Published on December 2, 2015 6:48 am, by Jayn O'Driscoll
Do you know your surcharges from your rebates? Your levies from your lifetime health cover loading? Having a solid understanding of how your health insurance impacts your financial situation has the potential to save you hundreds of dollars at tax time.
Here are five things everyone should know about private health insurance and their tax:
1. Paying for private hospital cover may be cheaper than going without.
The Medicare Levy Surcharge (MLS) is an extra tax that only applies to Australian singles earning over $90,000 per year, or couples and families earning over $180,000, who don’t have private hospital cover. If you fall into this category, you’ll be paying at least 1% of your income each year on the MLS (that’s $900 per year if you’re a single earning $90,000). Depending on your level of cover and the terms of your policy, this may well be higher than the cost of taking out private hospital cover… so joining health cover might actually save you money.
2. You might be eligible for a rebate on the cost of your health insurance premiums.
As a further incentive to take out private health insurance, if you’re earning under $140,000 as an individual or less than $280,000 as a couple or family you will probably be eligible for a rebate on your health insurance costs. If the oldest person on the membership is aged less than 65 you rebate will be between 9% and 28% – depending on your income. You can either claim this rebate as a one off cost at tax time or as a reduction in the cost of your premiums throughout the year.
3. The older you are, the higher your rebate.
Once you turn 65 you can claim a higher rebate to help you meet the cost of your private health insurance. This can help make health insurance more affordable if you’re retired, or provide you with extra financial support if you need to take out a policy with a more comprehensive level of cover, so you have extra protection against high medical costs. The rebate increases when you turn 65 and then again at 70.
4. If you don’t have private hospital cover by the time you turn 31 you could be paying higher premiums for the rest of your life.
Procrastination is not your friend when it comes to taking out private health insurance. If you leave it too long you could find yourself paying higher premiums for your private hospital cover. The current cutoff date is July 1 after your 31st birthday. If you haven’t taken out private hospital cover before then you could be liable for a loading on your private hospital cover when you eventually join. Each year you delay joining private cover you’ll attract a loading of 2% to your overall hospital cover costs (up to a maximum of of 70%). Delay for 10 years and that’s a 20% penalty!
5. To get the right rebate, you need to include your spouse’s details.
If you have a partner, your income threshold for the private health insurance rebate is determined by your combined household income. This means that if you want to be assessed correctly you need to include your partner’s income when nominating your health insurance rebate. If you fail to declare your partner’s income you might have to repay some or all of your previously claimed rebate
Knowing how your health insurance relates to your tax can help you make an informed decision when you’re thinking about your options. Given the current Government incentives, getting private hospital cover may be more affordable than you realise.
This is general information only. Choosewell is a specialist private health insurance broker and is unable to provide taxation advice. You should seek your own advice about financial and taxation matters from an independent taxation expert.
Jayn O'Driscoll is Marketing Manager at Choosewell, an Australian Health Insurance Comparison Service that is committed to helping people find the right health insurance products at the best price. Jayn has been in the Financial Services Industry for 15 Years.