Need to know
- CHOICE is calling on government to suspend Lifetime Health Cover loading for people who drop their private health insurance or don't take it up
- The LHC penalty adds 2% to future premiums for every financial year you don’t take out hospital cover after you turn 31
- With social distancing in effect and and elective surgeries on hold, there's a good argument for downgrading your cover and dropping your extras in many cases
Lifetime Health Cover (LHC) loading is the government and the private health insurance industry's way of trying to get you to take up private health insurance (PHI) before you turn 31.
If you don't take up PHI, there'll be a penalty to pay when you do – if you do.
Now that the Department of Health has confirmed that PHI is not required for treatment of the COVID-19 coronavirus, we think it's time to put this questionable measure on hold.
In fact, there are plenty of good reasons to downgrade your hospital cover and drop your extras altogether in the midst of the pandemic – as we explain in this article (the story also outlines scenarios in which keeping your cover might make sense).
Not the time to flog private health insurance
LHC loading adds 2% to future premiums for every financial year you don't take out hospital cover after you turn 31.
It tops out at 70% and only applies for ten years if you do ultimately take out health insurance, but the additions to your premium can be substantial.
With many Australians dropping their private health cover amid the coronavirus outbreak – due both to affordability issues and serious doubts about whether private health cover offers value for money – CHOICE is calling for another 365 days to be added to the grace period before the LHC penalty kicks in.
"These changes to lifetime health cover loading rules would mean people wouldn't have to pay more for private health insurance in the future because they can't afford it now and have to drop out of the market," says CHOICE health insurance expert Dean Price.
Premium increases off the table
The good news is that most private health insurers have deferred premium increases that would have taken effect on 1 April (including the five funds with the biggest market share: Medibank, NIB, Bupa, HCF and HBF), and the federal government has fixed its calculation of the private health insurance rebate in line with this.
We welcome the move, but given that all elective surgery has been cancelled for the next six months, a better move would be to simply cancel premium increases, not just defer them. (In normal times, having PHI generally means shorter waiting times for elective surgeries.)
Now it's time for government to take further steps as well.
"Given 80% of people with private health insurance rated it as their number one cost of living concern before the COVID-19 crisis, the government and the private health insurance industry need to do all that they can to ensure that people are getting something that is of value and is affordable," says Price.
"The Lifetime Health Cover loading has always been used as a scare tactic by the private health industry. The community needs to know they won't be penalised for not having private health cover right now."