What is the Lifetime Health Cover loading?

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Trying to wrap your head around some of the complexities associated with health insurance in Australia? We get it – things can get a little complicated, especially if you’ve never really thought about private health insurance before. If you’ve come across terms like lifetime health cover (LHC) loading or the Medicare levy surcharge (MLS) but don’t know what they actually mean, you’ve come to the right place!

Lifetime health cover loading actually plays an important role in our country’s private health insurance system. It was designed to encourage people to take out private hospital cover earlier in life and hold onto it. But how exactly does LHC loading work, and what are you expected to pay if you don’t get private health insurance?

What is the lifetime health cover loading?

Lifetime health cover (LHC) is a government initiative that’s basically an incentivised scheme to help nudge everyday Aussies to secure private health insurance hospital cover. At the heart of this system is something called ‘financial loading’, but you only need to know it as LHC loading. This is a fee that’s applied to your hospital cover premiums. By taking out private hospital cover at a younger age and retaining it, you’ll benefit from cheaper premiums compared to those who join later in life.

To avoid LHC loading, you’ll need to get hospital cover before your LHC deadline, which for the vast majority of us is 1 July following your 31st birthday (or 12 months from your registration with Medicare if you are a migrant). If you only take out hospital cover after this deadline, then you’ll incur a minimum loading of 2% – and it gets higher every year.

For example, if you get private hospital cover when you’re 40, you’ll be walloped with an additional 20% on the cost of your cover, while waiting until 50 jumps up to an eye-watering 40% loading. This continues right up to a maximum loading fee of 70%.

Who has to pay the lifetime health cover loading?

Lifetime health cover loading applies to anyone in Australia who doesn’t take out private hospital cover before 1 July following their 31st birthday. As we’ve already mentioned, if you delay purchasing private hospital cover until after this deadline then you’ll be subject to a loading of 2% for each year you are over 30.

This loading is added to your premiums, resulting in higher costs. However, if you secure hospital cover before your LHC deadline then you can avoid paying the loading entirely – so long as you stay covered. Additionally, new migrants have 12 months from their Medicare registration date to take out private hospital cover without incurring the loading.

According to the ATO, you don’t have the pay LHC loading in the following circumstances:

  • You are aged under 31 years old.
  • You hold an appropriate level of private patient hospital cover before you reach your LHC 'base day' – for many people, LHC base day is 1 July following their 31st birthday, but this can change depending on personal circumstances such as if you are overseas on this day.
  • You are a new migrant to Australia, and are aged 31 or over, and you had hospital cover within 12 months of being registered for full Medicare benefits.
  • You were born on or before 1 July 1934.

How much is the lifetime health cover loading?

If you don’t have private hospital cover by the 1st of July after your 31st birthday, you’ll have to start paying an extra 2% in LHC loading for every year you wait. The bad news is that this figure gets higher and higher as you get older, eventually maxing out at 70%. Imagine having to pay 70% more on your premiums because you didn’t take out a basic hospital policy when you were young?

Picture it this way, assuming you haven’t got private hospital insurance at age 31 and beyond:

LHC loading fee (%)

Even if you take out private hospital cover after age 31, you’ll still have to pay LHC loading for 10 more years. Only after you’ve had continuous cover for that decade will the LHC loading fee no longer be applied.

It really does pay to get covered early!

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How does lifetime health cover loading work if I switch to a couple or family policy?

Unfortunately, you’ll still have to fork out for LHC loading (if you had it applied previously) when you switch to a couple or family policy. It won’t magically disappear. However, if your partner doesn’t have LHC loading then you’ll at least be on a marginally lower rate.

This is because couples and families with hospital cover have their lifetime health cover loading determined by averaging out the loadings of the two adults covered under the policy. For example, if one person has 40% loading and the other only has 10% loading, the loading that will be applied to the policy will be 25% overall (40% plus 10% = 50%; divided by 2 people = 25%).

How long does the lifetime health cover loading last?

Let’s say you don’t take out private hospital cover before you turn 31. In this instance, your LHC loading amount will start at 2% when you are 31 and creep up every year until it maxes out at 70%. In this scenario, you’ll be hit with an increasingly higher lifetime health cover loading for every year until you eventually take out private hospital cover – not exactly a financially wise decision!

The good news is that when you do decide to get private health insurance, there’s a light at the end of the tunnel. If you keep your cover continuous for a full 10 years, then after that period of time you’ll no longer be slapped with lifetime health cover loading.

How do I avoid the lifetime health cover loading?

There really is only one way, but it bears repeating. After all, you don’t want to be on the hook for an extra fee for 10 years or more!

To avoid LHC loading, it's important to get hospital cover before you turn 31 or within a year of joining Medicare if you’re new to Australia. If you twiddle your thumbs and wait too long, you'll be charged an additional 2% for each year past the age of 30 when you do finally take out cover. So, getting private hospital cover earlier not only ensures you’re covered but also helps you avoid extra costs later on.

Final word

The reality is that the lifetime health cover loading is a pretty strong incentive to get you to invest in private health cover from an early age. Doing so can not only start you on good financial footing, but it can give you peace of mind that you won’t have to deal with higher premiums later in life.

Start comparing private hospital cover early on so you can take advantage of big savings and benefits down the line.

Simon Jones
Written by
Simon has spent more than 15 years covering the technology and finance sectors as both a journalist and content marketer. He is fascinated by the convergence of AI and big data, and spends what little free time he can scrape together either wrangling two kids or expanding his gin collection.

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