Lifetime Health Cover Loading

In our discussion on your health, we explored the link between how healthy you are and how much value private health insurance may provide. The simple link is that private health insurance is less compelling for a typical fit and healthy young adult.

The government has recognised that there may not be sufficient incentives to take out private health insurance when you are young, which is why they introduced the Lifetime Health Cover loading.

I can’t be bothered reading the details – just tell me what’s important

Even if you decide that private health insurance is not important today, it may still make sense to buy insurance to avoid the Lifetime Health Cover loading in the future.

What is the Lifetime Health Cover loading?

For every year that you are uninsured after your 30th birthday, you will be required to pay a loading of 2% of your private health insurance premium. For example, if you are uninsured for 5 years after you turn 30, you will pay 10% on top of your hospitals premiums if or when you do decide to take out private health insurance with hospital cover. You will be required to pay this loading for 10 years – after this point, the loading resets to 0%. The maximum loading is 70% (equivalent to 35 years without hospital insurance).

The Lifetime Health Cover loading only applies to hospital policies. Having extras coverage only is not sufficient to avoid paying the loading, but the loading doesn’t apply to extras cover either.

There are plenty of resources diving into the mechanics and technicalities of the Lifetime Health Cover loading. If you’re looking for more information, this will tell you everything you need to know.

What’s the rationale Lifetime Health Cover loading?

To understand the Lifetime Health Cover loading, you need to understand Community Rating. There’s a good explanation of Community RatingĀ here, but it basically means that everyone pays the same insurance premiums, regardless of pre-existing medical conditions, how healthy they are, or lifestyle factors. This is quite a significant difference to how insurance usually works – consider car insurance, where premiums for the same car and the same level of cover can differ significantly based on previous driving record or the age of the insured driver.

The purpose of Community Rating is to make insurance affordable for anyone that wants it. Without Community Rating, older and sicker policyholders may not be able to afford insurance as their premiums would no doubt be much higher. On the opposite end of the spectrum, Community Rating actually makes policies for healthy people more expensive than they would otherwise be. In effect, healthy policyholders are subsiding unhealthy policyholders. Over time, the health of the healthy policyholder’s will inevitably decline, and then they will be subsidised by other, healthier policyholders.

For Community Rated private health insurance to work, it needs healthy policyholders. This is why the government introduced the Lifetime Health Cover loading, which is a way to incentivise young Australians to take out insurance.

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