Countless Australians don't concern themselves with private health insurance until they wish they had it. That may be because most believe that Medicare and the public system covers them for ambulance and emergency services as well as specialist care, according to a recent Pureprofile study.
Unfortunately that's often not the case and there are many other widely held misconceptions about health insurance in Australia. In order to start clearing the air, we've had a closer look at the little known details of private health insurance's tax benefits.
Thanks to a raft of handy rebates, government incentives and other savings, the price you are quoted may be far more than what you end up paying.
Tax back to cover your premiums: Private health insurance rebate
The vast majority of Australian citizens with health insurance will receive a private health insurance rebate from the Australian Government to help subside the cost of their premiums. This rebate is income tested and depends on your age.
You can have the rebate deducted directly from your premium payments or claim it in your tax return at the end of the financial year. The following are just a few examples of how much you could be saving if you're under the age of 65:
- Singles with an income under $90,000 receive 25.9 per cent of the cost of their premiums back; and
- Families with an income under $180,000 will receive the same.
- Singles with an income over $90,000 but under $105,000 will receive 17.3 per cent; and
- Families with an income over $180,000 but under $210,000 will receive the same.
If you're over the age of 65 you could receive an even larger rebate. In fact, those who are 70 plus and earn under $90,000 a year could receive a rebate to the value of 34.6 per cent of their premiums.
Private health insurance's tax savings: Medicare levy surcharge
Australia's health system is consistently recognised as one of the best in the world by the World Health Organisation. The Medicare Levy Surcharge may be one of the reasons why – it's a smart tax that incentivises higher earners to take out private health insurance by taxing them if they don't.
This helps takes pressure off the public health system so that it can focus on helping those who may not be able to afford private care. If you earn under $90,000 you won't be affected by this extra tax. However, if you earn over that amount, the Medicare Levy Surcharge will increase on a sliding scale as follows:
- Single earning between $90,001 and $105,000: 1 per cent.
- Single earning between between $105,001 and $140,000: 1.25 per cent.
- Single earning over $140,001: 1.5 per cent.
That means if you earn over $140,000 you'll pay an extra $2100 tax at the end of the financial year if you don't take out private health insurance. Even if you're earning $90,001 you'll be looking at a tax bill increase of $900.
Canstar estimates that the average annual cost of hospital and extras cover is around $2,000. That means high earners could save on their tax and enjoy a high quality of private care simply by taking out the right private health insurance.
The longer you wait to take out health insurance after 30 the more you'll end up paying
The sooner the better: Lifetime cover loading
Lifetime Health cover is another smart government incentive that encourages people to take out hospital insurance earlier in life and maintain their cover.
If you don't have hospital cover with a registered Australian fund on your Lifetime Health Cover base day (after the 1st of July following your 31st birthday), then you pay a 2 per cent loading on top of your premium every year you are aged over 30. The maximum loading is 70 per cent.
In simple terms, the longer you wait to take out health insurance the more you'll end up paying. For example if you took out hospital care at age 40 you'd pay 20 per cent more.
With July 1 upon us, Australians over 30 without health insurance have a chance to get in before their premiums increase again (not to mention enjoy the countless benefits of private health insurance.)
Buying with the best advice
The average Australian won't know the ins and outs of health insurance: the myriad tax benefits, or why it's so essential. And fair enough, we've all got plenty other things to worry about. By getting non-biased, tailored advice courtesy of an experienced consultant here at HICA you can be sure you make the most of all of private health insurance's benefits.