A beginner's guide to lifetime health cover loading

The government uses the tax system to encourage people to take out private health insurance to minimise the burden on the public health system.

One of the ways the government does this is to encourage people to take out private cover from an early age.

Lifetime health cover (LHC) loading is a penalty that generally applies when you've not taken out or maintained private health insurance from the year you turn 31.

To avoid incurring a LHC loading, you need to hold an appropriate level of private patient hospital cover before you reach your LHC base day. Typically, that's July 1 following your 31^st birthday.

So, if you turn 31 on February 28, your LHC base day will be July 1 of that year. Make sure you have private health cover by that date to avoid the LHC loading.

If you are a new migrant to Australia, and you're already over 31, you have until the first anniversary of your full Medicare registration to take out private health cover without incurring a LHC loading.

Once you have paid the LHC loading on your private health cover for 10 continuous years, the loading is removed. Your loading will then remain at 0% if you retain your hospital cover.

LHC loadings apply only to private patient hospital cover. Cover for "extras" such as dental, optical, physiotherapy or chiropractic treatment, is not private patient hospital cover and those items don't incur a LHC loading.

How is the LHC loading calculated?

Your LHC loading is determined by the number of years you are over 30 years old at the time you take out hospital cover.

Each year, an extra 2% is added to your hospital cover premium. For example, if you wait until you reach 40 years old before taking out health insurance, you could pay an extra 20% each year on the cost of your hospital cover.

If you wait until you are 50 years old, you could pay 40% more each year. The maximum LHC loading that can be applied is 70%.

Note also, that the government does not pay the private health insurance (PHI) rebate on LHC loading applied to the costs of a policy, another good reason to take out health insurance before the LHC kicks in.

Tip: If you're under 30, look to take out private health cover before turning 31, when the LHC is first chargeable. If you're over 30, take our private health cover as soon as possible to minimise LHC.

What are permitted days without health cover?

If you have taken up hospital cover, you are allowed a certain number of 'permitted days without hospital cover' during which you can have no active hospital policy without your loading increasing.

This is typically intended to cover short periods such as those which might arise whilst you are switching from one fund to another and must not total more than 1094 days (i.e. three years less one day) during your lifetime.

If you use up this period - known as the Days of Absence - you will pay an additional loading when you take out new cover amounting to 2% on top of any previous loading, increasing by 2% for every year after the 1094 days without cover.

You can apply to suspend your health cover - without triggering the 1094 days of absence - for a short period, for example if you go overseas for a holiday. Your health insurer needs to agree to such a suspension.

You can also cancel your hospital cover - again, without triggering the 1094 days of absence - if you go overseas for at least one continuous year.

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