When it comes to health insurance and taxes, there’s plenty of confusing jargon thrown around (er, there’s a difference between the Medicare Levy Surcharge and the Medicare Levy?).
That’s why we’ve put together this guide; to make it all simples.
The Medicare Levy Surcharge (MLS) is an additional levy designed to encourage higher income earners without hospital cover to take out a policy. Ultimately, the MLS is designed to help reduce the burden on our public hospitals.
If you don’t have hospital cover and you a) earn over $90k a year and you’re single, or b) have a partner or family with a combined income over $180,000 a year, you accumulate the Medicare Levy Surcharge (MLS) every day you don’t have cover (unless you fall into one of the exemption categories).
In total, you’re charged between 1% and 1.5% of your taxable income each year, depending on exactly how much you earn, which is payable at tax time.
Let’s say:
In this case, your total MLS could be charged at one per cent of your taxable income.
This means you may need to pay $950 at tax time.
Our table below outlines how the MLS may impact you this tax time.
| Medicare Levy Surcharge – Income Thresholds | ||||
| Surcharge | 0% | 1% | 1.25% | 1.5% |
| Singles | Under $90,000 ($0 payable) | $90,001 – $105,000 (~$900 – $1,050 payable) | $105,001 – $140,000 ($1,312.51 – $1,750 payable) | $140,001+ (~$2,100+ payable) |
| Families^ | Under $180,000 ($0 payable) | $180,001 – $210,000 (~$1,800 – $2,100 payable) | $210,001 – $280,000 ($2,625 – $3,500 payable) | $280,001+ (~$4,200+ payable) |
| Retrieved from Privatehealth.gov.au | Information current at 24/6/2020. Dollar amounts payable are rounded up. ^For families with children, thresholds increase by $1,500 for each child after the first. Families include couples, de facto couples, and single parents. | ||||
Not unless you’re earning under the income threshold when MLS starts applying, have a hospital policy or you fall into one of the exemption categories.
Worried about whether having health insurance can impact your tax return? Remember, having cover goes far beyond avoiding possible levies at the end of the financial year.
As such, it’s important you carefully choose a competitive cover option that:
*Subject to availability.
Our comparison service makes it easy to find a policy that offers this reassurance – and more – at a great price.
The Medicare Levy is a tax many Aussies pay. One point of difference between MLS and the Medicare Levy is that you’re still charged the Medicare Levy, even if you hold hospital cover (so long as you’re not exempt from the levy).
The Medicare Levy partly funds Medicare, which provides all Aussies access to free or subsidised healthcare.
The Australian Taxation Office (ATO) says the Medicare Levy is charged two per cent of your taxable income.[2]
The levy is included in the total tax withheld from your employer.
The ATO says you may be exempt from the levy if your taxable income is equal or less than the following thresholds for 2018-19:[3]
You’re only required to pay part of the Medicare Levy if your taxable income is between:
You may also be exempt if you’re a foreign resident, aren’t eligible to receive Medicare benefits, or meet specific medical requirements.
Lifetime Health Cover (LHC) loading is an Australian Government initiative designed to encourage Aussies to take out and maintain private hospital cover earlier in life.
The more Aussies who are treated privately, the less pressure there is on our public healthcare system.
If you don’t take out private health insurance by 1 July following your 31st birthday, you’ll start accruing LHC loading on your hospital insurance premium.
LHC loading accrues at two per cent of your hospital insurance premium for each year you’re over 30 and don’t have hospital cover. Loading is capped at 70%.
Please note: You’ll only be impacted by this loading if you take out private health insurance, as you’ll need to pay a higher premium.
Once you hold cover for 10 continuous years, any LHC loading you’ve accrued is no longer applicable.
Example
So, let’s say you’re 32 years old and are taking out a private hospital policy. When you pay your policy premiums, you’ll pay an extra four per cent.
Or, let’s say you’re 40 years old and are taking out a policy for the first time. You’ll need to pay an extra 20% on top of your hospital policy premiums. If you’re paying, say, $2,000 annually on a policy, you’d be paying an extra $400 on LHC loading.
If you’ve been considering health insurance, now might be the time to review policy options before another year goes by and your loading increases by another two per cent.
If you want to take out a couples hospital policy, any applicable LHC loading will be averaged between you and your partner.
For example, if your partner has 6% LHC loading applicable and you have 2% loading applicable, you’d be charged 4% loading on your couples policy.
LHC loading won’t start accruing if you weren’t in Australia on 1 July following your 31st birthday. However, you typically need to purchase cover within a year of arriving back in Australia to prevent LHC loading from starting to accrue.
Furthermore, loading will not increase if you:
‘Days of Absence’ refers to the number of days you can take a break from your private hospital cover before LHC loading will start accruing. So, if you have cancelled your policy and you are over 31, you will have a total period of 1,094 days in your lifetime before the loading kicks back in.
Similar to Australians who travel overseas, new migrants over 31 will also be given 12 months to purchase a policy from the time they become eligible for Medicare.
Since coverage is provided for the Australian Defence Force while serving, members are technically seen as having private insurance. People in this position have the ‘Days of Absence’ period to register their private health policy without a loading being applied.
These cardholders are already determined to have a form of private health insurance, which will be taken into consideration if they are looking to take out a private cover.
Those who fit this category are exempt from paying the loading.
The Private Health Insurance Government Rebate is a rebate paid by the government to help you afford your health insurance policy.
This support encourages you to keep cover and ultimately lighten the load on the public healthcare system.
This rebate may be applicable to hospital, extras or combined policies. Either you can claim this rebate through your tax return, or you could benefit from it in the form of reduced policy premiums.
The rebate amount depends on your relationship/family status, your annual taxable income and your age.
We’ve outlined the rebate percentages below, which may be applied to your health insurance premium depending on the category you fall into:
| Income Thresholds | Base Tier | Tier 1 | Tier 2 | Tier 3 |
| Singles: Families | Under $90,000 Under $180,000 | $90,001 – 105,000 $180,001 – $210,000 | $105,01 – $140,000 $210,001 – $280,000 | $140,001+ $280,001+ |
| Under 65 | 25.059% | 16.706% | 8.352% | 0.00% |
| 65-69 | 29.236% | 20.883% | 12.529% | 0.00% |
| 70 and over | 33.413% | 25.059% | 16.706% | 0.00% |
| Retrieved from PrivateHealth.gov.au | Information current at 24/05/2019 ^For families with children, thresholds increase by $1,500 for each child after the first. Families include couples, de facto couples, and single parents. The rebate level is based on the oldest person covered by health insurance. | ||||
The rebate percentages are adjusted every year on 1 April. Learn more about the Australian Government rebate.
The question remains: why go to the effort of taking out or switching health insurance at this time of the year?
For some, it’s entirely possible the health insurance policy you’re currently enjoying is the best available. If that’s true, and none of the below points apply to you, stay with your current fund!
Before you make your decision, though, consider the following:
Our free comparison tool makes it easy to see how policies from some of Australia’s to9p health insurers stack up.
Once you enter your details, we’ll present you with a range of quotes based on this information. Our comparison service clearly indicates whether a policy is Gold, Silver, Bronze or Basic (as well as any ‘Plus/+’ policies).
After you’ve found the policy that provides cover for services and treatment you need, you can continue through our journey and make your own purchase – best of all, purchasing through our service won’t cost you anything extra than buying direct from the insurer. That’s our Best Price Promise.
[1] Australian Institute of Health and Welfare (AIHW): Admitted patient care. 2017-18. Australian hospital statistics.
[2] Australian Taxation Office: Medicare Levy. Last modified: 24 August 2018.
[3] Australian Taxation Office: Medicare levy reduction for low-income earners. Last modified 29 June 2018.
