The Lifetime Health Cover (LHC) loading is a penalty applied to Australians who do not take out private health insurance before turning 31. For every year after 30 that you remain uninsured, an additional 2% is added to your premiums, up to a maximum of 70%.
This loading remains in place for 10 years once applied, significantly increasing the cost of health insurance.
For example, if you wait until age 40 to take out private health cover, you could be paying an extra 20% on your premiums each year for the next decade. With the average hospital-only policy costing around $2,896 annually for individuals aged 36 to 59, this could mean an additional $580 per year in extra costs.
Why Aussies Are Missing Out
Many Australians are unaware of the LHC loading and its long-term financial impact. According to Hripsime Demirdjian, founder of Hive Wise, many people mistakenly believe they can delay getting health insurance without consequences. Unfortunately, missing the deadline can lead to significant penalties that last for a decade.
“If you’re nearing the age of 31, taking out private health insurance is something that should be considered,” Demirdjian advises. “The longer you delay, the higher the loading will be.”
The Medicare Levy Surcharge: Another Costly Factor
In addition to the LHC loading, high-income earners without private hospital cover may also face the Medicare Levy Surcharge (MLS). This surcharge applies to individuals earning over $97,000 or couples earning over $194,000 per year. The surcharge ranges from 1% to 1.5% of your taxable income and can add up quickly.
For many Australians, this surcharge can make private health insurance a more cost-effective option than paying the levy. “You don’t want to be in a situation where you’re paying more in Medicare Levy Surcharge than you would for private health insurance,” Demirdjian warns.
Government Rebates: A Way to Save
To help offset the cost of private health insurance, most Australians are eligible for a government rebate based on their income. Singles earning up to $97,000 and families earning up to $194,000 can receive a rebate of up to 24.608% on their premiums.
As income increases, the rebate decreases until it phases out completely for singles earning over $151,000 and families earning over $302,000.
It’s important to note that if you claim too much rebate during the year, you may need to repay it as part of your tax return. Conversely, if you underclaim your rebate, you’ll receive a refundable tax offset.
How Much Could You Be Losing?
If you’re delaying getting private health insurance past age 31 or are unaware of these penalties and rebates, here’s what it could cost you:
- For someone who waits until age 40 to get insured—an extra 20% loading on premiums could mean an additional $580 per year, or $5,800 over 10 years.
- High-income earners without hospital cover may face thousands in Medicare Levy Surcharges annually.
- Missing out on government rebates could mean losing out on significant savings each year.
Avoiding These Costly Mistakes
To avoid these financial pitfalls:
- Consider taking out private health insurance before turning 31.
- Review your income and determine whether you’re at risk of paying the Medicare Levy Surcharge.
- Ensure you’re claiming the correct government rebate based on your income level.
By making informed decisions about your health insurance coverage early on, you can avoid unnecessary costs and maximize your savings.