Private Health Cover: Do You Need It When You Turn 30?

Health insurance concept.

Impacts on Medical Rebates and Taxes

Aussies with private health insurance do not need to pay their Medicare Levy Surcharge

The surcharge is calculated at the rate of 1% to 1.5% of your income for Medicare Levy Surcharge purposes. It is in addition to the Medicare Levy of 2%, which most Australian taxpayers pay.

As June 30th becomes closer, you may notice the focus of many tax discussions also contains elements of health insurance. The weight of the Medicare decisions you must make if you are in your late 20s or early 30s is different for folks at other points in their lives. However, the situation is not dire and understanding some vital facts will likely clear up any concerns you are experiencing.

Here are some questions tax professionals often hear.

What Medicare Decisions Must I Make?

If you are close to 30 but still under the age of 31, this is the prime time for you to consider purchasing a private health insurance policy. This particular window is important because of Lifetime Health Cover Loading or LHC Loading.

Understanding LHC Loading

On July 1st 2000, the Australian government began an incentive programme called Lifetime Health Cover. The purpose of LHC is to encourage Australians to take out private hospital insurance, thereby easing the strain on public healthcare.

To ensure that younger people would buy private hospital insurance, the government introduced the concept of loading. Here is how loading works.

If you have private hospital insurance before turning 31, you do not need to worry about LHC loading as long as you maintain the cover for ten years.

Suppose you elect not to purchase private hospital insurance before 31 and decide to buy it later. In that case, you will pay a surcharge of two per cent loading on top of your hospital premium for every year you are aged over 30, based on your age the July 1st before joining. The maximum percentage you can pay is 70 per cent. If you maintain your private hospital cover for ten years, the loading charge ends, and you pay only the premium.

For example

  • Ross decides to purchase private hospital cover. He is 41 years old and has never held private cover. Because Ross is 11 years beyond his 30th birthday, he will pay a loading charge of 22 per cent. (The two per cent surcharge times the 11 years he waited past his 30th birthday) If Ross keeps his private hospital cover for ten years, he will no longer need to pay the 22 per cent loading charge. However, if at some point Ross allows his cover to lapse, he will have to pay the loading charge for another ten years

The Medicare Levy Surcharge

If you do not have private hospital cover, you will pay the Medicare Levy Surcharge. This is a fee of 1-1.5 per cent charged to Australians who make $90,000 a year individually or $180,000 for couples. The incentive attached to the Medicare Levy Surcharge is that you will not pay the MLS if you buy private hospital cover. Many Australians who make less than the individual amount of $90,000 or the family amount of $180,000 find the MLS is a low influence on choosing to buy private hospital insurance or not.

You should note that the MLS is entirely separate from the Medicare Levy of two per cent that the majority of Australians pay.

Australian Government Private Health Insurance Rebate

The rebate Australians get for purchasing private hospital insurance is a significant incentive to choose to buy private health insurance. The rebate depends on income and adjusts according to the recipients’ age. The rebate has an individual base tier of less than $90,000. The base family rate is less than $180,000.

Australians who qualify for the rebate program can receive the rebate in one of two ways,

  1. Having lower premium charges from your private health insurers is a popular choice for those who want to make smaller upfront payments.
  2. The tax offset is the second way to take advantage of your payment. Contact the Australian Tax Office to make arrangements to receive your rebate this way.

It is easy to become puzzled when working out your best options for health insurance. Adding tax ramifications to the equation can cause genuine confusion for the savviest among us.

If this describes you, avoid the stress and frustration by reaching out to us at Tax Return.com.au. Our tax experts have the experience to get your taxes done right, even if you have a complex tax situation.