Taxes and Your Health Insurance
With a new tax year just around the corner, it’s worth thinking about how your health insurance can be affected by your financial situation. Most Australians pay a mandatory 2 per cent Medicare levy (unless they have low household income) which helps to fund the Medicare system but depending on your income, that may not be the only area in which taxes and health insurance crossover.
If you’re not fully up to speed with the tax situation, you could be paying much more than you need to – for both taxes and health insurance. Many people are caught out by things like the Medicare Levy Surcharge and Lifetime Health Cover and find that the health insurance rebate isn’t generous enough to help them out much.
By simply taking out private health insurance at the right time, you could get savings on both tax and health cover.
Here is our 5 minute guide on health insurance and tax, and how you can save yourself big this EOFY.
The Medicare Levy Surcharge
The Medicare Levy Surcharge (MLS) was introduced to encourage higher earners to buy Hospital cover to reduce the burden on the public healthcare system. This is a mandatory payment on top of the 2 per cent Medicare levy for singles who earn more than $90,000 and couples/families who earn more than $180, 000 and do not have eligible Hospital cover.
The income tiers for the MLS are also used for the health insurance rebate, and are as follows:
|Standard||Tier 1||Tier 2||Tier 3|
*For families with children, the thresholds are increased by $1,500 for each child after the first.
Depending on which income tier you fall into, you would pay anything from 1 to 1.5 per cent if you don’t hold eligible Hospital cover:
|Standard||Tier 1||Tier 2||Tier 3|
The Health Insurance Rebate
The health insurance rebate was introduced to make it more affordable to buy health insurance by offering Australians a percentage of their premiums back. Many people choose to get this back through lower premiums but you can choose to receive the rebate as a tax offset.
How much you can expect to get back varies depending on your income and age bracket but the rebate has decreased across the board in recent years. It is not available for singles earning more than $140,000 or couples/families earning more than $240,001.
Lifetime Health Cover
Lifetime Health Cover (LHC) is intended to encourage more Australians to buy Hospital cover earlier in life and keep it as they get older. Loading fees of 2 per cent are added to premiums for every year that you did not have Hospital cover after your LHC base date.
Your LHC base date is July 1st after your 31st birthday. If you wait longer than this to buy Hospital cover, you will pay an extra 2 per cent on premiums for every year that you did not have it after the age of 30. Waiting until you’re 35 means that you’ll pay an extra 10 per cent, for example. There is a maximum loading of 70 per cent.
Not sure if you’re eligible for a rebate or confused about how you’re affected by Lifetime Health Cover? Get in touch with www.HealthInsuranceComparison.com.au today for expert advice on how you can save on your health insurance costs! We can guide you through the health insurance minefield and help you to get more cover for your money.
Frequently Asked Questions About Health Insurance
There are three types of health insurance in Australia. They are:
- Hospital Cover
- Extras Cover (also known as general or ancillary cover)
- Ambulance Cover
Hospital cover can ensure any unexpected surgeries, treatments or hospital stays you may require will be covered. With appropriate cover you will have the flexibility to choose your own doctor and the option of receiving treatment in a private hospital. Most hospital covers allow you to stay in a private room. One other perk is skipping the public hospital systems’ waiting list, which can be lengthy for non emergency treatment.
Extras cover pays benefits for a a range of services, often including treatments and procedures related to the fullowing:
- Dental/oral health
- Glasses and contact lenses
- Remedial massage
- Hearing aids
- Travel vaccinations
Ambulance cover, as the name suggests, will cover you should you require emergency ambulance transport. In an emergency, there is enough to worry about. Having the expenses covered for provides security and peace of mind. Many hospital covers include emergency ambulance transport If yours doesn’t, you will need to shop for this separately.
Life is unpredictable. You never know when you might need cover. No matter what life stage you’re in, there’s a policy out there for everyone. You can select as much or as little cover as you want, depending on your health needs and requirements. It’s a small price to pay for the peace of mind health cover provides.
There is no one answer here. Costs vary across providers and policy types. Just because a policy is cheap, that does not mean it is ‘value for money’ and vise versa. Make sure you check what’s included and excluded in a policy before signing up, as you want to purchase a policy that best fits your specific needs.
Premium: A premium is the price you pay for your insurance policy (it may be paid annually or on an ongoing basis).
Policy: An insurance plan. In other words, it is the type of insurance you choose to select.
Policy Holder: The owner, or ‘holder’ of a policy.
Claim: In the event that you require treatment for a service covered by your policy, you can lodge a claim for reimbursement of all or part of the cost of that treatment.. These days, most claims are submitted electronically by the health care provider (dentist, physio etc)
Lifetime Health Cover: Lifetime Health Cover was put in place to encourage young Australians to seek out and maintain ownership of private health insurance early in their lives. If you do not take out a policy before you turn 31, extra charges will be applied should you take out a policy at a later time.
This means you will pay a 2% loading on top of your premium for every year that passes after you turn 30. For example, if you take out a policy for the first time at age 32, you will be charged 4% of your premium as an extra, then at age 40, 20% and so on, up to a maximum loading of 70%.
The loading is payable for 10 consecutive years of cover - after which it is removed and you premiums will be reduced.
Pharmaceutical Benefits Scheme (PBS): Medicare offers assistance for Australians with many of their their prescribed medication costs through the PBS. This assistance is in the form of subsidies towards the cost of many medications. You can check if your prescribed medication is on the list of subsidised items here.
Medicare Levy Surcharge: The Medicare Levy Surcharge is an additional charge (tax) applied to single Australian taxpayers who earn over the income threshold of $90,000 per year, or families/couples who earn over $180,000 per year. This surcharge is only applied to those who choose not to have a private health insurance policy.
The surcharge is designed to reduce pressure on the public health system by encouraging those with higher incomes to invest in private health cover.
Private Health Insurance Rebate: The government’s Private Health Insurance rebate lowers premiums for most Australians with private health insurance Older Australians may enjoy an even higher rebate. Our calculator can help you estimate the Government health insurance rebate you may receive.
Disclaimer: The above information is correct and current at the time of publication
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