Healthy reform is on the way

Parents will soon be able to keep adult kids on their insurance policy for longer

When my 25-year-old daughter fainted at work, her colleagues called an ambulance and the paramedics took her to hospital. She was checked out thoroughly, sent home to rest and returned to work a few days later. A month later she received a bill for $980 for the ambulance.

She was shocked and naively thought work would pay as it had called the ambulance.

The bill was one of the biggest expenses to come her way. Luckily, I had talked her into taking out health insurance a year earlier as our insurer had dropped her off our family policy. She was thrilled to discover she would be reimbursed the full $980. (Some states – not NSW – do cover an ambulance.)

It was an “aha!” moment for her. She saw the value in having private health insurance.

It is one of those big expenses that you may need to help your adult kids with. Why would they take it out on their own? It is expensive and if they are healthy they really can’t see the point.

After all, Australians pay a Medicare levy, 2% of their taxable income. This covers us for visits to a bulk-billing doctor and public hospitals.

So what does private health insurance deliver? It is split into two parts: hospital insurance and insurance for extras such as visits to the dentist, physiotherapist, podiatrist, mental health services, some natural therapies and products such as glasses, lenses and pharmaceuticals.

Around 43% of the population, or 11.3 million people, has private hospital cover and 53% (13.7 million) has general treatment cover for ancillary services. But young people aged 20 to 49 have been dropping out of private health insurance, according to APRA statistics.

This is why changes will be introduced this year allowing adult kids to remain on the family insurance policy from 24 years of age until they reach 31. The legislation is still to be passed but the insurance industry is confident it will be introduced in coming months, says Ed Close, chief executive of Australian residents health insurance at nib Health Funds.

This will be a big saving for young adults and give them protection that they might have lost if they didn’t take up private health insurance. It also gives parents peace of mind knowing that their children are covered in case of emergencies and there is cover for extras such as visiting the dentist.

Will it mean that families will pay higher health insurance premiums?

“There won’t be a material impact on pricing,” says Close. He believes keeping adult kids signed up to private health insurance will give them more time to appreciate its value before they could be potentially taxed more if they don’t have private hospital cover.

Susan Hely has been a senior investment writer at The Sydney Morning Herald. She wrote the best-selling Women & Money.

INCENTIVES AND PENALTIES ARE IN THE MIX

The federal government has already introduced incentives for young people to take out health insurance to stem the exodus.

Two years ago, some insurers started to offer premium discounts on hospital cover of 2% for each year that a person is aged under 30 when they first purchase health cover. The discount goes up to a maximum of 10% for 18- to 25-year-olds. It reduces as they grow older: 8% for a 26-year-old, 6% for a 27-year-old, 4% for a 28-year-old and 2% for a 29-year-old.

There are penalties if you haven’t taken out and maintained private patient hospital cover from the year you turn 31. Under what’s known as lifetime health cover (LHC), if you decide to take out hospital cover later in life you will pay a 2% loading on top of your premium for every year you are aged over 30. It can be quite steep.

For example, if you take out private patient hospital cover when you are 40 years old, you could pay an extra 20% on the cost of this cover per year for 10 years.

If you wait until you are 50, you could pay 40% more per year for 10 years. The maximum LHC loading that can be applied is 70%. Once you have paid LHC loading for 10 years of continuous cover, you will no longer have to pay it.

As well there is a Medicare levy surcharge if your adult kids don’t have private patient hospital cover. It is levied on singles who earn $90,000 and above or families earning $180,000.

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