Why would I consider Private Health Insurance?

Rohan Brown • September 25, 2024

In Australia, private health insurance is not just about securing better healthcare options; it also plays a significant role in tax obligations. Here is why having private health insurance can be beneficial for your tax situation:

When considering Private Health insurance for tax purposes, the coverage referred to is Hospital coverage only. Having Ancillaries does not benefit or affect the items below. Also be aware where you are a family, all family members (referred to as dependants) must be covered by the hospital cover.

1. Avoiding the Medicare Levy Surcharge (MLS)

The Medicare Levy Surcharge (MLS) is an additional tax imposed on high-income earners who do not have an appropriate level of private hospital cover. If your family income exceeds a certain threshold (currently $97,000 for singles and $194,000 for families), you could be paying an extra 1% to 1.5% of your income in MLS. By taking out private health insurance, you can avoid this surcharge and potentially save money. However, you must consider the cost of the cover versus the additional Medicare costs, versus the benefit of having the cover.

2. Lifetime Health Cover (LHC) Loading

Lifetime Health Cover (LHC) loading is a government initiative designed to encourage people to take out private hospital cover earlier in life. If you don’t have private hospital cover by the 1st of July following your 31st birthday, you’ll pay a 2% loading on top of your premium for every year you are over 30 when you do take out cover. This loading can add up quickly, making it more expensive to get insured later in life. By getting private health insurance early, you can avoid these additional costs.

3. Private Health Insurance Rebate

The Australian Government offers a rebate to help with the cost of private health insurance premiums. This rebate is income-tested, meaning the amount you receive depends on your income and age. For many, this rebate can make private health insurance more affordable and reduce the overall cost of premiums. Be mindful of your incomes as they creep up, since the rebate reduces and certain income levels and we find many clients claiming the full rebate when paying the premiums, just to have receipt a payable tax assessment as a result of repaying some or all the rebates.

4. Non-Tax related benefits

While direct tax deductions for medical expenses were phased out years ago, having private health insurance can still indirectly benefit your financial position. By covering a broader range of medical expenses through your insurance, you can reduce out-of-pocket costs, which can be financially advantageous. Having health insurance can significantly reduce the wait time and access to specialist medical advice and hospital admittance, especially where the needs is considered elective or non-life threatening.

Conclusion

Private health insurance in Australia offers more than just peace of mind and access to a wider range of healthcare services. It can also provide significant tax benefits, helping you avoid additional surcharges and take advantage of government rebates. By understanding these financial incentives, you can make a more informed decision about your health insurance needs and potentially save money in the long run.

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