Know Risk is a community education program designed by the Australian and New Zealand Institute of Insurance and Finance (ANZIIF) to improve our understanding of insurance and how it relates to managing the many risks we all face in life.
Turning 31 and Health Insurance
Turning 31 before 1 July?
Whether or not to purchase private health insurance is a choice that, as an adult, is entirely up to you. However, did you know that if you don’t have hospital cover (as part of a health insurance policy) in place by 1 July following your 31st birthday, a government initiative known as Lifetime Health Cover (LHC) means you’ll pay a loading on any hospital cover premium you decide to purchase down the line?
Basically, the whole idea is to reward people who do take out health insurance before they turn 31 with a cheaper premium, and penalise those who don’t take out health insurance before they turn 31 by imposing higher premiums.
Read on for more details about LHC, how it will affect you and how to get a health insurance policy that is right for you.
What is LHC?
LHC is a government initiative designed to encourage people to take out private health cover. It does however, penalise those people who elect to forgo private health insurance beyond the age of 31. Basically, if you turn 31 before 1 July in any year and you don’t have hospital cover in place, then you pay a 2 per cent penalty for every year thereafter that you go without private health insurance.
So, let’s say that you decide to wait until you turn 40 to get yourself some hospital cover; you’ll end up paying a 20 per cent loading on your policy premium. LHC loading maxes out at 70 per cent.
To avoid paying this extra loading, you must have an acceptable level of private health insurance hospital cover in place before 1 July following your 31st birthday.
We hear what you’re asking, though? So, isn’t it just cheaper for me to not get health insurance at all if I don’t have it by the time I turn 31? Well, yes; but you might find that the older you get, the handier health insurance becomes. And you probably don’t want to be paying through the roof for something that is expensive enough without the penalty loading.
Are there people who are exempt from LHC?
Yes, there are. Those people must fall into the following categories:
- People born on or before 1 July 1934 — shout-out to anyone who is 81 years old and reading this!
- Members of the Australian Defence Force
- People who hold a Department of Veterans’ Affairs Gold Card
- Australian citizens and permanent residents who are overseas on 1 July following their 31st birthday — but you’re only exempt from the loading if you secure hospital cover by the time you’ve been back in Australia for a year
- Australian citizens and permanent residents who are over 31 and were overseas on 1 July, 2000 — you’re exempt from the loading provided you have hospital cover in place by the time you’ve been back in Australia for 1,094 days
What about that Medicare levy surcharge?
In addition to LHC, individuals and families above certain income thresholds will have to pay a Medicare levy surcharge (MLS) — this is on top of the standard Medicare levy you already pay at tax time — if you don’t have an appropriate level of hospital cover in place.
The surcharge doesn’t have anything to do with how old you are — it’s all about how much you earn — and the surcharge increases the more you earn. At the moment, any individual earning over $88,000 and families earning over $176,000 will have to pay the MLS if they don’t have hospital cover.
How can I go about setting up a health insurance policy that is right for me before I turn 31 so can I avoid this LHC thingy and the MLS?
Luckily, we have some resources that should help you secure a health insurance policy that will meet all your needs.
If you’re a little hazy on how health insurance works and what all of the different terms and conditions actually mean in practice, we don’t blame you; insurance is an incredibly confusing caper. If you need some help figuring out the details and getting a handle on what’s what, look no further than our handy Health Insurance 101 guide.
For those of you who are already in the know about how health insurance works, but want some details on how to go about selecting cover that meets your specific needs, have a gander at this Health Insurance Checklist, which will help you figure out what it is you need when you’re making a policy selection.
And for those of you who are keen to use a comparison website to help you make a decision about which health insurance provider is right for you, bear in mind that not all comparison websites are created equal. Before you align yourself with a meerkat in a silk robe, make sure you’re aware of some hidden truths about comparison sites.