Had a pay rise or turned 31? Health insurance could save you 1.5% in tax
How to save money by taking out private health cover before 1 July.
Tax and health insurance are super important topics.
Now, do they occupy as much of my brain as this weekend's gin tasting? Or that last episode of Succession? Or literally every trick combo from Tony Hawk's Pro Skater 2, etched in my mind forever after just one boring summer in 2001?
No, no they do not. But they really should. Here's why – promise I'll be quick.
If you answer "yes" to 1 of these 3 questions, you might consider getting health insurance before 1 July:
- Will you earn more than $93K per year, or $186K as a couple, after 1 July?
- Did you turn 31 in this current tax year?
- Will you turn 31 before 1 July?
This is because of 2 alphabet-soupy government schemes that make you pay more when you don't have hospital cover: the MLS and the LHC.
Why your new wage matters
It's important because – hold the front door – the government is changing the Medicare Levy Surcharge (MLS) thresholds for the first time in 8 years. Crazy, I know.
What's the MLS? Basically, it's an added tax of 1%, 1.25% or 1.5% on your income if you don't hold hospital cover.
The exact charge depends on how many dollarydoos you make.
Previously, the MLS applied to anyone earning more than $90,000 as a single person or $180,000 for de-facto couples.
From 1 July, these numbers go up to $93,000 and $186,000 respectively.
If you've had an EOFY pay bump into these ranges – nice! You earn a good amount more than most Aussies.
But there's also good reason why you may want to get a move on with your insurance.
How the MLS works, with examples
Here are 3 examples of different incomes* and how they'd be taxed by the MLS (assuming you're single).
| Income | MLS tier | Annual cost (if you don't have hospital cover) |
|---|---|---|
| $95,000 | 1% | $950 |
| $110,000 | 1.25% | $1,375 |
| $150,000 | 1.5% | $2,250 |
*Note. If you have more than 1 child, do a quick head count and add an extra $1,500 per kid to the threshold. It might help you sneak under the threshold, and it'll be a good reminder on how many mouths you've gotta feed.
So, a single person earning $95K per year would pay an extra $950 in tax.
This is a smidgen more than $79 per month. Yet, the cheapest eligible health insurance plan on Finder costs only $76.37.
How can I avoid the MLS?
Put simply, take out basic hospital cover with an excess of $750 or less.
Now that will leave you with a pretty entry-level hospital policy, but it should have emergency ambulance cover, which is cool. You can also upgrade later if you need to.
It also saves you a few extra bucks each month. And in this economy, you can't afford not to.
OK, tell me about what happens if I've just turned 31
It means you're getting on a bit – welcome to the future, grandpa.
Aside from smile lines, your newly minted middle age also means you'll be subject to the Lifetime Health Cover (LHC) loading.
It means that 2% gets added (annually) to the cost of health insurance for you if you fail to take out cover during the financial year after your 31st. That's assuming you aren't exempt.
The loading snowballs by a further 2% each year that you don't hold hospital cover.
So, if you wait until you hit 41 to get hospital cover, you'll be charged an extra 20% on top of your premium.
It only caps out once it gets to 70%, when you hit 65. Which ain't that far away anymore. Soz.
When exactly does the loading apply?
Let's say you turned 31 in April 2023. Your LHC "base day" is 1 July 2023.
If you don't get hospital insurance until August, you'd be hit with the 2% loading.
This could happen to Cameron Micallef, who doesn't currently hold health insurance.
"I hadn't really given private health cover much thought but after my 31st, the government sent me out a letter reminding me that I'll need to get insurance or pay for the lifetime loading," explained Micallef, a writer at Finder.
Micallef added: "While I'm a healthy(ish) person today, age catches up with all of us. So for me it's a case of paying a little bit now to avoid a larger bill in the future."
How to not be like Cam
We love Cam, and we love you. Hopefully both you and Cam will do what's good for you, like doing some kickflips on your old copy of Tony Hawke.
But first, also maybe think about getting hospital insurance.
Compare basic hospital cover and avoid the MLS or the LHC. If you want more peace of mind, check out our best health insurance picks for June 2023.
