Turning 30 - Private health insurance or self-insuring?

Deciding whether to purchase private health insurance or to self-insure is a significant decision, especially as you approach the age of 30. The Lifetime Health Cover (LHC) loading is indeed an important factor to consider. If you do not have private hospital cover by July 1 following your 31st birthday, a 2% loading is added to the premium for every year you are aged over 30.

Self-insuring, where you save money specifically for potential medical expenses instead of paying premiums to an insurance company, can be a viable option, but it comes with risks. Here are some considerations and steps to help you plan if you choose to self-insure:

1. Estimate Potential Medical Costs: Start by researching common medical costs that you might face. This includes not only doctor visits and medications but also potential hospital stays, surgeries, or specialized treatments. Remember, some treatments can be very expensive, particularly in emergency situations or for chronic conditions.

2. Start-Up Savings: It’s wise to start with a robust buffer. For instance, having at least the equivalent of a high-end annual health insurance premium saved up could be a starting point. This amount varies, but as an example, if the average premium is around $2,000, aim to have this amount as your initial fund.

3. Regular Contributions: Plan to contribute regularly to this health savings account. The amount should ideally cover the average out-of-pocket medical expenses you might expect in a year, plus a little extra for unforeseen circumstances. You might consider setting aside an amount similar to what you would pay in insurance premiums.

4. Consider High-Cost Scenarios: One of the biggest risks of self-insuring is the potential for facing extremely high medical costs that could deplete your savings quickly. It’s important to have a contingency plan for such scenarios, which might even involve reconsidering p

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Hi Mason,

This is an interesting topic that not many people talk about.

I actually do this myself – self insuring. I’m simply happy to use the public system and will pay out of pocket if there happens to be something more elective that I need that isn’t an emergency. While I don’t keep a separate account or portfolio for this, all the money I’ve saved on insurance has gone into my main portfolio, which compounds over time, and I’ll dip into it if I need to.

It also depends on the trajectory of your income over time, how strong your finances are, what your health and lifestyle risk looks like etc. If you’re a higher income earner – say over 100k – it often makes sense to look at hospital-only cover as the cost is often similar to the medicare levy you’d otherwise pay. Maybe get some quotes for the lowest plan you can get and then compare it to the medicare levy for your income.

Cheers, Dave