Budget 2020: Young adults can remain on parents' health insurance for longer

Adults could be allowed to remain on their parents’ policies until they turn 31, and dependants with disabilities for life, in new rules announced in Budget 2020-21. But, with the Lifetime Health Cover kicking in at 31, is it financially better for young adults to stay on a family policy or take out a policy of their own? We take a look.

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Source: MBI (Shutterstock)

In the Budget announcement this week, Treasurer Josh Frydenberg said that from 1 April 2021, health insurers would be allowed to increase the age that dependants can stay on a family policy, from age 24 to age 31, “to encourage continuity of cover”. At present, many funds allow certain young adults, such as single students, to remain on their parents’ policies until age 21, with some extending that to age 24 – it’s up to the insurer to decide the age cut-off.

Mr Frydenberg also said the age limit for adult children with a disability would be removed altogether, allowing them to stay on their family’s private health insurance (PHI) policy indefinitely.

This round of reforms follows last year’s introduction of a PHI “Age based Discount”, to entice young people to sign up earlier, allowing insurers to offer a maximum 10% discount on premiums for people aged 18-25 who signed up for their own policy. The discount reduces in stages to 0% by age 30. However, only some funds chose to offer the discount.

The Budget papers state that raising the age limit of dependants allowed to stay on family policies would encourage more young people to keep their PHI, rather than ditching it after reaching the age where they had to pay for it themselves. Extending the age to 31 would mean that the cut-off lines up with where Lifetime Health Cover loading kicks in. This loading is an extra fee added to health insurance premiums to those people who sign up after their 31st birthday.

“(This) provides them with a clear moment for decision about maintaining their PHI, and increases PHI’s attractiveness to young people,” the Budget papers state.

Canstar money expert Effie Zahos said while it was still unclear how insurers would apply this change to their policies, the government’s move was an ingenious way to help ensure more young adults stayed in private health.

“Millennials are deserting health funds and this is a very clever reform to try and prevent them from leaving health funds,” Ms Zahos said.

“It’s kind of like an automatic subscription to Netflix – it just keeps on ticking away in the background and you hardly notice that it’s there.

“And it does buy funds more time to convince young people of the value of having private health insurance. This is a lifeline for health insurers.

“However, it puts the onus back on the ‘bank of mum and dad’, who will be funding this. Although the good news is that it’s not as bad as you’d think. I would encourage any family who finds itself in this position to do some quick sums to see what the cost benefits really are in this new scenario. Also, it could pay to read the fine print to see if your child’s income or where they live impacts on their eligibility.”

Canstar crunched the numbers on its database and found that while the average annual premium for a 21-year-old on a Bronze Plus Hospital¹ policy (including a 10% Age-based Discount²) was $1,057, it would typically cost only a fraction of that amount for that person to remain on their parents’ family policy.

“If you’ve got two children, it’s potentially a no-brainer – it could be more economical to keep your eldest child on your policy until they are 31 to prevent them from paying the $1,000 in premiums a year,” Ms Zahos said.

“The difference comes when you are a family of three, and taking the child off the policy means that the ‘family’ policy would turn into a ‘couple’ policy. There are some savings there – but not as much as you might expect.”

The table, below, illustrates the cost differences between couple and family policies:

Average Annual Health Insurance Premiums by Profile³

Family Couple Difference
Hospital & Extras Insurance
SilverPlus $4,818 $4,761 $57
Gold $5,447 $5,437 $10
Hospital Insurance
SilverPlus $3,545 $3,527 $18
Gold $4,190 $4,187 $3
Extras Insurance $1,232 $1,204 $28

Source: www.canstar.com.au – 8/10/2020. ¹Bronze Plus Hospital policy was chosen as it represents a common choice for younger people, as it excludes items such as pregnancy and joint replacements. Bronze Plus and Silver Plus policies on offer from different insurers may provide different levels of cover. Check with your insurer. ²Not all health insurers offer the Age-based Discount. ³The Australian Government Private Health Insurance Rebate, Base Tier for under 65s, of 25.059% has been applied to premiums. All calculations are for policies on Canstar’s database and exclude OSHC, Visitor and Corporate policies.

“Economically, the calculations suggest it could make sense to keep your child on your policy. If worst comes to worst, you could charge your kid the difference and it would give them a great head start when they transition to paying for their own health insurance.”

The change is yet to be legislated.

 

This article was reviewed by our Sub-editor Tom Letts before it was published as part of our fact-checking process.

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