2 big changes to health insurance rules from 1 July: Will you pay more?
The Medicare Levy Surcharge and the Australian Government Rebate are changing for the first time in 8 years.
From 1 July, two thresholds are increasing in health insurance.
Change #1: The Medicare Levy Surcharge (MLS) threshold is increasing
Previously, the MLS applied to anyone earning more than $90,000 as a single person or $180,000 for de-facto couples.
It is an additional tax you pay to contribute towards Medicare (rates below), on top of the 2% Medicare Levy, which applies to most Australian taxpayers.
As of July 1, this threshold is going up. If you make more than $93,000 per year individually or $186,000 as a couple, you'll have to pay the MLS if you don't hold hospital cover.
The MLS is pro rata, meaning it's calculated on a daily rate. It must be paid every day if you don't have insurance within a financial year.
How much is the MLS without health insurance?
It's either 1%, 1.25% or 1.5% of your yearly earnings, depending on your income tier.
Let's take a look at 3 examples if you're single:
| MLS tier & base earning rate | Income example | Added MLS tax charge |
|---|---|---|
| 1% – $93,001 (and above) | $95,000 | $950 |
| 1.25% – $108,001 (and above) | $110,000 | $1,375 |
| 1.5% – $144,001 (and above) | $150,000 | $2,250 |
And some examples if you're a couple or family with 1 child*:
| MLS tier & base rate | Income example | Added MLS tax charge |
|---|---|---|
| 1% – $186,001 and above | $190,000 | $1,900 |
| 1.25% – $216,001 and above | $225,000 | $2,812 |
| 1.5% – $288,001 and above | $300,000 | $4,500 |
(*An extra $1,500 is added to the threshold per child after your first. Any such dependents must be covered by your hospital cover to avoid the surcharge.)
How can I avoid paying the MLS ( ie. more tax)?
You can avoid paying the MLS by taking out hospital cover.
It's usually possible to take out a policy that costs less than the extra tax you'll pay, and which provides you with a level of private health insurance, a win, win!
We've pulled together some of the top health insurance deals – from funds including ahm, HBF and AIA – that can help you save at tax time.
What else should I know about the MLS?
Things can get a bit tricky if your circumstances change during the year, or if you structure your finances in certain ways.
"Your net income, after tax deductions, on which you pay the MLS may end up being significantly higher than what you show on your tax return", explained Craig Wood, a tax expert and growth accountant.
According to Wood, Director of Sculpt Accountants & Advisors, common examples include:
- Additional super contributions
- Investment wins and losses
- Receiving fringe benefits (for example a car)
- Starting or ending a relationship.
Wood added that it's best to speak with an accountant if you package your salary in any way, or have any investments, to see how this would affect the calculation of your MLS.
Change #2: Rebate tiers are increasing
Another change coming for private health customers is an increase in the thresholds for the Australian Government Rebate.
This is the amount the government pays towards your health insurance premiums.
The thresholds – which are income-based and factor in your age and family status – will go up from 1 July.
Each tier will go up by around $3,000 for individuals and $6,000 for couples. Take a look at which rebate tier you fall into after 1 July.
Do I need to take action?
Most people won't need to take any action at tax time. Typically, health funds apply the rebate directly and you pay a lower premium upfront.
That said, it's important your health fund has the right information about your earnings bracket.
If, for example, you're in a lower income tier than you should be, you might be claiming a higher rebate than you should.
Example: Let's say your health fund thinks you earn $92,000 per year. This means you'd get 24.608% back on your premiums. But if you get a pay rise to $100,000, you ought to be on the 16.405% rebate tier. In this case, the ATO would charge you a shortfall in your following tax return.
This may be a challenge in light of recent Finder research showing that 1 in 7 Australians (15%) – around 3 million people – plan to withdraw their tax refund to pay for household bills.
What if I've recently turned 31?
The closer it gets to 1 July, the more people will be impacted by the Lifetime Health Cover (LHC) loading.
That's because an additional 2% gets lumped on your health insurance premiums each year you fail to take out hospital cover during the financial year after your 31st birthday.
Let's say you turned 31 in May this year. If you later decide to take out pregnancy health cover at 33, then you'd have to pay a 6% loading on your premium after 1 July 2025.
Basic hospital cover, which is available from around $19 per week, lets you skip the LHC. Just as it does for the MLS.
Find a health insurance deal and score yourself a win at tax time.