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Health Insurance And Your Tax: Uncovered

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If you don’t hold private hospital cover – or are thinking about dropping it – make sure you understand the financial consequences. You could be hit with an extra tax surcharge of up to 1.5% or cost yourself extra premiums in future. Don’t get stung!

Medicare levy surcharge

The Medicare levy surcharge (MLS) is a tax penalty you must pay if you earn above a certain amount and don’t take out a sufficient level of private hospital cover for you and all of your dependants. It’s designed to give you a financial incentive to insure privately.

If you’re a very high income earner, holding private hospital cover to avoid the MLS makes tax sense. If your income is lower but still above the relevant singles or families threshold (outlined below), you may want to find a hospital cover policy (not “extras only”) that suits your budget.

Income for MLS purposes: rate of MLS for singles and families:

$90,000 or less for singles ($180,000 or less for families): nil
$90,001 – $105,000 ($180,001 – $210,000 for families): 1%
$105,001 – $140,000 ($210,001 – $280,000 for families): 1.25%
$140,001 or more ($280,001 or more for families): 1.5%

Note that the MLS is separate to the “Medicare levy”, a 2% levy on your taxable income that most Australians must pay – regardless of whether they have private health cover. So, if you have an MLS liability, you’ll pay this as well as the Medicare levy!

Lifetime health cover loading and the rebate

Lifetime health cover (LHC) loading encourages Australians to maintain private health cover from an early age. If you don’t take out private hospital cover by the year you turn 31, then if and when you take out cover in future, you’ll have to pay an extra 2% of your premium for every year that you’re aged over 30. This penalty is charged annually until you’ve had 10 years of continuous cover.

LHC loading can affect your tax return as any LHC loading portion of your premium doesn’t attract the private health insurance rebate. The rebate is available to singles with income for MLS purposes of $140,000 or less, and families with income of $280,000 or less.

So, if you’re over 30 and don’t have private hospital cover, it’s time to consider how much each year that you remain uninsured may end up costing you in future premiums.

Come and talk to us about your health coverage. We can help you calculate how much you’ll get back in rebate or how much your uninsured status may be costing you.