Understanding how private health insurance and tax work together can be quite confusing. All the jargon and legalese can make it difficult to know exactly which private health insurance tax offsets, levies and loadings apply to you.
So, we’ve put together this simple guide to private health insurance and tax.
You may be affected by the Lifetime Health Cover (LHC) loading
You may be affected by the Medicare Levy Surcharge (MLS)
You may be eligible for an Australian Government Rebate
Lifetime Health Cover (LHC) loading is an Australian Government initiative designed to encourage Australians to take out and maintain private hospital cover earlier in life. The more people 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 2% of your hospital insurance premium for each year you’re over 30 and don’t have hospital cover. Loading is capped at 70%.
You’ll only be impacted by this loading if you take out private hospital insurance after 1 July following your 31st birthday, as the LHC is added to your regular premium.
Once you hold hospital cover for 10 continuous years, any LHC loading you’ve accrued is no longer applicable.
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 4%.
Or let’s say you’re 40 years old and are taking out a policy for the first time; this means you’ll need to pay an extra 20% on top of your hospital policy premiums. For example, if you’re paying $2,000 annually on a policy, you’d also be paying an extra $400 in 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 2%.
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’re looking to take out a private cover.
Those who fit this category are exempt from paying the loading.
The Medicare Levy Surcharge (MLS) is an additional levy designed as an incentive for 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 have an annual income of over $93k a year as a single, or a family income of over $186,000 (From 1 July 2023), you accumulate the MLS every day you don’t have cover (unless you fall into one of the exemption categories).
In total, you would be charged between 1 and 1.5% of your taxable income each year, depending on exactly how much you earn, which is paid when you complete your annual income tax return.
It’s important to note that the Australian Taxation Office (ATO) calculates your income for the MLS differently than your standard taxable income. Your income for MLS purposes is your regular taxable income (not including any assessable First Home Super Saver released amount) plus any reportable fringe benefits and super contributions, minus your net property and investment losses. See the ATO website for more details.
Let’s say:
In this case, your total MLS would be charged at 1% 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 $93,000 ($0 payable) | $93,001 – $108,000 (~$930 – $1,080 payable) | $108,001 – $144,000 ($1,350 – $1,800 payable) | $144,001+ (~$2,160+ payable) |
| Families^ | Under $186,000 ($0 payable) | $186,001 – $216,000 (~$1,860 – $2,160 payable) | $216,001 – $288,000 ($2,700 – $3,600 payable) | $288,001+ (~$4,320+ payable) |
| Retrieved from Privatehealth.gov.au | Information current as of 1 July 2023. Dollar amounts payable are rounded up. ^For families with dependant 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 combined hospital and extras cover) or you fall into one of the exemption categories.
Worried about whether your health insurance can impact your tax return? Remember, having cover goes far beyond its tax benefits. While it can be tempting to take out the lowest level of hospital cover to avoid the MLS, there are some great benefits to higher level policies that you might want to take advantage of.
As such, it’s important you consider a competitive cover option that:
*Subject to availability.
Our comparison service makes it easy to find a policy that offers all this and more at a great price.
The Medicare Levy is a tax that applies to almost all Australian taxpayers. The main 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 the public health system, Medicare, which provides all Australians with access to free or subsidised healthcare.
The Australian Taxation Office (ATO) says the Medicare Levy is charged as 2% of your taxable income.1 The levy is included in the total tax withheld from your employer.
You may be exempt from the levy if you’re a single and your taxable income is equal or less than the following thresholds for 2021-22:2
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.
The government’s private health insurance rebate is a benefit 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. You can either claim this rebate through your tax return or in the form of reduced policy premiums.
The rebate amount depends on your relationship or 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 $93,000 Under $186,000 | $93,001 – 108,000 $186,001 – $216,000 | $108,001 – $144,000 $216,001 – $288,000 | $144,001+ $288,001+ |
| Under 65 | 24.608% | 16.405% | 8.202% | 0 % |
| 65-69 | 28.710% | 20.507% | 12.303% | 0% |
| 70 and over | 32.812% | 24.608% | 16.405% | 0% |
| Retrieved from PrivateHealth.gov.au | Information current as of 1 July 2023 ^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 subject to change every year on 1 April. Learn more about the Australian Government rebate.
When it comes time to lodge your tax return, you’ll need to provide the ATO with a tax claim code so they know what category you fall under to calculate your total rebate amount. This information is often prefilled on your tax return. However, if it isn’t, here is a private health insurance tax claim code list as of June 2022.
| Tax claim code | Circumstance |
| Tax claim code A | You’re single with no dependants. |
| Tax claim code B | You have a dependant child or paid for a dependant-child-only policy. |
| Tax claim code C | You’re married or in a de facto relationship and want to claim your share of your joint policy or you’re a parent claiming for a dependant-child-only policy You want to claim your share and your spouse’s share of the rebate for your joint policy, provided that you’re both covered under the same policy for the same period, are together on 30 June and your spouse agrees to the claim. |
| Tax claim code D | If your spouse claims the rebate for your share of your joint policy, you will automatically fall under this claim code. |
| Tax claim code E | Your spouse is claiming your share of the rebate for your joint policy. |
| Tax claim code F | You were covered as a dependent child on a private health insurance policy. |
For some, it’s entirely possible the health insurance policy you’re currently on 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 a decision to switch, though, consider the following:
The paperwork is handled for you. When you use our service, we organise all the paperwork. In addition, waiting periods you’ve already served will carry over, your LHC status remains unchanged and any eligible rebates continue to apply.
Our free comparison tool makes it easy to see how policies from some of Australia’s top health insurers stack up.
Once you enter your details, we’ll present you with a range of quotes based on this information. If you find a 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 Taxation Office: Medicare Levy. Last modified: 01 July 2022.
2 Australian Taxation Office: Medicare levy reduction for low-income earners. Last modified: 01 July 2022.
