23 June 2017
New CHOICE analysis has found taking out poor value health insurance, simply to avoid a future loading on premiums, may ultimately leave consumers worse off.
“As the end of financial year approaches, health insurance and for-profit switching sites play on the fear of incurring the Federal Government’s Lifetime Health Cover (LHC) loading to push younger Australians into health cover, whether or not it meets their health needs,” says Matt Levey, CHOICE Director of Campaigns and Communications.
“But our analysis has found that while insurers spruik the benefits of signing up for these policies, they may not be the healthiest option for your budget.”
Lifetime Health Cover loading is a government penalty that adds 2% to future health premiums for every financial year you don’t take out private hospital cover, once you turn 31.
However, the loading only applies for ten years if you do ultimately take out health insurance.
CHOICE looked at insurance data going back to 2001 to work out what would happen if a typical consumer delayed taking out health insurance until they needed the service and instead deposited the amount a cheap policy would cost into a savings account.
“The research shows that in many scenarios you would be better off taking out health cover when you need it rather than just to avoid a costly loading further down the track,” Mr Levey says.
“For example a 31-year-old who saved the cost of a low cover health policy instead of buying cover in 2001 could have banked more than $9000 by 2016. 
“In our scenarios the amount you’d save would be greater than the 30% LHC loading you would have to pay if you only took out hospital cover at age 45. 
“There are lots of rational reasons to take out private hospital cover, such as having your choice of practitioner, shorter waiting times for elective surgery and avoiding the Medicare Levy Surcharge, but if you’re doing it just to avoid the LHC loading you may want to think twice.
“If young Australians feel pressured into buying health insurance just to avoid a future financial penalty they may end up opting for the quickest, easiest option rather than considering the best value product for their particular needs.
“This is particularly concerning when you consider that in Australia, ‘junk’ policies account for around 13% of all policies on the market. 
“These ubiquitous junk policies cost consumers without providing cover in a private hospital for around 5000 vital treatments, including heart attack, stroke, cancer and psychiatric care. 
“The Federal Government’s priority should be making health insurance simpler, fairer and better value, and that means not pushing and subsidising young Australians into products they don’t need, and that take no pressure off the public healthcare system,” says Mr Levey.
To help cut through the complexity and confusion of the health insurance market, use CHOICE’s free tool at: www.doineedhealthinsurance.com.au.
For more information on Lifetime Health Cover loading, go to www.choice.com.au/lhc
Media contact: Nicky Breen, CHOICE Media Advisor: 0430 172 669
Health insurance saving tips:
● Take the Do I need health insurance? health check at www.doineedhealthinsurance.com.au
● If you’re healthy, under 31 and earning less than $90,000 a year, consider making extra deposits into a savings account instead of buying “junk” insurance
● If you need cover, a top level hospital cover with an increased excess is often better value than reducing your cover
● Check to see if you can join a restricted membership health fund for your industry
● Think of extras cover as a budgeting tool. If your annual benefits paid out add up to less than the cost of your policy, it may not be worth the money
Lifetime Health Cover loading
Lifetime Health Cover is a government penalty that hits in the first financial year after you turn 31, adding a 2% loading to future premium costs for every year you don’t take out private hospital cover up to 70%. This loading is applied to the first ten years of premiums if you do eventually take out insurance.
 CHOICE calculation based on taking the increasing annual cost of a low-cover policy from 2001-2016 and placing it in a high interest account, then deducting cost of income for amount saved ($9120)
 For example, ten years of LHC loading on top hospital cover with $500 excess for single person in Victoria was forecast to equal $7027, meaning you would be more than $2000 better off by simply saving the money.
 CHOICE health insurance Data 2017