Lifetime Health Cover Loading (LHC)

What on earth is LHC you ask? Let us explain exactly how it works. Private Hospital Cover varies between insurers, but if you’re young and healthy, it’s not necessarily front of mind. However, taking out cover before you turn 31 could save you money in the long run.

What is Lifetime Health Cover (LHC) loading?

The year 2000 brought many changes for us as Australians: fear of Y2K, the beginning of the 21st century, and of course, the iconic Sydney Olympics.

Apart from these notable socio-cultural milestones, there were also significant economic reforms such as the introduction of the Goods and Services Tax (GST) and the introduction of LHC loading.

LHC loading was introduced by the Howard Government in 2000¹, with the intention of encouraging more younger Australians to apply for private Hospital Cover and maintain it throughout their lives.

The main reason for introducing this policy was to ease pressure on the public health system.

By purchasing private hospital cover earlier in life, and maintaining it into your 40s, 50s, 60s and beyond – you’ll avoid paying the LHC loading on top of your hospital insurance premiums, have access to the benefits of private health cover, and help make the public health system more accessible for others.

What are the benefits of getting private Hospital Cover before turning 31?

The good thing about getting and maintaining private hospital cover before you turn 31 is that you will avoid LHC loading, which increases by 2% year on year for 10 years.

Not only will you avoid LHC but by having private hospital cover you could enjoy a range of additional benefits, such as avoiding potentially lengthy waiting times in the public health system, and being able to choose your own doctor or specialist.

How does the LHC loading work?

Generally speaking, Australians who don’t apply for and maintain private hospital cover before the 1st July following their 31st birthday face paying an annual 2% financial loading on top of their hospital cover premiums for every year they didn’t have private Health Insurance following that date (to a maximum of 10 years)².

It’s basically an addition to the base rate premium for private Hospital Cover.

For example, if you decide to wait until you’re 40 to take out private Hospital Cover, you will pay an extra 20% on top of your premium compared to someone who took out cover in their 20s. And if you wait until you’re 50 to take out Health Insurance, you will pay 40% more, and so on.

The maximum loading amount that can be applied to private Hospital Cover is 70%, but thankfully, you’re only required to pay LHC loading up to a maximum of 10 years³.

After that point, your premiums will simply be the price set by your insurer, without the additional loading. However, that’s only if you have maintained your hospital cover continuously for 10 years.

Does LHC loading apply to Extras?

No, the good news is LHC loading doesn’t apply to Extras Cover, also known as ‘ancillary’ or general treatments.

Can I avoid paying the LHC loading by taking out an Extras policy?

No, only having a suitable private Hospital Cover policy can allow you to avoid paying LHC. Holding extras cover only won’t exempt you from paying the LHC if you decide to take out private Hospital Cover down the track.

What’s the difference between LHC loading and the Medicare Levy Surcharge?

While LHC loading is a penalty rate that applies to individuals who take out private hospital cover after the age of 31, the Medicare Levy surcharge (MLS) is different.    

In short, LHC is a loading that is added to your hospital cover premiums and charged via your insurer, whereas the MLS is a tax.   

If your taxable income is over $93,000 as an individual, or over $186,000 as a couple or family and you don’t have an adequate level of private Hospital cover, then you may have to pay the MLS⁴.  

1 July 2023 is the first time that taxable income rates have been amended since 2014⁵, so it’s likely that these rates will remain stable for the next few years or so.  

This surcharge is a rate of either 1%. 1.25%, or 1.5% based on the total of your⁶:  

• taxable income;  
• total reportable fringe benefits; and  
• any amount on which family trust distribution tax has been paid. 

The MLS was initially implemented to encourage higher income earners to take out private hospital cover in order to reduce stress on the public health system.  

Could I be exempt from LHC loading?

Yes. If one of the below categories apply to you and you’re looking for private Hospital Cover, you might not have to pay for LHC loading⁷:

• You’re under 31.
• You have held private Hospital Cover continuously since before the 1st July following your 31st birthday.
• You’re a new migrant to Australia over 31 who had Hospital Cover within 12 months of being registered for full Medicare benefits.
• You were serving in the Australian Defence Force when you turned 31 (upon discharge from the ADF, you have 1094 days to take out hospital cover without incurring LHC loading).
• You were born on or before 1 July 1934.

If you’d prefer to avoid LHC loading in the long term, and you do plan to take out a Health Insurance policy at some stage, then you might want to consider getting private Hospital Cover before the 1st July following your 31st birthday.

For example, if you turn 31 in October 2030, you’d need to apply for private Hospital Cover before the 1st of July in 2031.

Can I take a break from my cover?

Yes, you can break up your 10 years of continuous cover with any of the ‘permitted days without Hospital Cover’ as listed below.

However, the breaks in your cover don’t count towards the 10 continuous years, so you are required to pay LHC loading. Remember that you can’t reduce the total of the 10-year period.

What are the ‘permitted days without Hospital Cover’?

If you’d like to take a break from your Hospital Cover, then you can access the following ‘permitted days without Hospital Cover’. Basically, this means you don’t have an active Hospital policy, but your loading doesn’t increase:

• Gaps in cover and Days of Absence: This covers gaps such as switching between insurers. You can be without Hospital cover for 1,094 days during your lifetime without affecting your LHC loading, also known as ‘Days of Absence’⁸.

Bear in mind that if you go over the 1,094 mark, you will then need to pay LHC loading on top of re-joining Hospital cover.

• Membership suspension: If you’re going overseas for a short period of time, or just want to suspend your Hospital cover, then ask your insurer first. If your insurer agrees to do this, then the period of suspension is not counted towards your 1,094 days of absence⁹.
• Going overseas for an extended period of time¹⁰: If you cancel your Hospital cover to go overseas for at least one continuous year, then the days you spend outside of Australia are not counted towards the 1,094 Days of Absence.

You can return to Australia for periods of up to 90 consecutive days, per visit, and still be considered to be overseas.

Any periods of 90 days or more which you spend in Australia during this time will be deducted from the 1,094 Days of Absence.

Will I need to re-serve waiting periods if I take a break from Hospital Cover?

Yes, possibly. This is because the permitted days without Hospital Cover only relate to LHC loading. You should check with your health insurer about the impact on waiting periods if you intend to have gaps in your Hospital Cover.

Does the Australian Government’s private Health Insurance rebate apply to LHC loading?

No. While the Australian Government does provide a rebate on private Health Insurance premiums, this rebate does not apply to the LHC loading component of a policy¹¹.

It’s important to keep this in mind when comparing your options for private Hospital Cover.

For more information, visit the ATO.

How do I get private Hospital Cover?

There are heaps of health funds that offer private Hospital Cover. But there are heaps of different types of hospital cover policies, with tiers ranging from Basic Cover right through to more comprehensive and expensive Gold Cover.

You’ll need to weigh up your individual health needs along with your budget to choose the most appropriate Hospital Cover policy for you.

Where can I compare options?

Confused yet? Luckily, we can help! Once you’re ready to start comparing options for Private Hospital Cover, iSelect can help you choose from a range of Health Insurance products and providers *. Get started via our website or call our friendly team on 1800 784 772.

^Sources:

^{1 Commonwealth Ombudsman of Private Health Insurance - Lifetime Health Cover
2 As above.
3 As above.
4 Australian Taxation Office - Medicare levy surcharge income, thresholds and rates
5 As above.
6 Australian Taxation Office - Paying the Medicare levy surcharge
7 Commonwealth Ombudsman of Private Health Insurance - Lifetime Health Cover
8 Commonwealth Ombudsman of Private Health Insurance - Lifetime Health Cover
9 As above.
10 As above.
11 Commonwealth Ombudsman of Private Health Insurance - Australian Government Private Health Insurance Rebate}