Many Australians misunderstand how health insurance is priced. Namely, they believe that health insurance is more expensive if they’re older or they have a pre-existing condition. However, this isn’t necessarily true.
While numerous factors do affect your health insurance premium, you may be surprised to learn that the way insurers calculate your premiums is more simple than you think.
Does age affect health insurance premiums?
The industry’s community rating system ensures that every person (regardless of age, medical history and claim history) can purchase the same health insurance policy at the same base price and can switch to a new policy without penalty.
The main effect that your age will have on your health insurance premiums is whether or not you have a Lifetime Health Cover (LHC) loading. If you intend to take out private hospital insurance, it may be best to purchase it when you’re younger to avoid this loading.
Lifetime Health Cover loading
The Australian Government introduced LHC loading as an incentive for Australians to take out private hospital cover at a younger age. The loading works by charging more in premiums to people who take out a private hospital policy after 1 July following their 31st birthday.
As a result, your private hospital insurance premiums will attract a 2% loading for every year you don’t hold hospital cover after 1 July following your 31st birthday. However, you only need to pay it once you take out hospital cover.
For example, someone aged 40 would have to pay 20% LHC loading (unless an exemption applies) on top of their usual premium if they purchase private hospital cover for the first time after their 40th birthday.
The maximum loading amount is 70%, and your loading will be dropped altogether once you’ve held hospital cover continuously for 10 years.
Once you take out hospital cover, you are allowed 1,094 Days of Absence (one day less than three years) without hospital cover before your loading starts increasing again.
What about the age-based discount?
The age-based discount is available to Australians aged 18-29. This discount is part of an Australian Government incentive to encourage younger Australians to take out hospital cover earlier in life and help ease the strain on the public system.
If you take out an eligible policy from an insurer that offers this incentive, you could benefit from a discount of up to 10% on your premiums each year. On some policies you could even retain your eligible discount each year until you’re 41 if you hold your policy continuously. Once you turn 41, your discount will decrease by 2% every year until it reaches zero; so, if you took a policy with an age-based discount at 25, you’d benefit from the discount until you turn 45.
Here’s how much the discount is worth, depending on your age:
|Source: Department of Health (2022)|
Depending on your taxable income and age, you may be eligible to receive the Australian Government private health insurance rebate. The rebate is currently tiered by income and age brackets, ranging from 8.202% to a maximum of 32.812%.
You’re eligible for the Private Health Insurance Rebate if…
You have a Medicare card
You’re insured through a registered health fund
Your annual income is less than $140,000 as a single or $280,000 as a couple
You’re an Australian citizen, permanent resident, or have a reciprocal Medicare card
People in lower income tiers and higher age brackets will receive a more substantial rebate.
If you’re eligible for an Australian Government Rebate, you can either claim it back at tax time or through a reduced premium. To claim the rebate as a reduced premium, you will need to supply your insurance provider with your age and predicted income bracket. Keep in mind that if you claim in the wrong tier, an adjustment will be made at tax time.
If you’re a high income earner who doesn’t have private hospital insurance you might have to pay the Medicare Levy Surcharge (MLS). This surcharge is intended to ease the pressure on the public system by incentivising higher earners to take out hospital insurance. The table below outlines the income tiers and the MLS percentage they’ll have to pay come tax time.
| Medicare Levy Surcharge – Income Thresholds|
|$93,001 – $108,000|
(~$930 – $1,080 payable)
|$108,001 – $144,000|
($1,350 – $1,800 payable)
|$186,001 – $216,000|
(~$1,860 – $2,160 payable)
|$216,001 – $288,000|
($2,700 – $3,600 payable)
|Retrieved from the Australian Taxation Office | Information current from 1 July 2023. Dollar amounts payable are rounded up.|
^For families with children, thresholds increase by $1,500 for each child after the first.
Families include couples, de facto couples, and single parents.
Your chosen policy
The policy you select will be the greatest determinant of price, as policies can range from basic (budget policies) to comprehensive (most costly).
The different levels of cover are generally determined by the services and procedures that are included or excluded, so it’s vital you regularly assess what you need cover for and tailor your policy accordingly.
For example, if you have a top-level health insurance policy (like a Gold policy), you will pay a higher premium than you would for a lower level of cover. This is because these comprehensive policies generally cover most services/treatments that Medicare pays a benefit towards, such as obstetrics, joint replacements, assisted reproductive services and many more.
Conversely, a Basic policy will cost less due to fewer of those treatments/services being available for you to claim on.
Your family status
Who your policy covers also affects the price of your premium.
Yourself, under a singles policy.
If you don’t hold hospital insurance after 1 July following your 31st birthday, you might need to pay Lifetime Health Cover (LHC) loading, which will increase your premiums.
You and your partner under a couples policy.
You’re covered for the same services and procedures. Any applicable LHC loading will be averaged between you both.
Your family under a family policy.
Your child might be covered on this policy up until they’re 21 or even 25+, if they’re a full-time student, dependant and unmarried. The age and conditions your child needs to meet for coverage depends on your insurer and are subject to change
You and your dependants under a certain age.
Single-parent policies are just like family policies, only they may be slightly cheaper as they cover one parent.
If you’re paying any LHC loading, it won’t be averaged out between you and someone else.
Did you know these can also impact your health insurance costs?
Along with the level of cover you select and who is covered by your policy, other factors may impact your premium.
This is a set amount you agree to pay your insurer when you’re admitted to hospital and claim on your cover.
Your total excess is usually only charged once per person per year.
You may have the choice to pay a higher excess in exchange for lower premiums, and vice versa.
You may need to pay these fees for every day you’re admitted as a private patient in a public or private hospital.
So, if you agree to pay a $100 co-payment and you’re admitted for five days, you’ll pay $500.
Some insurers cap the amount you’d need to pay per year or per admission.
Where you live might affect how much your premiums are. Hospital charges may vary between states, as can the rate of claims.
As such, insurers may charge different premiums throughout Australia.
Health insurance premiums usually change every April
Private health insurance premiums are subject to change every year due to the annual rate rise. This happens through a review process where health insurance companies submit any premium changes to the Minister for Health for approval. Once the proposed changes are reviewed and approved, they usually become effective on 1 April each year. In some unique circumstances, health funds will defer their rate rises until later in their year. An example of this is the Covid-19 pandemic where many funds chose not to raise their premiums to give back the savings they made due to a reduced number of claims.
Health insurers aim to keep premiums low. However, annual premium increases are required to cover the rising cost of health care, often driven by:
- Increases in the number of claims by members
- Increases in the cost of health services by doctors and hospitals
- Increases in the cost of medical equipment and technology
- Costs of complex procedures completed through private hospitals.
Learn more about the health insurance premium rate rise and how it could affect you.
Tips on health insurance premiums from our health insurance expert, Lana Hambilton
- Review your health insurance regularly. The great thing about Private Health Insurance is that you can upgrade or downgrade your policy at any time as your needs change. Any waiting periods you have already served will be recognised by your new fund. Just keep in mind that you will need to wait for any new or upgraded services or benefits. Anything you have paid in advance will be refunded to you as well.
- Whilst paying a lower premium may be tempting, cheaper doesn’t necessarily mean better. Instead of sacrificing inclusions on your cover, consider increasing your excess to lower costs. Just keep in mind that to be exempt from the Medicare Levy Surcharge, the excess must not exceed $750 for singles and $1,500 for couples/families.
- Private Health Insurance premiums usually increase on the 1st of April every year. By paying your premiums annually, you may be able to save money by locking in the lower premium prior to the rate rise, provided you do not make any changes to your policy during the period that you have pre-paid.
Comparing health insurance can help you find affordable cover
Are your premiums making you reconsider your health insurance cover? If so, why not try to find a more suitable policy?
Compare policies from several Australian providers by using our health insurance comparison service. It’s free to use, and you can receive quotes and even join in just minutes.
If you prefer the personal touch, call one of our experts on 13 32 32. They can help take the confusion out of health insurance and even handle the paperwork for you.