Lifetime Health Cover Loading (Australia). Is it cheaper to pay it or avoid it?Background:
http://www.privatehealth.gov.au/healthinsurance/incentivessurcharges/lifetimehealthcover.htmI am approaching my "Lifetime Health Cover base day".
If I do not purchase private hospital insurance before this date, and then decide to take out hospital cover later in life, I will pay a 2% loading on top of your premium for every year you are aged over 30.
E.g. If I purchase private hospital insurance when I am 50 for $1000 per year, I will pay a 2% x 20 = 40% penalty = $400 per year.
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I do not pay Medicare Levy Surcharge because I am a single parent, and therefore am classed as a "family" with an income limit of $160k, which I am under.
I am reasonably fit and healthy, and am unlikely to need a hospital.
However, Once you have paid a LHC loading on your private hospital insurance for 10 continuous years, the loading is removed as long as you retain your hospital cover.
(Key point!)So, if I purchase hospital insurance at age 30, and keep it until I plan to die at 90, I will pay 60 annual premiums.
if I purchase hospital insurance at age 40, and keep it until I plan to die at 90, I will pay 50+ (10x20%) = 52 annual premiums.
if I purchase hospital insurance at age 50, and keep it until I plan to die at 90, I will pay 40+ (10x40%) = 44 annual premiums.
if I purchase hospital insurance at age 60, and keep it until I plan to die at 90, I will pay 40+ (10x60%) = 36 annual premiums.
However, premiums for older people are higher by a significant unknown amount. But,
(1) time value of money makes dollars today worth more than dollars tomorrow (inflation),
(2) dollars saved today will be invested in shares at 7-8%,
(3) In 10 years, I will be FIRE at a low marginal tax rate, so $1000 spent after-tax today, costs more than $1000 spent after-tax when I am FIRE.
So, in the mustachainism spirit of genuinely considering all expenditure, it looks like it is cheaper to purchase hospital cover in old age, instead of purchasing hospital cover at age 30?
Which do you think is cheaper?