Lifetime Health Cover Loading, Is It Worthy to Avoid?

OzBestDeal on 26/05/2015 - 17:42

Hi guys,

It's that time of the year again where we need to decide whether to take private health insurance or not.
Is it really worthy to take private hospital cover early on and maintain it for the rest of our life just to avoid LHC?

Budget hospital cover can rack up close to $1000/year, and LHC increased by 2% for every year someone didn't take hospital cover (over age 30).

Let's assume someone didn't take private hospital cover for 20 years. So his age will be 50, and LHC is 40%.
If we assume hospital cover increase by $100 a year, in 20 years the premium will be $3000/year.
So in that 20 years, he already save $42,000 (1000+1100+1200+1300+…), and he would pay $4200 (3000+1200 LHC) if he decided to take cover at that age.

If he decided to take cover at age 70 (let's assume he live that long), his LHC will be 70%.
Premium at that time will be $5000/year.
In that 50 years, he already save $123,000, and he would pay $8,500 (5000+3500 LHC).

So back to my question, if that person taxable income stay under MLS limit, is it worthy to take hospital cover just to avoid LHC?

Financial

Comments

  • jaybmate on 26/05/2015 - 18:17

    https://www.ozbargain.com.au/node/185911

    If you think you won't really use the health insurance (and don't), you'll end up saving much more than if you went and got health insurance early on, as the loading doesn't really affect your overall payments THAT much.

    I think from your calculations you are concluding that you save much more when holding off on insurace. and you are right (assuming nothing is wrong/sick with you).

    Also remember, if you have health insurance for over 10 consecutive years, the loading goes back to zero.

    Also, I think the loading maxes out at a certain percentage? somewhere around 60% if i remember correctly.

    Work out the numbers, of total health insurance paid between years of 30-50 and compare with 40-50, and compare how much you end up paying. (note, i did this but didnt take into account the fact that the base premium would increase. Although, i dont think that would matter as it would be expected that that would increase at the rate of inflation / wage increases.)

    A person who only gets health insurace at 40 years old, their loading drops back to 0% after they reach the age of 50 so premium would be the same as someone who got it at 30, from then on in.

    • OzBestDeal on 27/05/2015 - 10:30

      I worked out these numbers with excel too, and found the savings that can be made by not getting hospital cover early on can be substantial. The number would be even better if you put in mid-top tier hospital cover instead of just basic one.

      There's also a possibility LHC policy will be abolished in the future, so all of those effort to avoid LHC will be for nothing.

      • CyberMurning on 27/05/2015 - 11:23

        can you share your excell? of course remove personal details :) thanks
        i need it to convince my friends

        • OzBestDeal on 27/05/2015 - 15:59

          Sure, PM me and I will send the excel..
          No personal info on that file, it's just very basic one

        • CyberMurning on 27/05/2015 - 16:02

          @cimot: thanks but you havent enable PM :)

  • shortgum on 26/05/2015 - 18:53

    an agent told me to stick with the insurance for 10 years and you dont have loading anymore if cancel

  • BigTed on 26/05/2015 - 18:59
    +2

    Sadly health insurance is like so many things in this country. For the majority of people who are reasonably healthy it is poor value for money. For a small number of people health insurance works out to be very worthwhile.
    However, you never know which category you will fall into until you are already there.
    What also sucks is that you can pay top-level health cover for years, and still leave hospital with sizeable out-of-pocket costs at the end of routine procedures.

  • [Deactivated] on 26/05/2015 - 19:23
    +1

    Don't forget Medicare levy surcharge, which can outweigh the cost of a basic hospital policy if you earn over the MLS income threshold

    https://www.ato.gov.au/Individuals/Medicare-levy/Medicare-le…

  • CyberMurning on 26/05/2015 - 20:46

    Loading is capped at 70%
    http://www.privatehealth.gov.au/healthinsurance/incentivessu…

    So, summary:
    If your taxable income (means after deduction, correct?) Is Still under Medicare levy surcharge, better hold off taking hospital.

  • Mad Max on 26/05/2015 - 21:08

    I wonder if any party will ever scrap the 2% loading per year of no insurance. After all they could let the insurers price the risk in a competitive manner without imposing the compulsory extra loading. Why is the government interfering with the private insurance market? They are already imposing extra tax if you are over a certain income.

  • OzBestDeal on 27/05/2015 - 10:20

    This is exactly my point…
    If I'm holding it long enough, I'll be saving more money than taking basic hospital cover (that won't give much benefit anyway) just to avoid LHC.

    In the end, we're already paying for compulsory Medicare levy, may as well use it as our "health insurance".

    • CyberMurning on 27/05/2015 - 11:25

      agree. but, as long our taxable income is lower than the MLS income threshold.
      does your excel taking account this MLS threshold assumption and what if a person goes over?

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