The Medicare Levy Explained

Medicare is the scheme that gives Australian residents access to health care¹. It provides access to free or subsidised treatment by health professionals including doctors, specialists, optometrists and dentists, and free treatment and accommodation for public patients in public hospitals¹.

Medicare is partly funded by the Medicare levy, which is 2% of your taxable income². Certain individuals earning over the threshold and not holding Private Hospital cover will also be required to pay a Medicare levy surcharge towards the cost of the Medicare system³.

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What does Medicare cover?

The Medicare system has three parts – hospital, medical, and pharmaceutical⁴.

Hospital

Under Medicare, you can be treated as a public patient in a public hospital, at no charge, by a doctor appointed by the hospital. You can choose to be treated as a public patient even if you’re privately insured.

Medical

When you visit a doctor outside a hospital, Medicare will cover 100% of the scheduled fee for a general practitioner and 85% of the scheduled fee for a specialist. If your doctor bulk bills, you won’t have to pay for anything⁴.

Pharmaceutical

Under the Pharmaceutical Benefits Scheme (PBS), you’ll pay only part of the cost of most prescription medicines purchased at pharmacies, with the rest of the cost covered by the PBS⁴. You must present your Medicare card to obtain this benefit.

Does Medicare cover the ambulance costs?

Many Australians believe that Medicare covers the cost of ambulance transport, however this is not the case⁵. Each Australian state and territory has its own ambulance regulations; you can call iSelect on 13 19 20 for guidance regarding the approach in your state of residence.

What is the Medicare levy?

Most taxpayers pay a levy of 2% of their taxable income to help fund the Medicare service¹. The levy is an additional charge to the tax you pay on your taxable income.

Australian taxpayers who don’t hold an appropriate level of private hospital cover, and who earn above a certain income, may be required to pay the Medicare levy surcharge in addition to the Medicare levy.

Medicare levy reductions

Your Medicare levy will be reduced if your taxable income is below a certain threshold². In 2017-18, you do not have to pay the Medicare levy if your taxable income is $21,980 or less, (or $34,758 for seniors and pensioners entitled to the seniors and pensioners tax offset⁶).

Medicare levy exemptions

You may be exempt from paying the Medicare levy if you meet certain medical requirements, are a foreign resident, or are not entitled to Medicare benefits.

What is the Medicare Levy Surcharge?

The Medicare levy surcharge seeks to encourage higher income earners to take out private hospital cover, and to use the private health system where possible to reduce demand on the Medicare system.

The Medicare levy surcharge is calculated at between 1% and 1.5% of your income, and is payable in addition to the Medicare levy⁷. This means that the more you earn, the more it pays to have approved hospital cover.

As of the 30th of September 2018, you have to pay the Medicare levy surcharge if:

• You don’t have approved hospital cover with a registered health fund
• Are a single person with an annual taxable income greater than $90,000
• Are a couple or family with a combined taxable income of $180,000

For families with children, the threshold increases by $1,500 for each child after the first⁷. If your income is below these thresholds, you’re exempt from the surcharge.

How can I avoid the Medicare levy surcharge?

If your taxable income exceeds $90,000 (singles) or $180,000 (couples or families), you’ll be liable to pay the Medicare levy surcharge – unless you hold an appropriate level of private hospital cover with a registered health fund.

You can avoid paying the Medicare levy surcharge by ensuring you have an appropriate level of private hospital cover in place for the entire financial year. For singles, an appropriate level of cover must have an excess of $500 or less. Couples or families must have an excess of $1,000 or less⁸. If you hold only extras cover, you must pay the Medicare levy surcharge.

Need help understanding how the Medicare levy and Medicare levy surcharge apply to you?

It can be difficult to know how whether the Medicare levy surcharge applies to you, and how much you’re likely to pay – feel free to call us on 13 19 20 with any questions. You can also compare private health insurance policies online with iSelect, and ensure your current policy is the right one for you.

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Sources:
1. https://www.healthdirect.gov.au/what-is-medicare
2. https://www.ato.gov.au/Individuals/Medicare-levy/
3. https://www.ato.gov.au/Individuals/Medicare-levy/Medicare-levy-surcharge/
4.https://www.privatehealth.gov.au/healthinsurance/whatiscovered/medicare.htm
5. https://www.betterhealth.vic.gov.au/health/servicesandsupport/hospital-costs-and-payments
6. https://www.ato.gov.au/individuals/medicare-levy/medicare-levy-reduction-for-low-income-earners/
7.https://www.privatehealth.gov.au/healthinsurance/incentivessurcharges/mls.htm
8. https://www.ato.gov.au/individuals/medicare-levy/private-health-insurance-rebate/?anchor=Appropriatelevelofprivatehospitalinsuran#Appropriatelevelofprivatehospitalinsuran