Introduction
Turning 31 in Australia is a big milestone – but maybe not how you think. When it comes to health insurance, you’ll want to have private cover by this age or else be facing a number of financial hurdles.
If you’re wondering why there’s such a specific age tied to private health cover, the truth is that it’s meant to give you enough time to settle into adult life and take out private hospital cover on your own. But if you need an incentive, know that not being covered means you’ll be stung with penalties like lifetime health cover (LHC) loading and the Medicare levy surcharge – not to mention all the out-of-pocket costs whenever you need medical treatment.
So whether you are single or starting a family, here’s why getting health insurance before you turn 31 can save you plenty of money in the future.
What is lifetime health cover (LHC)?
It’s a government initiative that’s meant to encourage everyday Australians to take out private hospital insurance earlier in life. If you don’t have private cover by July 1 following your 31st birthday, you’ll start to incur an extra charge known as LHC loading on top of your insurance premiums. This loading is an additional 2% for every year you remain uninsured after age 30, up to a maximum of 70%.
For example, if you wait too long and only take out private health insurance when you are 35, you’ll pay an additional 10% on top of your premiums (2% multiplied by five years). The penalty applies for 10 consecutive years before it resets to 0%, so it’s a financial burden nobody wants hanging over their head for a decade.
Key takeaway: The earlier you get private health insurance, the more you can save in the long run by avoiding LHC loading.
Avoiding the Medicare levy surcharge
Aside from LHC loading, the Medicare levy surcharge (MLS) is another reason why every Australian should think about getting private health insurance. The MLS is a tax imposed on high-income earners who don’t have private hospital cover. If your income exceeds $97,000 (for singles) or $194,000 (for families) and you don’t have private hospital insurance, you could be charged an additional 1% to 1.5% surcharge.
Remember that the MLS is income-tested, so as your earning power increases, the penalty for not having cover will probably get bigger as well.
Key takeaway: High-income earners can save money at tax time by getting private health insurance early and avoiding the MLS.
Why getting health cover early benefits families
If you’re planning to start a family, having private health insurance in place before you turn 31 is particularly important. With private cover, you’ll get a range of benefits that you simply can’t get if you rely on Medicare and the public healthcare system alone:
- Choice of doctor and hospital: You can choose the obstetrician and other specialists who will oversee the birth of your child, as well as the hospital where you’ll deliver. If you value continuity of care at such an important life stage, then you need private health insurance.
- Shorter waiting periods: An unfortunate reality of our public healthcare system is that there are long waiting times for elective procedures, including maternity services. Private health cover will mean you always have the fastest access to healthcare services you need.
- Cover for pregnancy and post-natal care: Most Silver and Gold tier private hospital insurance policies include pregnancy cover, which helps to pay for the majority of hospital costs and obstetrics. And if you also have extras, it may even include post-natal services like physiotherapy or counselling.
Key takeaway: Getting health insurance early will give you access to a number of benefits when you’re planning to start a family. You’ll have peace of mind that you’ll be entitled to better care and flexibility during key life events like childbirth.
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”
Can you get a lifetime health cover loading exemption?
In some cases, you might be eligible for a lifetime health cover loading exemption. This exemption applies to people who meet specific criteria, such as:
- Older Australians: If you were born on or before 1 July 1934, you’ll be exempt from LHC.
- New migrants: If you move to Australia and become eligible for Medicare after age 31, you have 12 months to take out private health insurance before the LHC loading applies.
- Returning from overseas: If you’ve lived overseas for more than one continuous year after age 30, you could be eligible for an exemption from the LHC loading when you return to Australia and take out private health cover. If in doubt, speak to your insurance provider for details about your exact circumstances.
While these exemptions provide relief to people who were unable to get private health insurance for various reasons, as soon as you’re eligible, it’s important to act quickly and take out private health cover to avoid future penalties.
Key takeaway: Yes, a very small number of people might qualify for a lifetime health cover loading exemption, but it’s still important to act quickly to avoid penalties.
How to calculate LHC loading
If you’re worried about how much LHC loading might affect your premiums in future, it’s a good idea to enter all your information into a lifetime health cover loading calculator. There, you’ll get an estimate for how much extra you’ll be paying if you wait too long to get private hospital insurance.
Depending on which one you use, the calculator will asks for things like:
- Your date of birth
- Whether you are registered for Medicare
- Your citizenship status
- If and when you took out private hospital cover
Based on this information, the calculator will show how much (as a percentage) your LHC loading will be, as well as when in future it could be removed (10 years from taking out private cover).
Key takeaway: Use a lifetime health cover loading calculator to understand the potential costs of delaying private health insurance.
Long-term financial impact of not getting private health insurance
You can claim the private health insurance rebate in two main ways. First, you can go through your health fund, which is straightforward given most people choose to claim the rebate as a reduction on their premiums. When you apply for or renew your private health insurance policy, simply let your insurer know that you want to claim the rebate upfront. They will then reduce your premium accordingly.
Otherwise, you can do it through your tax return. Pay the full premium amount and claim the rebate when you lodge your annual tax return. When filling out your tax paperwork, indicate that you have private health insurance and provide the necessary details from your latest health insurance statement. The rebate will then be applied to reduce your tax liability.
Conclusion
Getting health insurance before you turn 31 is not only a smart financial decision, but it also means you’ll get better health cover for you and your family. Whether you’re entering the world of private health insurance for the very first time or considering switching to a different fund, the Fair Health Care Alliance can help you explore your options and take the next step towards securing the right cover for your needs.
