The decision to take private health insurance can impact on you financially throughout the year. When it’s time to choose a policy or plan, you need to make sure you’re getting the most out of the healthcare options and services available to you in Australia, at the right price.
It’s worth taking the time to work out how much more you might be paying every year by not taking out private health cover, due to several forms of what could be called private health insurance tax.
The Australian Government has a number of initiatives in place to encourage us all to take out private health insurance. These initiatives include the Australian Government Private Health Insurance Rebate, the Medicare Levy Surcharge and Lifetime Health Cover Loading. Only one of them is officially considered a tax, but they all add up to cost you more.
The Australian Government’s Private Health Insurance Rebate is designed to make private health insurance more affordable and accessible to Australians. The rebate is awarded based on an individual or family’s income and number of dependents. Income is determined by a combination of taxable income, fringe benefits, superannuation contributions, minus any net investment losses.
The rebate gives Australians money back in the form of reduced insurance premiums up front or a private health insurance offset at tax time. On April 1 each year, a rebate adjustment is announced based on the Consumer Price Index and the average increase of premiums in the private health insurance sector. From 2008 to 2017 for example the CPI was up 22.4%* while average health insurance premiums rose 73.5%.**
The Medicare Levy Surcharge (MLS) is the real private health insurance tax, encouraging higher-income Australians to take out private hospital insurance or pay a penalty.
Usually, Australians pay a standard 2% Medicare Levy at tax time. The MLS adds an additional amount to those who don’t have private health insurance. This equates to either 1%, 1.25% or 1.5% of your income. The MLS is calculated based on income, and only applies to those singles who earn over $90,000, or families who earn over $180,000.
Find out more about the Medicare Levy Surcharge.
Lifetime Health Cover (LHC) loading encourages Australians to take out private health cover earlier in life and hold their cover continuously by introducing financial penalties if they don’t purchase before their 31st birthday.
Under LHC loading, all insurers must add 2% to an individual’s private health premium for every year they did not take out health insurance after the next July 1 following their 31st birthday. This does not affect individuals who took out health cover before the next July 1 following their 31st birthday, and therefore encourages young Australians to take up private health insurance earlier.
For example, if you decided to start private health insurance when you turned 35, you would pay LHC loading of 8%. This additional charge is payable for 10 years. The maximum loading that can be applied is capped at 70%.
Find out more about Lifetime Health Cover.
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