Almost a million Aussies are wearing $417million in unnecessary private hospital premiums.
Exclusive data for Yahoo Finance from Finder has revealed that delaying taking out private health cover beyond age 31 – when you start to pay penalty pricing – is costing Australians up to an extra $14,582.
The bad news is this is uncapped. The good news is it only lasts for 10 years.
How much does it cost at different ages?
You quite simply pay 2 percent on top of the applicable premium for each year you wait to get covered beyond 31.
So, waiting until you’re 40 would cost you 20 percent extra on your premiums annually and waiting until you’re 65 would cost you a shocking 70 percent over and above the actual price.
Indeed, Finder’s analysis shows that Australians who wait until age 65 to take out hospital cover pay an extra $122 per month on average on their premiums – or $1,458 per year.
What’s the ultimate cost of that? An additional $14,582 over the maximum 10-year period.
Yet the Australian Prudential Regulation Authority (APRA) says there are 882,434 Aussies between ages 31 and 65 paying lifetime loading on their premiums.
Soberingly, while 65-year-olds represent just 3 percent of that group, they account for 11 percent of the excess premiums paid… equivalent to $44 million per year.
How do you avoid the sting?
The trick to avoiding the cost impost is to get covered by the July 1 - coming soon - following your 31st birthday.
Miss this by even a few days and you’ll wear a 2 percent price penalty for 10 years.
Having said that, you are allowed a certain number of days with no cover without impacting your loading when, for example, you are switching between health funds or going overseas for a length of time (when travel opens up again!).
So don’t worry about those circumstances.
Lifetime loading represents one of the two ‘sticks’ the government uses to try and get people to take out private health cover… and take the pressure off the public system.
The other is the Medicare Levy Surcharge, a tax slug of up to 1.5 percent if you don’t have cover but earn more than $90,000 as a single or $180,000 as a couple. You need at least basic cover and an excess of no more than $1500 to be exempt.
Then there is a ‘carrot’ to get covered: the fact that premiums are tax deductible on incomes up to $140,000 (singles) and $280,000 (couples). An added bonus here is that not just hospital cover, but also the premiums for ‘extras’ (like physio, remedial massage, optometry and dental) are tax deductible too.
What motivates people to get cover?
One-in-four Aussies are apparently prompted to go private to avoid the 2 percent-a-year lifetime loading, says Finder.
Millennials (34 percent) and Gen X (33 percent) are the most likely to list this as one of their top reasons for getting private cover.
Forget the financial considerations though; for many, the real reasons to hold private health are to jump sometimes long public hospital waiting lists and have choice of cover.
It’s also vital to be aware that health problems may only present themselves later in life, and see you at that stage strong armed into taking out cover and wearing a huge lifetime loading – remember it’s 70 percent at 65.
You just never know what is around the corner when it comes to health.
Your options to cut the costs today include opting for a larger excess – note that you pay this just once a year and it doesn’t apply to kids – and making sure you’re not forking out for health services you don’t need… cancelling obstetrics and reproductive services alone can save $500 a year.