The penalty for not having health insurance is set to rise

By

Published on

The financial penalty for not taking out private health insurance by the time you are 30 is about to get harsher.

Under the current rules, a so-called lifetime health cover loading - another name for what is in effect a tax - is added to a person's hospital insurance premium at a rate of 2% for each year that a person is over 30 when they take out hospital cover, up to a maximum loading of 70%.

The aim is to encourage the young and healthy to take out hospital insurance, in the process boosting the finances of the health insurance companies and helping keep premiums down.

the penalty for not having health insurance is set to rise

Someone who didn't take out hospital cover until, say, they were 40 would pay a 20% higher premium than normal.

For example, if the standard premium was $2000 it would rise by $400 to $2400.

Under the present rules, all of the $2400 would benefit from the federal government's private health insurance rebate.

For most people this is 30%. In the example used here, the actual premium paid would fall by $720 to $1680.

From July 1, however, the health insurance rebate will no longer apply to the lifetime health cover loading.

In the above example, the rebate will drop to $600 - that is, 30% of $2000 - to give a post-rebate cost of $1400. The lifetime health cover loading of $400 is then added to give a total net cost of $1800 a year.

Get stories like this in our newsletters.

Related Stories

TAGS

Peter Freeman is a former managing editor of The Australian Financial Review. He runs his own self-managed super fund.