Understanding Lifetime Health Cover Loading

Lifetime Health Cover (LHC) is designed to encourage people to take out hospital insurance earlier in life when they are less prone to more serious illnesses. Under LHC health funds are required to apply a loading on the base premium of a Private Health insurance hospital policy.

The loading is determined on the ages of the adult members of the policy when they purchase hospital cover, with a loading of 2% applied to the base premium for every year over 30 that the policy holder is before they took our private health insurance.

The Private Health Insurance Act 2007 now includes a new provision requiring health insurers to cease applying the loading to the basic premium after ten years continuous hospital cover. In addition, effective 1st July 2013, the Private Health Insurance Act 2007 also now includes a new provision requiring health insurers to cease applying the Australian Government Private Health Insurance Rebate to the Lifetime Health Cover loading component of the premium.

For example someone who first takes out cover at 40 will pay an additional 20 per cent (40yrs-30yrs = 10yrs x 2% = 20%) on top of the base premium for the next 10 years. Once they’ve had continuous private hospital cover for 10 years, the loading will be removed from their premium. There are also exemptions if you’ve been out of the country or you have migrated.So it’s a bit confusing really, but the good news is that all of ItsMy’s advisers have a minimum of 5 years experience in private health insurance and deal with this legislation dally and will be able to explain to you what this all means and importantly see if they can save you money

How long does Lifetime Health Cover loading last?

So how long do you have to keep paying the LHC? The LHC loading lasts for 10 continuous years. In other words, once you’ve paid the LHC loading on your private hospital insurance for 10 years running, the loading will be removed. So at this stage you’ll pay no loading on your private hospital cover as long as you keep having hospital cover. However, if you cancel your cover once you’ve had your loading removed, you might need to pay a LHC loading again later.

When was the lifetime health cover policy originally introduced?

LHC loading was introduced by the government on 1st July 2000. It was designed to encourage Australians to take out hospital insurance early in life and to keep their cover over their lifetimes.

So have the LHC-loading rules changed since they were introduced in 2000? Yes. LHC-loading rules have undergone a few changes. One of the most significant ones is the 10-year rule for loading removal. Originally LHC loading could never be removed. The rules were later changed so by 2010 the first beneficiaries of the loading-rule change started having their premiums reduced through removal of the loading.

Is LHC loading different for families and singles?

If you’re wondering whether having a couple’s or family policy affects LHC loading, then the answer is yes. Those on a couple or family private hospital policy will have their loading calculated as an average between the individual loading of the two adults. This means if one of you has a 30% loading and the other has 0% loading, the loading that applies to your couple or family policy will be 15%.

What circumstances can affect LHC Loading?

Lots of different factors can affect LHC loading, including your LHC base day and how long your no-cover period is.

1. LHC base day

The LHC base day is the day from which the loading rule will start to kick in. For many people, their LHC base day is the first 1 July after their 31st birthday. However, in some cases this can be later. For example, if you’re a new migrant to Australia, you can avoid LHC loadingby arranging private hospital cover within 12 months of being registered as eligible for full Medicare benefits.

2. No-cover period

The amount of time you go without private hospital cover, counting from your LHC base day, is one of the most important factors in LHC loading. For each year you go without private hospital cover from your base day, you’ll pay 2% extra on your premiums, and the maximum loading you could pay is 70%. So if you go 35 years without private hospital cover, you’ll pay the full 70% extra.

3. Permitted days without cover

Note the Private Health Insurance Rebate doesn’t apply to the LHC loading component of your premium. In other words, the government won’t subsidise any LHC loading. Also, people born on or before 1 July 1934 and are exempt from the LHC loading.

Small gaps on or after your base day might not increase your loading as long as these fall under the permitted-days categories. You’re allowed small gaps in cover for periods totalling 1,094 days during your lifetime. This means if you incur a total gap of 1,095 days without hospital cover after your base day, you’ll pay 2% for every year without hospital cover. You might also be able to suspend your policy – with the agreement of your health fund of course – without it counting towards the 1,094 allowed days.

And if you cancel your hospital insurance after your base day to go overseas for at least one continuous year, this period isn’t counted towards the 1,094 days. You can return to Australia for periods of up to 90 consecutive days per visit and be considered to be overseas for this purpose.

The LHC loading rules means you will likely end up paying for in insurance premiums the longer you go without private hospital insurance after turned 31. It could affect your couple or family premiums in the future. By getting to know factors like your base day, no-cover period, and permitted days without cover, you can get a clearer picture of how LHC loading could affect you.

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Stephen Vickery

Stephen Vickery

Baker, chef and wanderer, Stephen Vickery brings over 10 years experience within the Private Health Insurance industry and has developed extensive knowledge within all aspects of Private Health Insurance, customer relationship management and sales management. He is a creative and thoughtful individual who enjoys the freedom of creating something from nothing. Living in Victoria, Stephen relish's married life and while children might be on the agenda over the next few years, he is quite content with his two naughty puppies.