The biggest mistakes 31-year-olds make at tax time

An unhealthy hit to the hop pocket.

In a bid to dodge financial consequences, many 31-year-olds will rush to sign up for private health cover in June, without fully understanding The Lifetime Health Cover loading, introduced by the Howard government in 2000.

What is the loading?
The loading penalises people who have not taken out an ongoing private health insurance policy from the year they turn 31 years old. To dodge the loading, taxpayers must sign up to an appropriate level of private patient hospital cover before July 1 in the year after they turn 31.

Related: Why health insurance is important

How much is it?
The loading amount is 2 per cent on your hospital cover premium for every year after you are 30, so for example, if you want until you are 40 you would be slapped by an extra 20 per cent, and if you delay signing up for cover until you are 50 you would pay 40 per cent more. The maximum LHC loading that can be charged is a whopping 70 per cent.

Example
Jy is 35 years old and takes out hospital cover for the first time. He signs up to a policy that costs him $2000 per year. As Jy failed to take sign up before July 1 after his 31st birthday, he is charged an extra 10 per cent on top of his premium, totalling his out of pocket expense at $2200 per year.

Over a 10 year period, Jy could have saved $2000 if he had of signed up for insurance before his 31st birthday.

If you’re a healthy 31-year-old, and getting ready to sign up for health insurance this month to dodge the loading, think twice before just opting for the cheapest policy. Here’s what you need to be aware of:

• Insurers know you are on the hunt for insurance and will set traps like offering cover with exclusions or dirt-cheap policies to lure you in, but they often come with large excess fees if you claim.
• Short term policies might be attractive, particularly if you’re a healthy 31-year-old, but CUA Health paid out $3.2 million for hospital care last year to its members aged between 30 and 39, with the average claim of $3,086 being the highest for all age groups under 60.
• Don’t forget about the 1 – 1.5 per cent Medicare levy surcharge, which is measured against your income if you earn more than $84,000 and don’t have private health cover.

Related: Avoid tax with private health insurance

Be diligent in your research, read the fine print and ask a lot of questions. There’s still just enough time to avoid the loading, without jumping into a dodgy policy that will cost you more in the long run.

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