Do you understand the Medicare Levy Surcharge (MLS)? In order for the health insurance industry to stay viable and for premiums to remain affordable for all Australians, the Howard Coalition government introduced the MLS in the early 2000s. It was a way of encouraging higher income earners who didn't have private health insurance (PHI) to participate in PHI, otherwise they would have to pay a penalty. That's according to Private Health Australia.
So, if you're a higher income earner and you do not have PHI, you've likely been paying the MLS. But do you know how much you are paying? Most people who are unnecessarily paying the MLS do not know it, because it's all deducted from any tax refund at the end of the year.
A higher income earner, as stated by Dr Rachel David in an article released on January 26, is a single person with an income above $90,000, or a couple (or family) with a combined income above $180,000. The point of the MLS was to ease the pressure on the public health system by incentivising individuals and families to take out PHI. With PHI and hospital cover, when injured or sick, those covered by their health insurance wouldn't take up the same resources in the public system.
Why penalise the higher income earners?
PHI is an advantageous thing to have – but it can also be an expense that some find difficult to afford. Dr David states that the average income of someone covered by PHI in Australia is $50,000 per year or less. People who earn more have the capability to afford PHI, which is why the thresholds were set at $90,000 and above.
Of course, the thresholds increase depending on the size of your family (if you have children). The thresholds increase by $1,500 for every child you have after the first. Further, if you're in a de facto relationship, or you're a single parent, the income threshold counts as if you were a couple.
The surcharge thresholds increase by $1,500 for every child you have after the first.
The MLS is calculated based on your income, and is a percentage between 1 and 1.5 per cent (the latter only applies if your income is $140,001 or above for a single person, or $280,001 for a couple). To avoid paying these fees, all higher income earners need to do is take out a PHI policy. It's good for your health, and it helps the public system to avoid overcrowding.
Can you be exempt from the Medicare Levy Surcharge?
No matter your income levels, there are certain exemptions you may be eligible for if you do not have PHI. For example, Private Health Australia states that if you are a prescribed person without any dependents, you will not have to pay the MLS.
If you are a prescribed person without any dependents, you will not have to pay the MLS.
For people who bought PHI prior to May 24 in 2000, that had an excess greater than $500 for a single person and $1,000 for a couple or a family, you are also exempt as long as you maintain payment for that same policy. Even if you earn above the thresholds for the MLS, you will not have to pay.
On the other hand, higher income earners with hospital insurance who have a PHI policy with an excess no greater than $500 for a single and $1,000 for a couple will also be exempt. Overall, the MLS is designed to encourage people who can most afford PHI to participate and ultimately protect the integrity of the public hospital system, because they will not be burdening the system if they require hospital treatment. At the same time, the MLS penalises people with a higher income who do not take out PHI, because if they were to fall ill or become injured, they would be in the public system.
The higher your income, the greater the MLS (the higher the penalty for not having appropriate cover). In order to not pay the MLS, you simply need to take out a suitable PHI policy. For help getting the most appropriate one for your needs, make sure you contact HICA today.