Many millennials are ditching private hospital health plans due to steadily rising premiums. It is not hard to understand why they are running away from paying for decent medium hospital insurance plan… [read]
Many Australians (about 50%, actually) take out private health insurance for numerous reasons – it can help you avoid the long wait for many services, provide more flexibility in terms of getting a policy that suits all your unique needs, and possibly offer you sweet tax savings.
The Australian government has created charges and savings as incentives that could encourage people to purchase proper health hospital covers through registered insurers.
While tax consideration should not be your main concern when evaluating your health coverage, it could also be detrimental if you are not educated on what the potential benefits and charges are and how you should maneuver through them.
We’re here to tell you about 3 main ways your choices related to health insurance might impact your tax.
I. Understanding Medicare Levy and Medicare Levy Surcharge
Many Australians pay for Medicare levy, which is normally ~2% of your taxable income, except for a few individuals who are exempt (e.g. if you have certain medical conditions or are a foreign resident). Check here to see if you qualify for exemptions or reductions so you can declare it on your tax return.
The Commonwealth Government penalises individuals without private health insurance (and higher income) by charging MLS.
Medicare levy surcharge (MLS) is an additional 1-1.5% tax imposed on higher-end earners with no private health insurance. MLS income threshold is over $90,000 for singles and over $180,000 for families. Even if you do have private health insurance, you may still be subject to MLS if you do not have ‘an appropriate level of private hospital coverage,’ which is minimum $500 for singles and $1,000 for couples/families .
Only hospital cover, not your extras cover, counts towards your eligibility when determining your exemption eligibility for MLS.
II. Understanding the Australian Government Rebates You May Be Entitled to
If you have a policy with a complying registered health fund and you make less than $140,001 (singles) or $280,001 (couples/families), you are entitled to rebates on your premium. The income threshold and rebate rate could change April of each year, so be sure to keep up. You can check it on the Australian Taxation Office’s website or call them on 132 861.
Your rebate rate is based on your age and income level. Here’s the rebate rate on premiums paid from 1 April 2018 to 31 March 2019:
|Age\ Income Level||Single:||< $90,001||< $105,000||< $140,001|
|Families:||< $180,001||< $210,001||< $280,001|
|Under 65 years||25.415%||16.943%||8.471%|
|70 years +||33.887%||25.415%||16.943%|
The income threshold for families increase by $1,500 per child after the first child.
You can claim your rebate in one of two ways :
- As a premium reduction directly through your private health insurer or
- As a tax offset on your tax return (your private health insurance should give you a tax statement at the end of each financial year)
If you decide to go with the first option, getting your rebate as a reduction in your premiums, beware that you will have to indicate your expected income for the financial year. If your actual earned income was different, there are no penalties and you just indicate the corrected level when lodging your tax return.
III. Understanding Consequences of Not Getting Private Hospital Cover Before You’re 31
Lifetime Health Cover (LHC) is a government initiative launched in 2000 designed to incentivize people to join a private hospital fund earlier and maintain continuity. It does so by charging something called Lifetime Health Cover loading of 2% (of the annual health insurance premium) for every year you’ve been uninsured for since you turned 30 if you don’t have private health cover after 1st of July following your 31st birthday.
To illustrate, here’s an example. Let’s say you get a private health insurance policy at the age of 35. You will be required to pay 110% of your policy’s premium every year. Maximum ceiling on the LHC loading is 70% , which is extremely high.
While this is not necessarily “tax”, it is an important rule for you to be aware of because the consequence could be disastrous.
This punishment ends once you’ve had 10 years of continuous cover. You can have some gaps in cover without being subject to LHC loading – a total of 1094 days without private hospital cover in our lifetime.
If you are eligible for the government rebates, your rebate rate will NOT be applied to your LHC loading portion of your premiums. So waiting past the age of 31 for private hospital cover really is like throwing money down the drain.
For more information about LHC loading, including exemptions, you can find it here.