Leaving and Returning to Australia - Some Particular Issues

There are some unique complexities about the Australian health insurance system that need to be appreciated by expatriates before embarking on overseas assignments and prior to their return.

Lifetime Health Cover (LHC)

Lifetime Health Cover was a scheme introduced by the Federal Government on July 1, 2000 with the intention of encouraging people to take out hospital cover early in life and maintain it into their later years. The scheme provides that people who have prolonged hospital cover with a registered health fund will have proportionately lower contribution rates than those who have intermittent hospital cover, or take it out later in life.

To lock in the lowest premiums for life under Lifetime Health Cover, a person needs to take out hospital cover with a registered fund before their 31st birthday. If a person does not have hospital cover on their 31st birthday and decides to take out hospital cover later in life, they pay a 2% loading on top of the base premium for every year they are aged over 30 at the time they join. For example, someone who first takes out hospital cover at age 35 will pay 10% more than someone who first took out hospital cover at age 30, and a person who joins at 40, 20% more. The maximum loading on a premium is 70%, and applies to people seeking hospital cover aged 65 years of age or more.

The age at which a person first purchases hospital cover is known as their "certified age of entry". If you purchased hospital cover for the first time on or after 23 April 2004, your Lifetime Health "certified age" was your age on the previous July 1.

The major implication of the LHC for expatriates, of course, is the prospect of health premiums increasing by a loading of 2%, in perpetuity, for each year they stay outside Australia. There are two ways to avoid paying a loading on your private hospital insurance when you return to Australia.

1: Suspension

You can apply to your fund for a suspension of your private hospital insurance. Periods of suspension may be granted at the discretion of your fund. Your fund decides how long the suspension will be, and it may be sufficient to cover the period of your absence. The value of suspension, rather than cancellation, is that you may be allowed to return to your previous health fund without the waiting periods, and exclusions, applying to a re-applicant.

For Lifetime Health Cover purposes, periods of suspension count as periods with private hospital insurance; you do not pay a loading for any period you were granted a suspension.

2: Cancellation

If you will be overseas for at least 12 months, you can cancel your private hospital insurance and when you return to Australia you do not have to pay a loading to cover your period overseas. This is different from suspension because it lasts as long as you are overseas - your fund does not decide how long you can cancel for. You can return to Australia for visits for up to 90 days at a time and you will still be considered to be overseas.

In addition, you can also access the normal Lifetime Health Cover period of absence, which is 2 years. So when you return to Australia permanently, you have up to 2 years to re-purchase private hospital insurance without incurring a loading. After 24 months aggregate absence, an individual's certified age at entry will be increased by one year for each additional 365 days of absence (ie. a 2% loading will be applied to their premium for each additional 365 days of absence). Consequently, the way this mechanism applies, the individual actually has up to 2 years and 364 days of absence before affecting the certified age of entry.

Note: If you cancel or suspend your private hospital cover, and remain tax resident in Australia for whatever reason, you may become liable to pay the Medicare Levy Surcharge (MLS) if your income exceeds the MLS threshold. You should refer to the Australian Tax Office website for more details (www.ato.gov.au)

Outside of Australia when Lifetime Health Cover was Introduced?

There are two provisions under the Lifetime Health Cover rules which allow Australian citizens and the holders of permanent visas who were overseas on 1 July 2000 to take out hospital cover without a loading being applied to their premium. If you meet the criteria for more than one provision, you are able to choose the provision that best suits your needs.

Provision 1: Overseas from 1 January 2000 to 1 July 2000 inclusive

People under this provision:

* Must have been absent from Australia for the whole period, and cannot have come back to Australia even on a holiday.
* An eligible person will have a twelve month grace period to take out private hospital cover without incurring a Lifetime Health Cover loading.
* The twelve month grace period will start from their first return to Australia after 1 July 2000, even if that return was for a short visit.

Provision 2: Overseas on 1 July 2000:

* You will be taken to have a certified age at entry of 30 and to have held cover for the period of your absence.
* When you return, you will be subject to normal Lifetime Health Cover period of absence rules.
ie: you will have 2 years to take out cover without penalty, then 2% penalty will be applied for each 365 days you delay taking out hospital cover.
* You will be taken to be absent from Australia, even whilst on short term visits up to and including 90 days
* A period of absence starts from the first day you return to Australia and do not depart within 90 days.
* eg. If you take out cover on your 95th day after returning, you will have used up 95 days of your period of absence. However, if you return to Australia and leave after 85 days, you have not used up any of your period of absence.
* The type of proof of absence is determined by the health fund. There are no guidelines, and proof may consist of a letter from an employer, a passport, or in some cases, a statutory declaration.
* No documents are required from the Department of Health and Ageing.

I was in Australia on 1 July 2000 but was a resident of another country.

Australians who were residents of another country on 1 July 2000, but were actually in Australia on that date are treated the same as expatriates overseas on 1 July 2000 (Provision 2 above).
They are:
* Taken to have certified age at entry at 30.
* Visits to Australia of up to 90 days do not break the period of absence.
* When they return to Australia, normal periods of absence rules apply.
* Funds decide what proof of absence is required
* No documents required from the Department of Health and Ageing.
I was overseas on my 31st birthday.
Australian citizens and permanent residents who are overseas on their 31st birthday receive a grace period to purchase hospital insurance without incurring a Lifetime Health Cover loading.
This grace period is available for Australian citizens and permanent residents who turn 31 after 1 January 2000, and are overseas on their 31st birthday.
These people do not pay a Lifetime Health Cover loading if they purchase hospital cover by the later of:
* 23 April 2005; or
* the first anniversary of the day they return to Australia.

People in this category are able to return to Australia for periods of up to 90 consecutive days, and they are still considered to be overseas. If you were overseas for the whole period 1 January 2000 to 1 July 2000, then you are covered by a different provision.