Health Insurance Tax Benefits: How & When Can You Save?

The ACCC has issued a warning on potentially misleading claims about the tax benefits of health insurance. So when could it be a benefit to have insurance?

Doing anything simply because you’ll get a tax benefit is not a good idea. There are plenty of examples of investment that have been sold on the basis of their tax deductibility over the years and that have not quite panned out the way investors may have been expecting.

The same is true of health insurance: taking out a health insurance policy just because it will reduce your tax or worse – assuming that it will reduce your tax when actually it doesn’t – is not a great strategy.

That being said, it’s not a bad idea to take out a health insurance policy regardless! There are many reasons why having health insurance is helpful, and many times of year when checking your health cover is important.

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The Australian Competition and Consumer Commission is warning consumers to be alert to potentially misleading claims about the tax benefits of obtaining private health insurance.

“Private health insurers should be upfront and clear with consumers about the benefits and conditions of their policies, including the circumstances in which any tax saving may occur,” ACCC Chairman Rod Sims said.

So when may there be a tax benefit to taking out health insurance?

what are the health insurance tax facts

What are the health insurance tax facts?

There are three ways in which the government imposes a financial consequence for not having private health insurance, as follows:

1. Lifetime health cover loading

If you don’t purchase hospital cover by the 1st of July following your 31st birthday, you will pay the Lifetime Health Cover (LHC) loading on top of the premium of any hospital cover you later purchase.

Hospital Cover Policies

Keep in mind that July 1 isn’t the only important date when it comes to health insurance!

LHC loading is a cost designed to encourage young people to have private health insurance. Note that the type of health insurance cover you require in order to avoid the LHC loading is specifically hospital cover, not just extras cover.

Related articleWhat Is Hospital Cover?

Here’s what your options look like if you’re looking to take out a hospital cover policy before your 31st birthday. The table below shows Hospital Cover Only policies available on the Canstar database for a single male born 1987, who is living in NSW, sorted by star rating (highest to lowest) with links direct to the provider’s website:

Compare Hospital Cover Health Insurance

The amount of lifetime health cover loading you will pay depends on your age at the time that you take out private health insurance. Each year will attract an extra 2% of loading to the hospital cover premium.

As an example, someone who is 40 when they take out private health insurance hospital cover could pay an extra 20% premium. The maximum LHC loading that can be applied is 70%, and your LHC loading can be removed after you have completed 10 years of continuous health insurance cover.

There are a number of special circumstances and exemptions to the lifetime health cover loading; you can find out more about lifetime health cover loading on the Private Health Insurance Ombudsman website, or we have a summary here on the Canstar website.

For more information about life stages when health insurance can offer a benefit, read this article, or read our guide specifically about health insurance for young adults before choosing a Hospital Cover policy.

2. Medicare Levy Surcharge

The Medicare Levy Surcharge (MLS) is levied on payers of Australian tax who earn above a certain amount in annual income, and who do not have private hospital cover.

Everyone who earns over $26,668/year pays the Medicare Levy, but not everyone pays the Medicare Levy Surcharge.

This means only high income earning individuals with a taxable income above $90,000/year and couples with a taxable income above $180,000/year will avoid the Medicare Levy Surcharge by purchasing an appropriate level of private health insurance.

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medicare levy surcharge

The current income levels relating to Medicare Levy Surcharge are as follows:

Medicare Levy Surcharge Thresholds
Annual Income Level Surcharge Rate Charged
Singles Families
<$90,000 <$180,000 0.00%
$90,000 – $105,000 $180,000 – $210,000 1.00%
$105,000 – $140,000 $210,000 – $280,000 1.25%
>$140,000 >$280,000 1.50%
Source: privatehealth.gov.au as at June 2017. Single parents and couples (including de facto couples) are subject to family tiers. For families with children, the thresholds are increased by $1,500 for each child after the first. 

Health fund marketing to consumers in relation to the Medicare Levy Surcharge seems to be the main area of concern for the ACCC.

Health funds can market products to make it seem like most – if not all – Australians would be paying the Medicare Levy Surcharge if they didn’t purchase that product.

“The ‘save on tax’ claims promoted by many private health insurance companies and comparator websites may result in consumers rushing to purchase private health insurance to avoid a tax that most consumers don’t have to pay,” ACCC Chairman Rod Sims said.

“The ACCC considers that these companies are potentially misleading consumers and gaining an unfair competitive advantage, by making representations that leverage off many consumers’ lack of knowledge about the application of the Medicare Levy Surcharge.”

save-on-tax

Here’s a sample of your options if you’re looking to take out a hospital cover policy to avoid paying the Medicare Levy Surcharge. The table below shows Hospital Cover Only policies available on the Canstar database for a single male born in 1955, who is living in NSW, sorted by monthly premium (lowest first) with links direct to the providers website:

Compare Hospital Cover Health Insurance

3. Private health insurance rebate

Most Australians with private health insurance currently receive a rebate from the Australian Government to help cover the cost of their premiums. The private health insurance rebate is income tested.

The table below details the different rebate amounts and Medicare Levy Surcharge levels:

Private Health Insurance Rebate Thresholds
  Annual Income Level
Singles
Families
<$90k
<$180k
$90k-105k
$180k-210k
$105k-140k
$210k-280k
>$140k
>$280k
Standard Tier 1 Tier 2 Tier 3
< age 65 25.934% 17.289% 8.644% 0%
Age 65-69 30.256% 21.612% 12.966% 0%
Age 70+ 34.579% 25.934% 17.289% 0%
Source: privatehealth.gov.au as at June 2017. Single parents and couples (including de facto couples) are subject to family tiers. For families with children, the thresholds are increased by $1,500 for each child after the first.

There are plenty of benefits in holding private health insurance – but if you’re signing up simply to get a tax benefit, check your facts first.

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How to compare Hospital Cover health insurance for tax

Canstar offers a wealth of information when it comes to what you need to know about health insurance. After all, not all Hospital Cover policies are the same – some provide better value than others.

Learn more about Hospital Cover and what it covers in this article, or get straight to comparing policies:

Compare Hospital Cover Health Insurance

healthy-choices

Not only does Canstar compare health insurance policies for you to search for the right policy for you, but we also provide guides to what you need to know about health insurance, including:

Check out the latest health insurance sign-up promotions and deals, or start comparing health insurance options available in Australia using the Canstar website:

Compare Health Insurance

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