Private health insurance – is it worthwhile?

From time to time we get questions from clients where they ask if they should have private health insurance. While it is a very personal decision, sometimes it may make a difference to your tax position when it comes to preparing your tax return.

Let’s dive into some of the common questions asked!

Note: The information provided in this article is accurate as at 30 May 2019.

Q: What is private health insurance?

A: Private health insurance is an insurance policy that you can choose to have, it generally gives you cover to your treatment as a private hospital patient, or to cover some of your out-of-pocket healthcare services where they are not covered by Medicare.

Depending on the insurance company and policy you choose, you can get a range of basic and extras covers, or hospital only cover.

Q: How will an appropriate private health insurance make a difference to my tax position?

A: Where your income is $90,000 or more for the year (or where your family’s income is $180,000 or more for the year), and you or your whole family do not have an appropriate private health insurance policy, Medicare Levy Surcharge will apply, and this will affect your tax liability when you lodge your tax return.

Q: Medicare Levy Surcharge – what is this?

A: Medicare Levy Surcharge (MLS) is an extra tax liability as a result of having an income above the MLS income threshold. It is currently taxed at 1% of your taxable income. If you are liable for MLS, it will be included in your tax return as part of the tax estimates.

Q: If I have appropriate private health insurance – does it mean I don’t need to pay Medicare Levy Surcharge?

A: Yes. As long as you and your family and dependents have the appropriate cover for the period, you will not be required to pay Medicare Levy Surcharge.

Q: What is an appropriate private health insurance cover?

A: A private patient hospital insurance cover that is provided by a registered health insurers for hospital treatment provided in an Australian hospital or day hospital is classed as an appropriate private health insurance cover.

For singles, an appropriate level of cover must have an excess of $750 or less. Couples or families must have an excess of $1,500 or less.

If your private health insurance policy doesn’t provide an appropriate level of private patient hospital cover, and your income for MLS purposes is above threshold for a single or family, you may have to pay the MLS.

General cover, commonly known as ‘extras’, is not private patient hospital cover. It covers items such as optical, dental, physiotherapy or chiropractic treatment.

Travel insurance is not private patient hospital cover for the purposes of the MLS. Similarly, private patient hospital cover does not include cover provided by an overseas fund.

Q: What about Medicare Levy?

A: Medicare Levy is a levy imposed to all Australian tax residents who have access to a Medicare card. Currently it is taxed at 2% of your taxable income. This is a compulsory levy applied and having private health insurance will not help reducing your levy liability.

Q: What is Private Health Insurance Rebate?

A: To encourage Australians to have private health insurance, the government contributes towards the cost of your insurance premiums. The amount of rebate you get depends on your (or your family’s) income. You will need to advise your health insurance company your expected income to avoid over-claiming your rebate.

Q: What happens when my (or my family’s) income is over the rebate income threshold?

A: If you have advised your health insurance company an incorrect amount of your expected income, you may end up been claiming the rebate in the incorrect tier. The result of this is a over- or under-claiming of your Rebate. However this when you lodge your tax return your rebate will be assessed and depending on your (or your family’s) taxable income, there may be adjustments made so the correct rebate is paid.

Q: What happens to my health insurance policy when our dependent children move out?

A: Depending on your situation and your private health insurance policy terms, your children may still be covered under your policy.

For example: generally as long as your children are under 25 of age, they should be covered by your policy. Unless they get married or entered into a de facto relationship before age 25 – they may need their own health insurance to cover themselves.

It is recommended to have the conversation with your private health insurer to ensure you and your children have adequate health cover.

If you have other questions around private health insurance, Medicare levy and Medicare levy surcharge that we haven’t included above, feel free to email us your concerns.