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Understanding health insurance at tax time

Are you getting the most out of your tax refund? Many Australians don’t realise they can enjoy the benefits of private hospital cover for the same price – or less – than they may have to pay in government levies for not having private hospital cover.

The Australian Government wants to relieve the strain on the public health system by encouraging more people to take out private health insurance. That’s why it has introduced incentives and penalties for people that do not have private hospital cover. Find out how they could impact your back pocket below:

Private Health Insurance Rebate

When you take out private health insurance, you may receive a government rebate to help with the cost of your cover. The amount you get back depends on how much you earn – if you’re single and earning under $90,000 or a family earning under $180,000 per year, and under the age of 65, the government will give you back 25.934% of your premium in the form of a tax rebate.* Learn more about the Private Health Insurance Government Rebate.

To be eligible for a rebate, you need to be an Australian Citizen or Permanent Resident, who is entitled to Medicare, and Policies such as travel insurance and private health insurance from overseas providers are not considered appropriate cover for tax purposes.

Most people choose for their rebate to be deducted from their annual health insurance premium; however others prefer to have it factored into their annual tax refund. Claiming the rebate through a reduced premium requires information about your age range and income bracket – whether you’re claiming as a single or couple.

When choosing to get your rebate through your policy provider, it’s important that the income information you supply is as accurate as possible, as rebates are based on income levels and providing incorrect income information can lead to discrepancies during tax time.

Rebate percentages are adjusted annually on 1 April, based on the Consumer Price Index and average increase of premiums in the private health insurance sector. The adjusted prices are then applied after 1 April, meaning you will likely pay different premiums before and after this date.

Learn more about the Private Health Insurance Government Rebate.

* Information retrieved from the Department of Health, current as of 24/02/2017

Medicare Levy Surcharge (MLS)

The Medicare Levy Surcharge (MLS) applies to singles who have a taxable income of over $90,000 and couples and families who have a combined income of more than $180,000 and do not have private hospital cover.

People that earn over these thresholds pay a levy for not having private hospital cover. The amount of ‘levy’ they pay is worked out as a percentage of their taxable income – starting at $900 a year.

This surcharge was put in place to give higher earners an incentive to take out a private hospital policy, and to help decrease the load on the public system. The range of the surcharge is between 1% and 1.5%, and is calculated based on which income tier you fall under. The full 1.5% levy applies to people who earn over $140,000 individually or $280,000 for couples.

However, if you have a private hospital policy with an excess of less than $500 ($1,000 for couples), you can avoid paying this surcharge. Policies such as travel insurance and private health insurance from overseas providers are not taken into consideration.

Discover more about the Medicare Levy Surcharge and how it may affect you.

Lifetime Health Cover (LHC)

Lifetime Health Cover (LHC) is designed to encourage people to take out private hospital cover early in life and maintain their insurance.

The basic idea behind LHC is that if you take out private hospital cover later in life, then you are charged a loading and have to pay higher premiums. LHC is not based on how much you earn – pretty much everyone with hospital cover has to pay it if they do not have private hospital cover by 1 July after their 31st birthday (unless they fall into an exemption category).

If you’re approaching 31 and haven’t yet taken out private health insurance, then now is the time to do it as you’ll soon be hit with a 2% loading on your health fund premium each year you didn’t have appropriate private cover. This means, if you decide to take out private health insurance when you’re 40 years old, then you’ll have to pay 20% more than someone that took out insurance when they were aged 30 (2% x 10 years = 20%).

Couples and families will have their loading calculated as an average between the two adults, meaning that a couple with a total of 40% The most loading a person/couple can accrue is 70%.

Even if you’re past 31, it’s still a good idea to take out private hospital cover if you intend to get

“Days of Absence” refers to the amount of days a person is allowed without private hospital cover. If you have cancelled your policy, and you are over 31, you will have a period of 1,094 days total in your lifetime before the loading kicks in.

There are various instances where you can get LHC past your 31st birthday without having to pay loading:

  • People who were overseas on the first of July following their 31st In this case, you will usually have to purchase cover within a year of arriving back in Australia. Furthermore, loading will not increase if you have already taken out hospital cover and are over the age of 31 and then cancel it to go overseas for more than 12 months, and you will still be considered overseas if your visits back to Australia don’t exceed 90 days. If your visit does go past this period, your “Days of Absence” will accumulate for every day you go over.
  • 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.
  • Australian Defence Force members who are already 31 and are discharged after 1 July – since coverage is provided for them while serving, they are technically seen as having private insurance. People in this position have the “Days of Absence” period to register their private health policy without loading.
  • Any person who acquired a Department of Veterans’ Affairs Gold Card after 1 July 1999 is 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.
  • Any person born on or before 1 July 1934 is exempt.

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Want to get a private health policy, but are unsure of whether you have to pay loading? Find out more about Lifetime Health Cover and how it may apply your circumstances.

Or see how you’re affected by Lifetime Health Cover by using our handy calculator

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