Author Topic: Lifetime Health Cover Loading (Australia). Is it cheaper to pay it or avoid it?  (Read 5236 times)

This_Is_My_Username

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Lifetime Health Cover Loading (Australia).  Is it cheaper to pay it or avoid it?

Background:
http://www.privatehealth.gov.au/healthinsurance/incentivessurcharges/lifetimehealthcover.htm

I 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?

Kepler

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The penalty by itself isn't high enough to make the deadline worth attending to.  If you need to be in a hospital for anything urgent, you are covered under the public system - which is very likely where you'd end up anyway for anything complicated.  You therefore aren't risking not having health cover, if you don't take out private insurance.

What private insurance can be good for are conditions that affect quality of life, but are not life threatening.  These sorts of conditions become increasingly likely as you get older, and waiting periods need to be served with private insurance, so it's worth factoring that into the decision whether you want to take out private health at some point. 

Personally, I didn't carry it for myself for many years, but got it when we decided to have a child, not for maternity cover (again, complicated pregnancies will land in the public tertiary hospitals anyway - although there are places in Australia where private maternity cover may make more sense than where I live), but in case our child had any sort of condition that could have a more severe developmental impact if treatment were delayed - I didn't want to risk being on a long waiting list for public treatment if earlier treatment might improve quality of life for my child.  I'm still carrying it because we were trying to decide whether we would have another (and we are now pregnant again, so I won't be dropping it soon - and I'm getting old enough now that it may make sense to keep it).

But for the ten years I didn't carry it, I saved heaps - the penalty is nowhere near what the premiums would have been, and I am also much more financial comfortable now than I was then, so I can absorb this expense as a luxury item better.

loft

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You can get Hospital only cover which will be enough to avoid the LHC. This is quite cheap compared to Hospital + Extras cover.

brisbella

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My suggestion is that you take out the cover. You should really consider more than just the cost of the loading vs. the savings. The chances that you will require medical assistance at some point in the future are really quite high. Having health insurance has saved me thousands and I'm only 23 (and healthy too)!
Also, it is worth noting that at the moment, my health insurance is approx $900.00 a year. When you are 50 that will be MUCH higher, as you are more prone to injury and illness. If you do have any health issues (which is pretty highly likely) then it will further increase the amount that health insurers want you to pay. Which then increases your loading.

Given the above, I believe your calculations are not correct.

My dad didn't get health insurance until later his 50s (couldn't afford it while paying child support). His quarterly bill is more than double mine. The loading doesn't help.

If I were you I would get the insurance. I wish I could have done it earlier. If you get a good policy you can use your extras on things which will help you to be happier and healthier (hello massages and psych appointments!).

If you can afford it, its an essential.
 

Primm

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Don't forget as a single parent you will only be a "family" until your youngest child turns 18, at which time your Medicare levy surcharge income amount changes to whatever the single rate is ($88k at the moment).

Hospital cover only with $1000 excess can be cheaper than the Medicare levy surcharge.


urbanista

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What about an ambulance cover for you and your kid(s)?

Two weeks ago my toddler tipped a hot cup of tea on his chest. I am now waiting for a $650-1,000 bill.

Primm

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Good idea, but ambulance cover doesn't count towards LHC loading. Everyone should have it though, cheapest insurance ever. Unless you're in Queensland... :)

Kepler

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. The chances that you will require medical assistance at some point in the future are really quite high. Having health insurance has saved me thousands and I'm only 23 (and healthy too)!
Also, it is worth noting that at the moment, my health insurance is approx $900.00 a year. When you are 50 that will be MUCH higher, as you are more prone to injury and illness. If you do have any health issues (which is pretty highly likely) then it will further increase the amount that health insurers want you to pay. Which then increases

If you can afford it, its an essential.

Loading should not be increased by having prior medical claims - although the waiting period can be - but not to anything ridiculous.

Also, hospital cover - which is all a private hospital policy is allowed to cover - is available free via the public hospital system (funded of course by our taxes).  Receiving hospital treatment via the private system may also be free - but often isn't.  Gap payments are often due in addition to the private insurance premiums.  This additional cost can be worth it for non-urgent conditions where you want to jump the public system queue - but it's not the case that, if someone with a medical condition goes through the public hospital system, they will owe something out the other side.  Treatment in public hospitals is free. 

Treatment outside the hospital system isn't covered by private hospital insurance, by regulation.

Extras cover is a different matter, and boils down to looking at how much you pay for the cover, and how much you are likely to receive back.  If you run the numbers, and don't at least break even, it's also not worthwhile.  Loading applies only to hospital cover in any event, so the decision whether extras cover is worth it, is independent of the lifetime health cover penalties.

Absolutely agree, though, that ambulance cover is cheap and essential (although some states comp this for people who have Health Care Cards).

Nudelkopf

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What about an ambulance cover for you and your kid(s)?

Two weeks ago my toddler tipped a hot cup of tea on his chest. I am now waiting for a $650-1,000 bill.
You have to PAY for an ambulance?? Fuck that, I'll just walk.

bigchrisb

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I'm caught by the medicare levy, so bought the minimum coverage needed to get out of that, and self-insure for anything beyond that.

I had never done the numbers on the lifetime levy, and hadn't realized the 10 year rule. Based on your numbers, seems like you will come out ahead giving it a miss, provided you sleep at night.

Insurance is a really emotive topic - I know my partner and I have really different views on it.  I take out insurance against true catastrophe, but anything that I could bankroll (say less than $250,000) I'd rather self insure and keep the risk premium.  In terms of expected value, I'll be better off, but the idea of a low probability, high cost event causes lost sleep for a lot of people.

I know that if the medicare surcharge didn't exist, I wouldn't hold insurance.

The Hamster

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What about an ambulance cover for you and your kid(s)?

Two weeks ago my toddler tipped a hot cup of tea on his chest. I am now waiting for a $650-1,000 bill.
You have to PAY for an ambulance?? Fuck that, I'll just walk.

In Qld you pay the ambulance levy through your electricity bill - do you have to pay additional on top of that?  I can't remember.

I only took out private health insurance recently when my tax return showed I could have avoided a $1500 extra medicare surcharge if I had the insurance.  As a 40+ year old single I pay around $38 per fortnight so it saves me money.  If it wasn't for the surcharge I probably wouldn't have it either and have not needed it at any point in my life as yet.

Notch

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What about an ambulance cover for you and your kid(s)?

Two weeks ago my toddler tipped a hot cup of tea on his chest. I am now waiting for a $650-1,000 bill.
You have to PAY for an ambulance?? Fuck that, I'll just walk.

In Qld you pay the ambulance levy through your electricity bill - do you have to pay additional on top of that?  I can't remember.


http://www.bupa.com.au/health-insurance/cover/ambulance-cover/australia

The Borgs

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I'm 36 and took it out hospital cover a few years ago. The reason for jumping into it was discovering a tumour in my leg - it's hard to treat should we need to, if we do need to treat it there are only 2 people in Queensland who can and 1 of those guys is private. Given that the reason for treating it would be intense pain that pain relief wouldn't touch, the wait times between public and private are a world apart and each time they would try and treat it (might take more than once) would be upwards of $10,000 hospital cover seemed like a no brainer.

Since we took it out I've used it twice.... for procedures not related to my leg (I've not been greatly lucky healthwise) and I've managed to claim nearly as much as my husband and I have paid in to date.

A big advantage for us is being able to choose a hospital. Our local hospital is private (2 mins away), the nearest public hospital is 40 mins or more away. Also scheduling has been helpful, being able to choose when procedures would happen around inflexible workplaces was very reassuring. And I can choose my surgeon, which is a nice addition.

For me private health cover would be the last thing we'd drop (after toilet paper and teabags).

marty998

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I would like you to pay for Private Health cover! The more "good risks" in the system, the lower the premiums can be for everyone ;)

Seriously though agree that emergency surgery is probably best in public hospitals. The real benefit of Private cover is elective surgery.

When I got my wisdom teeth out I could book the time, place, length of stay and more importantly a private room. You can't do that in the public system.

If you happen to need surgery on your arse, then your arse will be hanging out for all to see in the public system. With private health cover, you don't have to worry about that.

I use my private cover for dental (even though there's still a gap), and a pair of specs every year. The maths would probably suggest I should not pay private cover for these alone, but there's always a "what if" in my mind.

happy

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Quote
I know that if the medicare surcharge didn't exist, I wouldn't hold insurance.

I'm with bigchrisb.  If I didn't have to pay the surcharge, I would self insure.  Its doesn't take long to build up a tidy sum if you were to save and invest the premiums.

There is no advantage to being a private patient in a public hospital (and if you have cover with a high co-payment you might even be charged for care that would otherwise be free).  If you are young and healthy, there's only so many wisdom teeth or R/O pilonidal cyst that you will need to have done to "recoup" you health insurance premium.

Kepler

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What about an ambulance cover for you and your kid(s)?

Two weeks ago my toddler tipped a hot cup of tea on his chest. I am now waiting for a $650-1,000 bill.
You have to PAY for an ambulance?? Fuck that, I'll just walk.

I have to admit, the one time I actually called an ambulance, for a life-threatening miscarriage (seriously, it was like a blood spatter scene from CSI), they wouldn't take me because I was alone at home with the kids, and they wouldn't transport everyone, nor allow my ten-year-old to stay with my toddler until my husband arrived.  He was 20 minutes away by cab, and they told me to wait for him and let the cab take all of us in, which is what we did...  Poor cabbie...  There's no way I didn't bleed all over his seat...  At least I didn't die on it... :-P.

The obstetric registrar at the hospital, although very calm and effective, went white with rage at the risk I'd been left in.  By the time I made it to the hospital, she didn't think there was time to move me into theatre, or even get wait on proper instruments to arrive.  She just... uh... used her hands...

No charge though :-)

theconcierge

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I can give you two recent cases. I am 33, never been in hospital etc. been paying my fees since I was 25 with no claim etc.

When our son was born we went public (so free).

Anyway, my son is now 16 months old and has an ear problem. The wait list is in public is around 16months.  He basically would have to spend the next 16 months on and off antibiotics and the chance it could effect his speech if we didn't have insurance.

I also knew some who got skin cancer, by the time they found it it was very advanced. They didn't have insurance and the dr told the straight up he would die if he didn't have the operation within the week. They had to borrow the money against the house... Cost them over 50k for all the treatment over the years

Get the insurance - if you never use it then great!
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Ozstache

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Self-insurer here. Admittedly, I had been medically covered up until earlier this year under defence force arrangements for the last 30 years, but if I had to pay for that cover I would have self insured. My logic is that all life threatening stuff is covered free under medicare, cosmetic procedures are not even on my self-image radar and everything else in between is infrequent enough and can easily be paid many times over with what I'd saved through not having private health cover. It's all a roll of the dice, but so far I am way ahead of the house. YMMV

Sunnymo

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[quote author=The Hamster link=topic=22209.msg373870#msg373870 date=140834803

In Qld you pay the ambulance levy through your electricity bill - do you have to pay additional on top of that?  I can't remember.

[/quote]

Hamster, it used to be the case that an Ambo levy was applied to power bills in Qld. This was dropped a few years ago so it essentially is free.

I am with others that recommends taking out the cover. In the past 15 years my mother has had both knees replaced (planned), a hip replaced (unplanned, fell & broke it - surgery over 5 hours after falling) and urgent spinal surgery twice (with intensive care) along with a 25 day stay for an infection that would not go away. Along with the extras related claims my parents are well ahead. Things also got attended to quickly and with stress.

This_Is_My_Username

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« Reply #19 on: August 18, 2014, 06:01:10 AM »
Thanks for all the comments, they are very informative. 

A lot of varying views. 

1. I do have ambulance cover. 

2. I am planning to retire (on lower income) before the kids are 18, therefore hopefully I can avoid the Medicare Levy Surcharge forever.