In 2021 the federal government raised the age limit allowing adult children to stay on their family health insurance from 25 to 31, potentially saving families thousands of dollars.
But here’s the thing: because health funds only got around to raising this age limit in 2023, many parents and young adults still don’t know about it. That’s the feedback from our health insurance experts who ‘break the good news’ each day to mums and dads.
Let’s take a closer look at why the government introduced this and then how this can save your kids serious cash. In the example that I’ve used later, a family with three adult children on their family policy could save over $5,000 a year.
Why was the age of dependents on family policies raised?
Changing family dynamics
Covid lockdowns combined with the high cost of housing – renting and buying – has created a cultural shift that means fewer twentysomethings can afford to move out of home.
Many young adults are choosing to live with their parents well into their 20s. Most mums and dads assume that even if their offspring are at home, they’ll need their own policy after the age of 21. But that’s not the case.
Lack of health cover
Under the old system, adult children could only stay on their parents’ cover until the age of 25 and this varied between funds. And while, typically, twentysomethings don’t need as much cover as mum and dad, health insurance is confusing to navigate in finding the right cover.
A combination of cost and confusion led to a large number of Aussies in their mid to late 20s simply not taking out cover putting extra pressure on the public health system. Increasing the maximum adult child age on a family policy to 31 gives this generation a wider window before taking out their own cover.
Making health insurance affordable
There’s another advantage to staying on a family policy for longer. Allowing adult children up to the age of 31 to be included in a family cover means they can benefit from items in their parents’ cover, which will typically be at a higher tier than they may be able to afford.
A great example of this is psychology services. We know it’s an item younger Aussies are keen on including in their cover. But good rebates on psychology are usually on an expensive policy that has a lot of items or extras that somebody in their twenties wouldn’t need.
By staying on the family policy, it means a 26-year-old gets the benefits of a higher tier of cover but, as we’ll see in a minute, at a much lower cost. That’s a win-win situation.
How much does it cost to add adult children to your health insurance policy?
Most funds will message you before your adult child turns 21, asking if you’d like them to stay on your policy. They will repeat this process with each child and if you agree, they can stay on your policy till their 31st birthday. This was previously 25.
When this was initially rolled out there was a bit of a slow uptake by health insurers but most insurers have now got on board, and all the health funds Compare Club partners with have this option.
Now here comes the big savings hack…
Important: to include your adult kids on your policy, a 25 per cent loading fee will be charged to your premiums.
Yes, but (part 1)… paying this fee is far less than each of the children taking up their own individual policies.
Yes, but (part 2)… the 25 per cent loading fee applies whether you have one child or many children on your policy.
So let’s say you have four adult children aged: 22, 24, 29 and 30 and all four are included as a dependent on your policy, your premiums will cost 25 per cent more.
When the 30 year old turns 31, they will drop off your policy and only three children will remain. You would still pay 25 per cent loading for the three children, and so on.
Tip: if any of the adult children decide to move out of home – and are under the age of 31 – they can still stay on your policy, even if they decide to live interstate.
Be aware: it would be the responsibility of the newly turned 31 year old to take up their own individual policy to avoid the Lifetime Health Cover loading. More on this soon.
To qualify as a dependent on your policy, adult children must not:
- be married or in a defacto relationship
- have children of their own.
How much can a family save with this health insurance hack?
Let’s break down some easy to follow numbers so you can see the savings.
Meet the Jacksons, a family of five …
The husband and wife are on Silver Plus Hospital and Extras* on a 0 tier^ and pay $432.22 per month.
- They have triplet adult children that moved overseas when they were 18.
- They are now 21 and are returning to Australia.
- In the time they’ve been away they have not had health insurance.
- Two are planning to move back home and one will live with a friend.
If each of these children were to take out exactly the same Silver Plus Hospital and Extras, they could each be paying $198.97 per month. (A total of $596.91 per month for the three of them).
But… if the triplets were added as dependents on the Jackson’s family policy, a 25 per cent loading fee of $138.65 would be added. The monthly premiums would increase from $432.22 (for two people) to $570.87 (for five people).
Now the Jacksons could ask the triplets to pay the 25 per cent loading fee ($138.65). With a three-way split each would only pay $46.22 per month – which could work out less than a monthly mobile bill.
Taking this approach, the savings add up… over a 12-month period, instead of each child paying $2,387.64 on an individual policy, they would pay $554.64, saving $1,833 each.
What about health insurance for 31 year olds?
When adult children reach the age of 31, it’s in their best interest to take out their own policy so they don’t incur Lifetime Health Cover (LHC) loading.
If your adult child does not have private health insurance by July 1 after their 31st birthday, a 2 per cent increase will be added for each year they don’t have health insurance – whenever they take up a health insurance policy. Think of it as a penalty for not being insured and putting pressure on the public health system.
Be aware: LHC loading has the potential to add hundreds to premiums. By jumping up 2 per cent each year, up to the age of 65, the maximum surcharge would be 70 per cent. Once LHC loading has been paid for 10 consecutive years of cover, the loading fee is removed.
Like many things finance-related, once you have the full picture you can make decisions on what’s right for you and your family.
Is now the right time to shop around for the best policy that reflects your needs?
Perhaps you should start having conversations with your adult kids… or, if your kids are still in their teens, why not keep this hack up your sleeve, and stack up the savings in due course.
* Based on NSW pricing and BUPA Silver Advanced Hospital Plus $750 Excess and Freedom Boost 60 Extras, Tier 0, no LHC.
^ A family earning less than $194k per annum.
Disclaimer: Any health or financial advice is general in nature and does not take into consideration your circumstances. Always check with a financial or health professional before making any decisions.
Article first published on Expert Analysis.
Are your adult kids listed on your health insurance policy? Are they contributing to the premiums? Let us know in the comments section below.
