Why you should get health insurance before July 1

Jody asks:

I am looking at getting health insurance and have been told I can save tax before July 1.  Is this true?  

Olivia says:

You’ve almost certainly seen or heard an advertisement discussing the looming July 1 deadline for purchasing health insurance, so before we discuss the broader benefits of health insurance, let’s look at the reason for this deadline.

In an effort to encourage more Australians to take out and maintain private health cover (thereby reducing the load on the public system), in the year 2000, the Howard government introduced the Lifetime Health Cover (LHC) initiative.

LHC stipulates that if you don’t have health cover on July 1 after your 31st birthday, any health cover you do purchase in the future will have a loading of 2% added to your hospital cover per additional year you remain uninsured.

So at 31 you will pay 102% of the premium, at 40 you will pay 120% and if you leave it until you turn 60, you would be paying 160% of the premiums (for no additional cover!). 

Just over 13 million Australians had private health cover at the end of the 2013/2014 financial year, with over 11 million of those having hospital cover. The percentage of Australians with hospital cover has increased from under 31.5% the year before LHS was introduced to approximately 47% currently. 

So, that’s why you should purchase health cover before July 1.

Now let’s consider the benefits of purchasing health cover in the first place:

You may actually save money! 

Not in the ‘I’ll be protected if something goes wrong’ sense, but in the ‘purchasing health cover could allow you to avoid paying the Medicare Levy Surcharge (MLS)’ sense.

The MLS is another initiative designed to encourage high-income earners to purchase private health cover. Depending on your income, the MLS ranges from 0% to 1.5% of your taxable income (the thresholds this year start at $90,000pa for singles and $180,000pa for families).

A single person earning $150,000 would be paying $2250 per year for their MLS, which should comfortably cover the cost of health cover.

It may benefit you even if you aren’t sick. 

Some people will take the, ‘why pay for something I may never need?’ approach, but in addition to medical cover, you may be able to claim for things like gym memberships and remedial massages (from registered providers) if you take out extras on top of your hospital.

This cover falls in line with the ‘preventative’ approach to reducing national medical costs, and like the MLS, will save you money on something that you might already be paying for on a regular basis.

Will you save for health cover without it? 

For those who do take the ‘why bother?’ approach, the first thing to consider is; will you really set money aside for the possibility of covering medical needs? Even if you do, the likelihood is that you will invest it to maximise your returns. How quickly will you be able to access those funds, and what could be the full cost?

Assume you choose to invest in shares because they are more liquid than property. Even with shares, what happens if you get sick during an economic downturn? A forced sale could result in a severe financial hit when you can least afford it.

You’ll have a shorter wait and nicer room. 

While the actual treatment you receive as a private or public hospital patient may be similar, private cover will allow you to avoid – or at least dramatically reduce – waiting periods in receiving treatment.

You are also more likely to have increased options in hospital rooms, which may sound trivial, but if you are in hospital for any length of time, the privacy and peace and quiet of your own room will quickly become apparent.

As you can see, there are multiple benefits to purchasing health insurance – and in doing so before July 1.  It may not surprise you but most insurers will be open late for new members!

Why not increase the financial savviness of those around you – pay it forward and pass on these tips to your family, friends and kids.   

Olivia Maragna is the co-founder of Aspire Retire Financial Services and is a respected and independent financial expert.  Olivia’s advice is general in nature and readers should seek their own professional advice before making any financial decisions.

You can follow Olivia on Facebook or Twitter at https://twitter.com/oliviamaragna

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