Are you getting the most out of your tax dollar? Many people don’t realise that they can enjoy the benefits of private hospital cover for the same price – or less – than the Government levies they are charged if they go without it. This is possible because the Government rebates on private health insurance are sometimes higher that the cost of eligible cover.
If your taxable income is over the Medicare Levy Surcharge threshold ($90,000 for singles and $180,000 for couples and families), you could be missing out on valuable Government rebates and the benefits that private health members enjoy. All Australians over 30 also need to know that the longer they delay taking out hospital cover, the more expensive it will get for them.
If you held private health insurance during the last financial year, your health fund will have sent you a statement recently. Check that the details on your statement are correct, including your contact details, the details of each insured person, and your taxable income level. Your statement will include payments you’ve made throughout the year to help you claim back any entitlements on your annual tax return. Your entitlement to private health insurance rebates will depend on your taxable income level. You should always give this statement to your tax agent to see if you are eligible for tax rebates.
Tax time is a great opportunity to ask your accountant how your private health cover can save you money at tax time. Here are some key terms to help you understand how recent budget changes regarding health insurance will affect your tax return.
KEY TERMS EXPLAINED
Medicare Levy (ML)
The Medicare Levy is a tax which most Australian tax payers must pay to ensure that all Australian residents have access to healthcare. On 1 July 2014 it rose from 1.5% to 2% of taxable income. This rate may be reduced depending on your income level or age. Certain people, such as foreign residents, low income earners, Norfolk Island residents, and people who don’t qualify for Medicare treatment, are exempt from paying the Medicare Levy. Use the Medicare levy calculator to check your liability. If you are exempt from paying the Medicare Levy, you should state this on your tax return.
Medicare Levy Surcharge (MLS)
The Medicare Levy Surcharge is an additional tax to the Medicare Levy. It is designed to reduce public hospital waiting times by encouraging taxpayers who can afford private hospital cover to use the private hospital system whenever possible. You will need to pay the Medicare Levy Surcharge if your taxable income is above a set threshold and you do not have appropriate private patient hospital cover. Your liability to pay the MLS depends on your taxable income, if you have a spouse and the number of dependent children you have.
For 2013-14, the thresholds were $88,000 for single people and a combined income of $176,000 for couples and families. For 2014-15, the thresholds will be $90,000 for singles and a combined income of $180,000 for couples and families. These thresholds are lifted by $1500 for each dependent child you have after the first. You can calculate your 2013-14 liability here and estimate your 2014-15 liability here. From 1 July 2014, depending on your taxable income, the MLS will range from 1 to 1.5% of your taxable income.
Private Health Insurance Rebate
The Private Health Insurance Rebate is an initiative by the federal government to help Australians meet their private health insurance costs. The Private Health Insurance Rebate is income tested, which means the level of your rebate will depend on your annual income, age, and the number of dependent children you have. Te rebate ranges from 9.6% to 38.72%. Your health fund can allow you to take this rebate by lowering your monthly premium, or you can claim the rebate at the end of the financial year. Check your statement to see if you are eligible to make an end-of-year claim.
Lifetime Health Cover (LHC) Fee
Lifetime Health Cover is a premium loading designed by the federal government to encourage Australians to take out health insurance earlier in life. You cannot claim a rebate on the LHC, so it’s important to avoid it if possible.
The LHC kicks in at the beginning of the financial year following your 31st birthday. For every year that you delay taking out hospital cover after this date, you will attract an extra 2% loading on top of your premium every year. The LHC has a maximum loading of 70%, but even if you delay taking out hospital cover until you are 40, you will still be paying 20% more on your premium than if you had begun hospital cover at age 30.
The LHC loading can be removed from your hospital cover once you have paid it for ten continuous years. If you have been without continuous hospital cover since you turned 31, you can check your LHC loading here.
Benefits of Private Health Cover
Many people don’t realise that private health insurance can save you money at tax time as well as giving you year-round cover. Some premiums are lower than the Medicare Levy Surcharge, so it makes sense to get into hospital cover early and avoid Lifetime Health Cover penalties. Private health cover still allows you access to the public hospital system, and also offers members more choice of when and where they have treatment without having to worry about the usual public hospital waiting lists.
Avoiding the Medicare Levy Surcharge
If your taxable income is above the threshold, you will need to pay the MLS unless you have appropriate hospital cover for yourself and all your dependents. To be exempt from the MLS, your health insurance cover must be:
- With a registered health fund.
- Cover some or all of the fees and charges for a stay in hospital.
- Have a maximum excess of $500 for singles or $1000 for families.
- Include cover for all your dependents.
General treatment (also known as extras or ancillary) insurance can give you significant savings throughout the year, but it will not exempt you from the MLS unless it includes appropriate hospital cover.