The Australian Government provides certain incentives to encourage all Australians to take out private health insurance.
The Australian Government Rebate on private health insurance (Rebate)
The Australian Government Rebate on private health insurance (Rebate) is an incentive whereby you’re offered a Rebate on your private health insurance premiums. The level of Rebate on private health insurance is based on your household income and the age of the oldest person covered by the policy.
If you’re eligible for a Rebate you can choose to receive it either as a reduced premium or in a lump sum at tax time. Most people choose to take advantage of the lower premiums. See your State Premiums & Benefits Guide to help you work out which Rebate Tier may be applicable to you.
For more information on how to claim at tax time, visit ato.gov.au
Lifetime Health Cover (LHC) Loading
The Lifetime Health Cover (LHC) Loading is a legislated requirement that encourages you to take out private hospital cover early on in your life. You’re rewarded with lower premiums for taking out cover and maintaining it. This is how it works: if you wait until you’re aged 31 and take out private hospital cover in the following financial year, premiums will be 2% more expensive. This increases by 2% for each subsequent year you delay taking out private hospital cover. This additional percentage is called the LHC Loading.
For example, if you wait until you’re 40, you end up paying 20% more on your private hospital cover. Similarly if you wait until you’re aged 50, you end up paying 40% more.
The LHC Loading is capped at 70% at age 65, and removed after 10 continuous years of appropriate private hospital cover.
In other words, the earlier you take out private hospital cover, the better, as deferring your decision can be costly.
Medicare Levy Surcharge (MLS)
Medicare Levy Surcharge (MLS) is a levy you should be aware of. Most Australian taxpayers are charged a 2% Medicare Levy. However, those who do not have appropriate private hospital cover may have to pay an additional levy called the Medicare Levy Surcharge (MLS).
A 1% MLS applies to couples or families without hospital cover who have a combined annual income greater than $180,000*, and singles earning more than $90,000*. This increases aligned to the income tiers as shown in your State Premiums & Benefits Guide. Family thresholds are increased by $1,500 for the second and subsequent dependent child.
Both partners must have hospital cover; otherwise both have to pay the levy. If you have dependent children they also need to be covered by a policy or you may have to pay the levy, even if you’re separated. If you’re unsure how this might affect you, we recommend you seek further advice from your tax advisor or the Australian Taxation Office. For details on what income is included in the assessment please contact the ATO or refer to their website.
*Effective for 2019/20 and 2020/21 income years.