Lifetime Health Cover Loading (LHC)
The Lifetime Health Cover Loading or LHC was first introduced by the Australian government in July 2000 to incentivize younger people to take up private health cover and maintain it.
The LHC is an additional fee or loading that is included in your hospital policy premium if you purchase cover later than your 31st birthday. It is a 2% loading on your premium that accumulates each year before taking out hospital cover. You can avoid the LHC by taking out cover before the 1st of July after your 31st birthday, otherwise known as your base day, and maintaining your policy.
Why is there a Lifetime Health Cover Loading?
Without the LHC, younger adults wouldn’t consider private health insurance until they were older and more susceptible to illness. The federal government introduced this initiative to improve efficacy and availability of both the public and private healthcare system.
How is this helping the healthcare system?
Medicare does its best to cater to the growing demand of people needing hospital treatment. Because of the aging population, high obesity and substance abuse rates, more and more people are leaning on the public health care system. Waiting lists grow longer, and a strain is placed on health workers and the health system in general.
If more people have private health insurance, it would ease some of the colossal demands off the back of public healthcare. What this means for people who cannot afford to be privately insured is a quicker and more efficient treatment. What this means for private health insurance is a wider risk pool, which turns out to be beneficial for everyone eventually.
Let’s break the LHC down:
Say you are 37 years old and have never held hospital cover. You’ve been accumulating 2% per year for 7 years since your 31st birthday.
If you decide to take up health cover at 37, you’ve got yourself a 14% LHC debt, and this will be added onto your monthly premium. If your hospital premium costs $100 a month, expect to pay a total of $114.
How can you avoid Lifetime Health Cover Loading?
The only way to avoid paying the Lifetime Health Cover Loading is to take out hospital cover early in life. The LHC does have some special circumstances and exceptions which include:
- Are a member of the Australian Defence Forces or hold a Department of Veterans’ Affairs Gold card
- Were overseas when the LHC became applicable to you.
- Are a new migrant to Australia and have held full Medicare benefits for less than a year.
- Were born before the 1st of July 1934
- Were 31 or older when the LHC was first implemented on the 1st of July 2000
You can’t avoid paying the Lifetime Health Cover Loading on your premium when you decide to take up cover.
How long will I have to pay the LHC?
Good news, it’s not forever and loading cannot exceed 70%. If you have been paying hospital cover with loading for 10 consecutive years, you will be exempted from paying the LHC.
Loading reapplies to you if you drop cover and then take it up again in the future after exceeding your grace period of 1094 days (see below).
What if I suddenly can’t afford hospital cover and what happens if go overseas?
The only thing certain in life is uncertainty. Because unexpected unemployment and unplanned overseas trips happen, the government has provisioned a 1094 grace period if you have hospital cover on or after your base day. This is 1 day shy of 3 years and can be used when:
- You plan to switch health funds. You can be without hospital cover for 1,094 days while looking for a new insurer. This is known as ‘Days of Absence”
- You suspend your hospital policy with your health fund to go on an overseas trip.
Note: If you plan to be out of Australia for one continuous year and cancel your hospital insurance, the days spent out of the country are not taken off your 1094 days. If you don’t resume cover within 90 days of your return, then days will be taken off your grace period. If your insurer agrees to suspend your policy for a short overseas trip, this will not affect your 1094 days grace period.
How does the LHC apply to a couples/family policy?
For couple of family policies, your loading will be calculated as an average between the individual loadings of the two adults.
Let’s look at Robert and Lisa.
Lisa has never had hospital cover and she is 40. Robert is 42 and has held continuous hospital cover for 12 years since his 30th birthday. Lisa’s individual loading is 20%. The LHC does not apply to Robert. They will be paying a 10% LHC loading on their family policy, as 10 is the average of 20% and 0%.
LHC Exemptions and Special Circumstances Explained
Australian Defence Forces members
Full-time service members of the ADF who receive medical cover from the Australian Defence Force are considered to have a hospital policy. This includes family members covered as adult dependants.
Holders of Department of Veterans’ Affairs Gold cards
Those holding a DVA Gold card and their widows or dependants are considered to hold a hospital policy. This will only apply to members whose names are on the card. If you were a Gold card holder at any point before the 1st of July 1999 and then had your card forfeited, the duration that you held your card may be claimed as time holding hospital cover.
New migrants over the age of 31 who take up hospital cover within a year of receiving full Medicare benefits will not have to pay the LHC. However, if you do not purchase a hospital policy within that time frame and then decide to take up hospital cover at a later point, loading will be calculated according to your age. So say you’ve been living in Australia since you were 31 but only took up a policy when you turned 41, you will need to pay 2% per year for 10 years on top of your premium.
Overseas after the 1st of July following your 31st birthday or base day
Australian permanent residents and citizens who turned 31 after the 1st of July 2000 who are overseas on their base day are exempt from paying the LHC. When they come back into Australia, they will still be considered to be overseas 90 consecutive days into their visit. You will have officially ‘returned’ to Australia on the 91st day and will need to take up a hospital policy 1 year from this ‘return’ day to avoid paying the Lifetime Health Cover Loading.
Born before 1st of July 1934
Anyone born before this time or is currently around 85 years old is exempt from paying the LHC.
Held Medicare registration before the LHC was introduced (July 1st 2009)
If you are an Australian citizen or permanent resident who turned 31 or over before the 1st of July 2009, you are considered to have held hospital cover on your base day. The loading will only apply to you if you take up and then drop cover for longer than 1094 days (grace period)
If these exceptions and special circumstances do not apply to you, talk to a Health Deal agent today. A hospital policy to suit your specific needs will be recommended to avoid LHC and/or prevent this penalty increasing further, whilst also providing peace of mind for any potential hospitalisation needs in the future.
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