Tax and Health Insurance Explained
By Bryan Wright
You might have heard of a tax, and a turning 31 thing that have something to do with health insurance and June 30… What’s the deal with all that? And do you have to worry about it? …Maybe. It all depends on your age, your income and whether you have health insurance… Basically, around 20 years ago the Australian Government introduced two financial incentives: the Medicare Levy Surcharge tax and Lifetime Health Cover loading. Their job was to get more people buying private insurance and going to private hospitals, to take the pressure off the public hospital system. Not sure what it all means for you? No problem—we’ll break down the jargon for you. First up, The Medicare Levy Surcharge. The Medicare Levy Surcharge is a tax. You’ll pay it if you don’t have hospital insurance and your income is more than $90,000 as a single or $180,000 as a family. The tax sits at 1 to 1.5 percent tax depending on your “income”. FYI, ‘income’ has a special meaning when it comes to the Medicare Levy Surcharge —it’s different from regular taxable income you earn at work. The Australian Tax Office’s website has heaps of helpful info if you’d like more detail, but for now, How do you avoid the tax? Hospital Insurance.– You’ll avoid the Medicare Levy Surcharge if you take out hospital insurance. Just be aware that if you only take out Extras insurance, the Surcharge will still apply. Once you have hospital insurance, you’ll only pay the tax for the days of the financial year you didn’t have cover. Where does June 30 come in? Actually, it doesn’t matter at all. You can take out hospital insurance whenever you want to avoid the Medicare Levy Surcharge. Some people take it out by June 30 to have a clean slate for the coming financial year, but that’s entirely up to you. While June 30 doesn’t matter at all for the Medicare Levy Surcharge, it matters A LOT for the government’s second incentive: Lifetime Health Cover loading… Lifetime Health Cover loading is an extra cost added to the base price of hospital insurance. You’ll get hit with the loading if you wait until you’re 31 or older to take out hospital insurance. When you do get hospital cover, for every year you’re over 30, you’ll pay an extra 2 per cent on top of your usual hospital insurance premium. This can go up to 70 percent. Let’s say you take out hospital cover for the first time at 40-years-old —you’ll be paying 20 percent more in loading than the 30-year-old you. To avoid the loading, all you need to do is take out private hospital cover on or before July 1st, following your 31st birthday. Say your birthday is ‘here’… you have until ‘here’ to get hospital cover and avoid the loading… But if your birthday is ‘here’… you only have until ‘here’ to get hospital cover… Just make sure you get covered in time… even one day over the deadline and the loading starts. If the deadline has passed for you, it’s not too late to get hospital cover. The good news is, the loading is capped at whatever age you take out cover. So, the sooner you get it, the better. Plus, once you’ve held hospital cover for a continuous 10 years, the loading is removed. If you get hospital insurance, there’s a third government incentive that can help make it cheaper. The Australian Government Rebate on Private Health Insurance. The rebate is a government subsidy that makes health insurance more affordable. You can apply it to hospital, extras and ambulance insurance. You have two options to claim the rebate: apply it to your health insurance premium to bring down the price, or claim it back at tax time. Generally, you sort your rebate out when you sign up for health insurance, so you’ve probably already got it. But if you’d like to check, just chat with your health fund. And that’s everything you need to know about health insurance, tax and the June 30 deadline. If you’ve got any more questions, or just want to chat to someone about health insurance, get in touch with your health fund and they’ll be able to help you out.