It seems that every second bus stop, billboard and banner ad is advertising private health insurance at the moment, with most blaring to get your cover sorted before June 30. But what’s all the hoo-ha about?
If you’re in the dark about the tax implications of private health insurance, or sceptical about the banner ads baiting you to take an interest, here’s a rundown of what you need to know.
If you don’t have cover, you may have to pay extra tax.
To encourage people who can afford private health insurance to take out cover, the government charges a Medicare Levy Surcharge to higher income earners who don’t have private hospital cover.
The goal is to have fewer people relying on the public health system.
So if you earn above the Medicare Levy Surcharge threshold – the base income threshold is $90,000 for singles and $180,000 for families – and don’t have private patient hospital cover, you could be taxed an extra 1 to 1.5 per cent of your annual income.
This is charged on a pro-rata basis, so if you take out cover part-way through the year, you’ll only be charged for the portion of the year you weren’t covered.
You may also have heard about the Private Health Insurance Rebate. This is a means tested rebate paid by the Australian government to help cover the cost of your premiums, and is generally automatically applied by your health insurer.
Simply put, the higher your income, the higher your premiums will be.
If you get cover before you turn 31, you can avoid paying more for insurance in the future.
The other surcharge you need to know about is Lifetime Health Cover. This is a 2 per cent loading applied to your premiums if you purchase hospital cover after the 1st of July following your 31st birthday.
So, if you take out hospital cover when you’re 33, you could pay up to 4 per cent more than someone who first took out hospital cover before the 1st of July after their 31st birthday. If you wait until you’re 35, you could pay 8 per cent more, and so on.
Again, the aim is to encourage people to take out hospital insurance earlier in life and maintain their cover to reduce pressure on the public system.
So these are the main reasons why you’re being pasted with ads from private health insurers at the moment.
People without health cover who have turned 31 this year, or who expect to earn over $90,000 next financial year, should probably pay attention.
Otherwise, there’s no hard deadline to sort your stuff out, but keep in mind there are other benefits to taking out private health cover apart from avoiding surcharges, and it’s worth thinking about how cover could help you.