For the majority of people, deferring the buying of health insurance until they need it and paying a government penalty for being uninsured may work out cheaper in the long term than acquiring health insurance early, argues the consumer group Choice.
Choice says that paying the penalty would be cheaper than taking out low-quality health insurance, especially given the high rate of “junk” policies and lack of value in the industry.
If a person does not have hospital cover on his lifetime health cover base day (that is, 1 July after his 31st birthday), he will pay a 2% lifetime health cover loading on top of the premium every year. The loading rises by two percentage points a year to a maximum of 70%. The loading only applies for the first 10 years of premiums if one ultimately takes out health insurance.
Choice's analysis shows that a consumer who did not take out insurance until 45, attracting a 30% premium loading, would save more than if he took out insurance at 31 to dodge the loading. Choice looked at insurance data dating to 2001. In almost all cases, the amount one saved in premiums plus the interest earned on it would more than cover the extra cost of the loading.
“Taking out poor-value health insurance simply to avoid a future loading on premiums may ultimately leave consumers worse off,” said Mr Matt Levey, Choice's director of campaigns and communications.
He advised young Australians to take out health cover “when you need it”, rather than signing up early to avoid the loading.
He said that the Choice analysis found 13% of policies on the market were “junk”, and did not provide cover for heart attack, stroke or cancer.