We all want to reduce our income tax and get a better tax return, right? (If you’re lucky enough to get a tax return from the Australian taxation office, that is!)
Well, one of the best tax offsets is one many Aussies don’t realise is one: private health insurance.
Now, Australia has a pretty great healthcare system, but taking out a hospital policy can really lighten the financial burden of looking after your health – no matter what age you are.
In this article, we will help you navigate the ins and outs of private health insurance, from private hospital cover to extras policies, and how you can benefit from the Australian government rebate when you take our private health insurance.
3 Ways Health Insurance Can Save You On Your Tax
- Save up to 1.5% in tax
Depending on your income, not having private hospital cover can cost you 1%, 1.25% or 1.5% of your annual income. This is known as the Medicare Levy Surcharge (MLS). - Get a tax rebate of up to 33.88%
Take out private health insurance and, depending on your annual income, get 33.88% of your premiums back with the Private Health Insurance Rebate. - Stop your premium from rising by 2% each year
Without adequate hospital cover by 1 July after your 31st birthday, your health insurance premiums will go up by 2% per year thanks to the Lifetime Health Cover loading (LHC).
CHI TIP: All of these private health insurance incentives are only applicable to hospital cover or combined cover, but not extras cover.
Medicare Levy Surcharge
Australian taxpayers earning over certain income thresholds may be subject to the Medicare Levy Surcharge (MLS) if they do not have adequate private hospital insurance.
The MLS is an extra tax that ranges from 1% to 1.5% of your income, depending on your annual earnings and family income. With the right private health insurance policy, you can avoid this surcharge.
Here’s a more detailed breakdown of the Medicare Levy Surcharge (MLS) and the corresponding payment rates based on the new thresholds that will be effective from 1 July 2024:
Private Health Insurance Rebate
The Australian government provides a rebate on health insurance premiums to encourage Australians to take up private health cover.
This Private Health Insurance Rebate can reduce the cost of your premiums, and depending on your taxable income and age, you could receive a significant rebate on your health insurance policy at tax time.
To be eligible:
- You need to meet age and income limits.
- You must have a green or blue Medicare card.
- Even if you only have extras cover, you can still get the rebate.
You can claim the rebate:
- When you do your yearly tax return.
- By reducing your premium when you sign up for health insurance.
Lifetime Health Cover Loading
The Australian government has also introduced the Lifetime Health Cover (LHC) initiative to encourage young adults to take out and maintain private health insurance.
It means you’ll be charged an additional 2% on your health insurance premium for each year that you do not have hospital cover after turning 31.
For instance, if you delay purchasing a policy until the age of 36, you will face a 10% loading, which will be payable for a duration of 10 years. It is important to note that the maximum loading is capped at 70%.
To avoid the LHC loading, simply acquire health insurance coverage before your base day, which is the 1st of July following your 31st birthday.
It’s worth noting that the LHC loading is not an income tax; rather, it is an additional charge applied to your health insurance premiums only if you decide to take out hospital insurance. If you never choose to obtain hospital insurance, you will not be affected by the loading.
Certain exemptions exist for the LHC, including:
- Australians born on or before 1st July 1934.
- Serving members of the Australian Defence Force (ADF).
- Holders of Department of Veterans’ Affairs (DVA) Gold Cards.
Health Funds and Providers: Choosing Wisely
When it comes to private health insurance in Australia, there are a wide range of health funds and providers available to choose from. Each of these providers offers different health funds and coverage options, making it crucial for individuals to carefully compare them in order to find the best value for their needs.
By taking the time to explore the various health funds and providers, you can evaluate the different features, benefits, and costs associated with each option. This allows you to make an informed decision that aligns with your specific healthcare requirements and budget.
Comparing health funds involves considering factors such as:
- The extent of coverage provided
- Hospital treatments covered
- Medical services covered
- And extras such as dental or optical care.
Additionally, you’ll want to assess the waiting periods for certain procedures, the level of customer service and support provided by the health fund, as well as any restrictions or limitations on accessing certain treatments or providers.
Moreover, it’s essential to consider the affordability of the health fund, including the premium costs, excess amounts, and any potential out-of-pocket expenses. By comparing these financial aspects, you can ensure that the chosen health fund is not only comprehensive in its coverage but also aligns with your budget.
FAQs
What are the income thresholds for the Medicare Levy Surcharge?
The income thresholds vary depending on your circumstances (single, couple, families, single parents). Check the ATO website or consult with your tax professional for the latest thresholds.
What is the Private Health Insurance Rebate and who is eligible?
The Private Health Insurance Rebate is an amount the government contributes towards your insurance premium. Eligibility depends on your annual income, age, and family status.
How can I choose the right private health insurance provider?
You can compare different health funds and policies with CHI’s online comparison tool, or you can also check out privatehealth.gov.au. Consider your health needs, budget, and the potential tax benefits when choosing a policy.
Are there any other tax implications related to private health insurance?
Your private health insurance can impact your tax in other ways, including fringe benefits, deductions, and exemptions. Always consult a tax professional to understand these implications better.
Save on Taxes with Private Health Insurance
Finding the right private health insurance can be overwhelming with so many options to choose from. But don’t worry, we’re here to help!
Take advantage of our free online tool below to receive personalised health cover quotes from Australia’s top health fund providers within minutes!
