Lifetime Health Cover (LHC) Loading – The Pitfalls for Returning Australian Expats – Most Australian expats would be aware that after turning 30 years old, there is a government initiative in effect which commenced on 1 July 2000 to motivate you into taking out private health insurance cover.
This initiative is known as Lifetime Health Cover (LHC) and acts as the governments safeguard to reduce dependence on Australia’s public health system, Medicare.
It works by levying an insurance premium “loading” of 2% for each year Australians don’t have private patient hospital cover after age 30. It’s worth noting that the initiative only applies to hospital cover, and there is no requirement to have “extra’s cover” such as dental, optical, physio etc.
As an example, if you’ve never held private hospital cover before and you start a new policy at age 35, you will pay a 10% loading on your insurance premiums (2% per year x 5 years over age 30) for the next 10 years.
The maximum LHC loading that can be applied is 70%, and the loading will only be removed after having hospital cover continuously for 10 years.
Now, when it comes to heath cover for an Australian expat, if you are moving overseas for a longer-term stint but still plan on returning to Australia at some point in time, you will not want this loading to apply when you return.
And while you’re overseas, naturally you’re not going to be able to use your Australian private health insurance cover, so there is little use having it.
This raises the questions, what should you do about your cover now, and when you come back?
Well, there are three (3) exclusions where days without hospital cover are not subject to the LHC loading:
- Gaps in cover and Days of Absence – to cover gaps, such as switching from one insurer to another, you can be without hospital cover for a total of 1094 days (i.e. three years less one day) during your lifetime, without affecting your LHC loading. This is known as ‘Days of Absence’.
- Suspension of membership – if you apply to your health insurer to suspend your hospital cover for a short period (for example, to travel overseas for a holiday), and the insurer agrees, this period of suspension is not counted towards your 1094 Days of Absence. Suspension terms and conditions vary from insurer to insurer, so check with your insurer as to whether you can suspend your policy.
- Going overseas: if you cancel your hospital insurance after your Lifetime Health Cover base day* to go overseas for at least one continuous year, the days you spend outside of Australia are not counted towards the 1094 Days of Absence. You can return to Australia for periods of up to 90 consecutive days, per visit, and be considered to be overseas. Any periods of 90 days or more which you spend in Australia during this time will be deducted from the 1094 Days of Absence.
*Your base day is generally the later of 1 July 2000 or the 1 July following your 31st birthday.
The most obvious exemption that will apply to Australian expats is going overseas, so long as it is for at least one continuous year and your visits back to Australia are for less than 90 days.
It also might be worthwhile to reach out to your Health fund about suspending your membership for as long as they will allow, rather than cancelling it.
This is so to retain any waiting periods already served and may also give you the opportunity to use the cover on short trips back by paying 1 to 2 months premium.
What most Australian expats seeking health cover will find is that the planning pitfalls are concerned around returning to Australia.
Returning to Australia – What Australian Expats Need to Know
There are special circumstances surrounding how the LHC loading applies to health cover for returning Australian expats who have been living overseas, and you will generally fall into one of two categories. You were:
- Overseas on the 1 July following your 31st birthday (most common), OR
- Over 31 and overseas on 1 July 2000
Overseas on the 1 July following your 31st birthday
If you are:
- an Australian citizen or permanent resident, and
- you were overseas on the 1 July following your 31st birthday, and
- your 31st birthday falls after 1 July 2000, and
- you return to Australia, and
- you purchase hospital cover by the first anniversary of the day of your return to Australia,
then you will not pay a Lifetime Health Cover loading.
I have emphasized the last point in bold to highlight that if you purchase hospital cover after the end of the first anniversary of the date of your return to Australia, LHC loading will be applied based on your age at the date of joining. I.e., for each year since you turned age 30.
For example, Anthony is an Australian citizen, and his date of birth is 1 April 1983. Anthony left Australia on 1 June 2013 (before 1 July following his 31st birthday) to live in the United States for 4 years. He permanently returned to live in Australia on 1 June 2017.
Anthony purchased hospital cover on 1 August 2018 (i.e. after the first anniversary since returning to Australia). On that date Antony was 35 years old so he has to pay 10% LHC loading (2% per year x 5 years over age 30).
What’s important to note is that the 1094 Days of Absence does not apply here.
Over 31 and overseas on 1 July 2000
If on 1 July 2000 you were:
- aged 31 or over; and
- an Australian citizen or permanent resident; and
then you are considered to have held hospital cover on your base day. This means you have access to the permitted days without hospital cover (for example the 1,094 Days of Absence). While you are overseas, no LHC loading accumulates.
For example, Jeremy is a permanent resident of Australia, and his date of birth is 19 March 1964. Jeremy moved to the UK for work on 21 May 2000. He did not return to Australia for more than 90 consecutive days until his permanent return on 7 September 2012.
He had 1094 Days of Absence (6 September 2015) to purchase hospital cover to avoid LHC loading. Jeremy did not take out hospital cover until 14 December 2018 and therefore paid 8% LHC loading (2% per year x 4 years after the end of the 1094 Days of Absence).
Observations for Australian Expats Seeking Health Cover
Clearly, if you were overseas, and age 31 or over on 1 July 2000 (when the Lifetime health Cover legislation was introduced), your conditions around being subject to the LHC loading when returning are more favorable, as you have access to the 1094 days of absence.
For those who weren’t, they will need to keep in mind that should they not take our cover prior to the 1-year anniversary of returning to Australia, the LHC loading will apply at 2% per year from age 30.
Obtaining the relevant documents to have the correct loading applied
If you are applying or rejoining hospital cover after a period of absence, there are certain documents you should obtain to validate or establish your LHC loading, if any.
- Clearance Certificate: If you are transferring between private health insurers or rejoining hospital cover after a period of absence, you should obtain a Clearance Certificate from your previous health insurer and provide this to your new health insurer on or after joining. This will provide information about waiting periods you have already completed.
- International Movement Record: You may need this document if you are applying or rejoining private hospital cover after a period of being overseas. The document is used to confirm your entry and exit dates from Australia for LHC loading purposes and should be supplied to your Health fund. You can request an International Movement Record from the Department of Home Affairs.
Being fully aware of the provisions around the Lifetime Health Cover (LCH) loading upon your return to Australia could save you thousands in excess insurance premiums over the years to come if you plan correctly.
The majority of Australian expats in most cases are going to be better off financially by having valid private hospital cover in place due to the penalties of not doing so. There are also other motivators to take out hospital cover such as the Medicare levy surcharge (not discussed here).
Everyone’s circumstances will be different, but it’s important returning Australian expats don’t “kick the can down the road” so-to-speak when it comes to planning their return to Australia. This is just one planning items to consider and could be worth seeking professional advice for others that could apply to you.