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If you want to avoid Government-imposed lifetime penalties on health insurance it’s best to start shopping around before you turn 31. Too late? Are you 30 plus? Here’s what you need to know about Government health insurance policies and private health insurance. The big picture? Getting in early on health insurance and keeping up your cover is one way to keep your costs down.
Government requirements
In July 2000, the Australian Government introduced Lifetime Health Cover to encourage people to take out private health insurance earlier in life and maintain it. From age 31 onwards people who take up private health insurance must pay a two per cent loading for every year they delay. This means the cost of their health insurance premium is two percent more for each year they delay (up to a maximum of 70 per cent). If you take up private health cover at age 35, for example, you will have to pay a two percent penalty for the five years (ie a ten percent loading) for the rest of your life… There are exemptions: people born before 1 July 1934.
Other Government incentives to encourage the uptake of health insurance include:
- A 30 percent tax rebate on annual health fund premiums, regardless of income (and up to 40 percent for those over 65), and
- The Medicare Levy Surcharge. Those starting to earn more – say, a single person, now commanding $50,000-plus a year – could find they are hit with an extra one per cent at tax time if they don’t have private health insurance.
However, it’s not all bad news: if you have been penalised but then take out private health cover and sustain your cover for ten years the loading will be removed; stay with the same fund and they may reward you with a loyalty bonus.
The Government website has additional information about the Lifetime Health Cover Scheme.
Minimum cover requirements & waiting periods
To prevent people from scamming the system, the Government also introduced minimum cover requirements. You can’t just take out insurance prior to becoming subject to the Lifetime Health Cover criteria (before age 31) to avoid penalties and then cancel your membership for an extended period. Minimum cover criteria states that your health cover must be sustained. You are allowed 720 uncovered days in your lifetime.
Insurers also have conditions to prevent people from taking advantage of their policies. These are in the form of minimum waiting periods that apply before benefits are payable. Examples include: having to wait for two months before you are able to claim for most services, to 12 months for pregnancy and 36 months for hearing aids.
What will I be covered for?
The health insurance companies offer all kinds of coverage and a range of different polices – basic cover (enough to prevent the imposition of Government penalties), singles cover, or cover for couples or families. Some have wellbeing or lifestyle optional extras, others cater to the budget conscious. The most basic policy you can take out will cover you for treatment in a shared ward of a public hospital and give you a tax benefit (in the form of reduced penalty). It will not cover you for treatment as a patient in a private hospital or by a private doctor.
This kind of cover takes care of some or all of the costs of being a patient in any public hospital. It does not, however, cover medical services provided outside of hospital and those already covered by Medicare, including GP visits and specialist consultations. It may not cover the total cost of doctors' services in hospital if there isn’t an agreement between your fund and the hospital or doctor used. In these situations you will have to pay what is known as a “gap”. Of course, there are many polices that do offer greater benefits with the same tax concessions – and the prices of these policies are higher.
Also, some insurers now offer “gap cover” schemes to help protect policy holders from these out-of-pocket expenses – and close the gap.
To prevent nasty surprises make sure you understand your policy conditions, know which hospitals your provider prefers and have identified the main purpose of your health cover. Is it just to avoid the Lifetime penalty? Or do you actually want to be able to seek out medical help when you need it and claim some of the associated expenses?
Avoiding annual lifetime penalties
To summarise: the best way to avoid the penalties is to take out basic health cover before you turn 31. You can then increase your level of cover as your circumstances change and as you need it without worrying about having to pay the two percent per year Government-imposed fee. If you are already 31 years old or more then taking out private health cover now and sustaining it for ten years will cancel out the penalty. (If after ten years you then drop your health cover, however, the original penalty will be re-imposed when you take it back up and any subsequent years without cover will be added to it.)
In addition, some health funds offer loyalty bonuses to people who stay with them – so find a provider you are happy to stay with and expect increasing benefits from them over time.
