Health insurance is one of those things… You pay into it for years and years before you might actually use it. In the past, many people delayed buying private hospital insurance until they were older, when they felt they actually needed it.
This was a reasonable chance to take until the Government recently upped the stakes with the introduction of new Lifetime Health Cover loading laws.
Now, a failure to purchase and maintain private health insurance can result in a pecuniary penalty. So what does it mean for you?
The Big 3-0
Turning 30 was always a rite of passage but now the Australian Government marks it is the time when your health is going to start costing more. If you haven’t purchased private hospital cover by the end of financial year in the year you turn 31, you will be charged a surcharge when you do eventually join a fund. Basically, for every year you put it off, the surcharge goes up and up, increasing in increments of 2% each year. So, for example, if you join a private insurer at age 65 you would be paying 170% of what you would have paid if you’d joined at 31.
To Insure or Not to Insure
Insurance is, for the most part, money you will never use. You could simply put those fees in a high interest account or another investment and withdraw them as needs be but there’s always a chance it won’t be enough and then you’re in trouble. So what’s a savvy saver to do?
The question you must ask yourself is, are you ever going to want private health cover? Try to think negatively for a moment. What’s the worst thing that could possibly happen? I’m talking cancer and quadriplegia situations. If the unthinkable happened, would you be happy to go with the public system? That means shared rooms in busy hospitals and long waiting lists. For some people, that’s perfectly fine and we are lucky in Australia to have free medical assistance, but think about you. What are your needs? How much are you willing to spend on them?
It makes sense of course, if you wait until you’re older to buy private cover, you’ll have saved so much over the years of not having it, you probably aren’t really paying any more than if you’d bought it in your youth and maintained it all that time. It’s a question of pay now or pay later and many economists will tell you a dollar in your pocket today is worth 2 tomorrow. But there’s an extra consideration here, the added factor of pre-existing ailments. Most private insurers won’t cover pre-existing ailments or will only do so after a prolonged waiting period and therein lies the trap. The longer you leave it to buy private health cover, the higher the risk that your ailment won’t be covered.
An insurance lawyer friend of mine once said to me, “if you can’t afford to insure it, you can’t afford to have it”. At the time we were discussing houses and cars, but this applies to bodies too. The fact is, we can’t get rid of our bodies, so we have to find a way to pay for the damage should it all go horribly wrong. Insurance can seem like a financial drain at times with no immediate rewards but the burden of not having it at the relevant time can be much more onerous.