What is Lifetime Health Cover loading?

Signing up for health insurance by a certain age could help you to save money on premiums in the long run, while delaying could mean you have to pay Lifetime Health Cover (LHC) loading. Here are the basics on what it is and how to avoid it.

What is Lifetime Health Cover loading?

As with the Medicare Levy Surcharge and the private health insurance rebate, Lifetime Health Cover (LHC) is an initiative designed to encourage young people to take out health insurance and, in doing so, reduce the burden on the public health system. Lifetime Health Cover loading applies to anyone who does not take out private health insurance with at least hospital cover included. LHC loading applies a 2% increase in premiums per year for every year after you turn 30 that you don’t take out private health insurance, starting on 1 July following your 31st birthday – this day is referred to as your ‘Lifetime Health Cover base day’. The LHC loading caps out after 35 years, at a maximum of 70% of annual premiums.

For example, a person who did not take out hospital cover until they reached 40 years of age would potentially pay a premium loading of 20% (10 years multiplied by 2%) each year. Provided they remained covered continuously from then on (with some gaps allowed, as we explain later), that loading would not increase with age – it would stay at 20% until they turned 50, at which point they would have been covered for 10 consecutive years and their LHC loading would be removed.

These extra premium costs could add up considerably over time. You may like to consider how LHC loading may affect you if you are considering whether to take out a private health insurance policy, or are reviewing your existing cover. What is right for you will depend on your own unique circumstances, and seeking professional advice may assist your decision making. There are both pros and cons of private health insurance and some ways you may be able to get a discount on health insurance.

Why does Australia have Lifetime Health Cover loading?

While Australia has a first-class public health system in the form of Medicare, it’s not entirely sustainable for the entire population to rely on it. Accordingly, the Federal Government offers a number of incentives for individuals to move over to the private health care system. The idea is that fewer people relying on our public healthcare system equals better quality of service for those who do, along with lower costs for the taxpayer. So to try and encourage more people to purchase private health cover, Lifetime Health Cover loading was introduced. If you’re less than clear on what this really means, here is an explanation of LHC, and how the ‘loading’ aspect of the initiative works.

How much will Lifetime Health Cover loading cost me?

The price you will pay if you incur Lifetime Health Cover loading will depend on the original cost of your health insurance policy and the age at which you apply for a private health insurance policy with hospital cover.

The table below gives an estimate of how much extra the LHC loading could cost a hypothetical Australian taking out a private hospital-only singles policy for the first time at various ages, based on the average premiums of applicable policies on our database at the time of writing.

Impact of Lifetime Health Cover Loading on Hospital Policies for a Single

Source: www.canstar.com.au, July 2021. Based on single hospital policies on Canstar’s database. The private health insurance rebate does not apply to the LHC loading component. Average premium is based on state averages weighted by state population of insured persons, per APRA insured persons statistics (March 2021). ^The Australian Government Private Health Insurance Rebate, Base Tier for under 65s, of 24.608% has been applied to this figure.

The maximum loading is 70% and that loading would apply to anyone who first takes out health insurance at age 65 or more. As previously mentioned, the loading is removed once a person has held private health insurance continuously for 10 years. Note that customers can transfer between funds while still maintaining this ‘continuity’, and allowance is made for small gaps in cover.

Bear in mind that as the Australian Taxation Office (ATO) explains, the private health insurance rebate does not apply to the LHC portion of your insurance premium. For example, if your base hospital premium were $100 per month plus a 10% LHC loading of $10, the rebate would only apply to the $100, not the full $110.

How can I calculate my Lifetime Health Cover loading?

You can calculate your LHC loading with the Australian Government’s Lifetime Health Cover calculator. There’s also a calculator that could help you to work out when the loading is due to cease. The Private Health Insurance Ombudsman explains that if you take out a combined hospital and extras policy, the loading will only apply to the hospital portion of your premium. It also says that if you take out a couple or family policy, your LHC loading will be the average of the loading between the two adults on your policy. For example, if your partner had a loading of 0% but yours was 22%, the total loading on your couples or family policy would be 11%.

Are there any exceptions to Lifetime Health Cover loading applying?

There are a few exceptions and considerations of special circumstances which apply to the LHC loading rule. For example:

• A period of 1,094 days of absence is provided over your lifetime, to allow for temporary gaps in cover such as a policy being moved between one provider to another.
• Temporarily cancelling a policy due to moving overseas doesn’t break your continuity or count towards the 1,094 days of absence, as long as you are overseas for at least one continuous year.
• People born before 1 July 1934 are exempt from the LHC loading rules.
• People who were overseas on 1 July 2000 or who turned 31 while overseas may also be exempt from the LHC rules, if they purchased appropriate cover within a year of returning to Australia.
• New migrants can avoid paying the LHC as long as they take out cover within 12 months of being registered for Medicare. New migrants who miss their Lifetime Health Cover base day, however, will have to pay a loading of 2% for each year they were aged over 30 when they took out hospital cover.
• Australian Defence Force (ADF) members who are considered to have hospital cover are exempt, as are their adult dependents, if medical services are provided by or through the ADF.
• Veterans are exempt. This requires holding a Department of Veterans’ Affairs (DVA) Gold Card, and the cardholder may be either a veteran, the widow or widower of a veteran and/or a dependant of a veteran. There are some other exceptions, with information available on the Private Health Insurance Ombudsman website.

Note that as a general rule, any permitted breaks in your cover (such as days of absence or time spent overseas) are not counted towards the 10 years you need to serve to remove LHC loading from your policy if it already applies to you.

How can I prove my Lifetime Health Cover loading if I need to?

In some circumstances, such as when joining a new insurer, you may need to prove to your insurer what level of LHC loading should apply to you, or if you should be exempt from this extra charge.

You may need to supply your new insurer with documentation, such as a:

• Clearance Certificate: This is a statement from your previous health insurer that displays what LHC loading – if any – you paid (as well as other details, such as any waiting periods you’ve served).
• Medicare registration date letter: New migrants who are aged over 31 typically have 12 months from the date of their Medicare registration to purchase hospital cover without an LHC loading. You can ask for a letter from Medicare detailing your registration date.
• International Movement Record: In some cases, such as if you returned to Australia from overseas after you turned 31, you may need to ask the Department of Home Affairs for a Form 1359 – a ‘Request for international movement records’. This will show what date you were last in Australia for more than 90 days or more. That’s because the 12-month window to buy health cover before LHC loading kicks in begins “the first time you returned for 90 days or more”, according to the Ombudsman.

Should I consider private health insurance?

There can be a number of pros and cons of having health insurance, and some sign-up offers can apply. Hospital cover could help you to get treated more quickly for illnesses or injuries not deemed a serious emergency, including elective surgeries such as a knee reconstruction or a caesarean section. Extras cover is available to help cover the cost of medical and health services including optical, dental, physiotherapy and more. Whether having health insurance is worth it for you will depend on your personal circumstances and preferences, although it could be worth considering cost-related factors such as the LHC loading as part of your decision-making process.

As Australia’s biggest financial comparison site, Canstar compares more brands than any other. Our Health Insurance Star Ratings and Awards consider three types of private health insurance (hospital cover, extras cover and packaged hospital and extras cover) and we have also revealed which health insurer had the most satisfied customers in Australia this year. You may find it helpful to compare health insurance policies with Canstar.

Lifetime Health Cover loading: key points

To summarise, here are some key points to remember about the LHC loading:

• Australians generally have until 1 July after their 31st birthday to take out an adequate level of private health insurance (hospital cover).
• If you don’t do so, for every year following this you will incur a 2% surcharge on your health insurance premiums, which kicks in whenever you do take out hospital cover.
• This can add up to a total surcharge of 70% once you reach the age of 65, but will not increase further beyond this point.
• The LHC Loading surcharge is removed after you have held an adequate level of private health insurance for 10 consecutive years.

Learn more about health insurance:

• How to give yourself a discount on health insurance this year
• A guide to the Private Health Insurance Rebate
• Cancelling health insurance: how to do it and things to consider

Cover image source: Elenabsl/Shutterstock.com

Updated by Tom Letts.

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