining days left in your grace period.
Once you have hospital cover, keeping it active is the best way to keep your long-term costs as low as possible. Even if you switch funds, staying covered at all times is a must. Finally, if you believe you qualify for an exemption, such as time spent overseas or military service, speak to your health fund and give them the necessary paperwork to adjust your LHC status.
Conclusion
Lifetime Health Cover loading is an important consideration when you’re thinking about taking out private health insurance. If you’re ever unsure about your LHC status or need help choosing the right policy, you can start comparing your options with Fair Health Care Alliance today.
FAQ's
No. LHC loading only impacts the hospital portion of your private health insurance premiums.
Yes, LHC loading will be removed after 10 years of continuous hospital cover. Keep in mind that the 10 years don’t need to be with the same health fund.
If you burn through your grace period (three years minus one day) without hospital cover, you will start to accumulate LHC loading based on your age when you next take out a policy.
For couples and families, the LHC loading applied is the average of the loadings for both adults on the policy.
New migrants have 12 months from the date they become eligible for Medicare to take out hospital cover and avoid LHC loading.
