Unwary count cost of health cover shortfall

A RISING number of Australians are being penalised for failing to take out private health insurance, and it is costing them more than half a billion dollars each year.

Many do not realise they are paying penalties, prompting a warning for consumers to check what their lack of insurance is costing them.

Government data shows almost 900,000 people pay lifetime health cover loadings on their private health insurance because they failed to sign up before age 31, while 330,000 higher-income earners pay a Medicare levy surcharge of $415m – a 73 per cent jump in numbers in only four years.

Australian Taxation Office figures show the surcharge – up to 1.5 per cent extra tax on people earning above $90,000 – averages $1264 a year, similar to some private health premiums.

“For many, the cost of a basic or bronze hospital policy will actually be less than the cost of the Medicare levy surcharge,” Finder insurance specialist Tim Bennett said.

“It might be the case that taking out a private hospital policy will actually save you money.”

The surcharge rules are more generous for couples, with combined income of $180,000 allowed before they must pay extra tax.

A separate analysis by Finder of lifetime health cover data from the Australian Prudential Regulation Authority has found people are potentially paying $200m of extra premiums annually because they did not start their insurance before age 31.

Mr Bennett said people who left it too late could be paying a loading of up to 70 per cent.

“If you’re in your 30s, you don’t need to spend a lot of money to avoid the loading,” he said.

“A basic plus or bronze policy is an affordable way to avoid the loading and get coverage for some common treatments.

“Taking a policy out now will stop the loading increasing any more, and after 10 years of continuous cover, it will be removed completely.”

A recent survey by iselect found one quarter of Australians were not sure if they were paying the Medicare levy surcharge and 39 per cent of people who did have cover were unsure if they were paying a lifetime health cover loading.

“Our research figures suggest that there are a number of Aussies who aren’t aware of these financial penalties or, even more concerning, aren’t even sure if they are paying them,” iselect.com.au spokeswoman Jessie Petterd said.

“If you think you’re unlikely to be admitted into hospital in the near future, you could opt for a higher excess.”