The government has just announced that they will be cancelling the Private Health Insurance Rebate for Lifetime Health Cover (LHC) loading amounts.
The LHC is an increased premium, or financial loading, on top of standard private health insurance pricing. It is intended to encourage people to aquire adequate health cover.
The LHC loading applies if a person doesn’t have hospital cover on the 1st of July, after their 31st birthday. If they eventually take out private health insurance, they will pay an extra 2% for each year they are aged over 31, to a maximum of 70%.
For example* a 42 year old, who first bought health insurance at age 40, would be required to pay a 20% LHC premium.
Currently both health insurance and the additional LHC premium are eligible for a rebate based on the person’s income, marital status and age. As an example, if they earn under $84,000, are single and are under 65 they would receive a 30% rebate on the total sum of health insurance and LHC premium.
More: Health insurance rebate to be slashed
Under the new rules, to be implemented from 1st July 2013, the Private Health Insurance Rebate will still apply to the sum paid for health insurance but not for the LHC premium.
Currently a 42 year old with a 20% LHC loading on a $2,000 health insurance policy pays $2,400. However if they are eligible for the full 30% Private Health Insurance Rebate (worth $720) then they will only need to pay $1,680.
From 1st July 2013 the total premium remains the same at $2,400. However they will now only receive a 30% rebate on the $2,000 policy (worth $600). The LHC loading remains $400 meaning that they will now pay $1,800.
Lifetime Health Cover (LHC) in depth
Most people don’t pay lifetime health cover as they obtain private health insurance by the deadline.
If a person was 65 or older in 2000, when the legislation started they do not have to pay a Lifetime Health Cover loading.
Due to the lenient rules, outlined below, most people don’t pay a lifetime health cover premium on top of their private health insurance premium. If you don’t yet have private health insurance, this is another reason to make sure you register for adequate hospital cover (i.e. with a maximum excess of $500 for singles or $1,000 for couples/families) by the required date.
I was overseas when I turned 31 – do I have to pay LHC?
For new migrants to Australia over 31 – you have up to 12 months after your registration for a Medicare card is accepted before you will pay lifetime health cover. Likewise - if you are an Australian resident overseas at the time of your 31st birthday, you have 12 months to purchase hospital cover after you return to Australia, and return trips up to 90 days can still be counted as being overseas.
Does switching funds or taking a break mean I will need to pay LHC?
You are allowed breaks of health insurance for up to 1,094 days over your lifetime (i.e. one day less than 3 years). This is a generous gap to make sure people who change funds don’t have to pay LHC when they renew their health cover.
But I’m going overseas for 3 years – will I have to pay LHC when I return?
Cancelling or suspending your private health insurance to go overseas is not included in the 1,094 days. As mentioned above, if you return to Australia for less than 90 days, a visit can still be counted towards you being counted as overseas.
Lifetime health cover loading shouldn’t last a lifetime
Previously, LHC premiums were forever, however now if you have continuous cover for 10 years then the LHC will no longer be charged.
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Scott Kay is an accountant, tax agent and the founder of NoMoney. Scott's goal is to help people approach their finances from a new perspective and improve their financial situation. For tips about money, investing, tax and everything in between visit NoMoney, or like NoMoney on Facebook.
* Examples provided by the Private Health Insurance Ombudsman