Confused about private health insurance and tax time?
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A guide to health insurance at tax time
Updated 02 April, 2024
Expert tips on private health insurance and tax time
Our health insurance expert, Steven Spicer, has some tips on how health insurance can help you save during tax time.
Steven Spicer
Executive General Manager – Health, Life & Energy
Hold hospital cover for the entire financial year to avoid the Medicare Levy Surcharge
If your income exceeds the tax threshold and you don’t hold an eligible private hospital insurance policy for the entire financial year, you’ll incur the Medicare Levy Surcharge for each day that you did not hold the active policy.
Be careful taking out cover only for tax reasons
It can be tempting to just get ‘the basics’ to avoid the Medicare Levy Surcharge. To ensure you don’t find yourself underinsured, consider any previous hospital admissions and your family’s medical history when looking at different levels of cover.
Keep your excess at $750 or below
If you’re taking out hospital cover for MLS purposes, make sure your excess doesn’t exceed $750 for singles or $1,500 for couples/families. This is the maximum permitted excess for private hospital insurance to avoid the MLS.
Lifetime Health Cover loading
Are you 31 years or older? Beware of the LHC
LHC loading is an Australian Government initiative designed to encourage Australians to take out and maintain private hospital cover earlier in life. The more people who are treated privately, the less pressure there is on our public healthcare system.
How does LHC loading affect you?
If you don’t take out private health insurance by 1 July following your 31st birthday, you’ll start accruing LHC loading on your hospital insurance premium if you choose to take out a policy in the future.
LHC loading accrues at 2% of your base hospital insurance premium for each year you’re over 30 and don’t have hospital cover. Loading is capped at 70%.
You’ll only be impacted by this loading if you take out private hospital insurance after 1 July following your 31st birthday, the LHC is added to your base hospital premium if applicable.
Once you hold hospital cover for 10 continuous years, any LHC loading you’ve accrued is no longer applicable.
Example of LHC
Let’s say you’re 32 years old and are taking out a private hospital policy for the first time. When you pay your policy premiums, you’ll pay an extra 4%.
Or let’s say you’re 40 years old and are taking out a policy for the first time; this means you’ll need to pay an extra 20% on top of your hospital policy premiums. For example, if you’re paying $2,000 annually on a policy, you’d also be paying an extra $400 in LHC loading.
What can you do to avoid LHC loading?
If you’ve been considering health insurance, now might be the time to review policy options before your loading increases by another 2%.
If you want to take out a couples hospital policy, any applicable LHC loading will be averaged between you and your partner.
For example, if your partner has 6% LHC loading applicable and you have 2% loading applicable, you’d be charged 4% loading on your couples policy.
When won’t you need to pay LHC?
Being under the age of 31 or taking out and maintaining a private hospital insurance policy prior to 1 July following your 31st birthday are situations where you may not have to pay the LHC. Here are a few other exemptions that could apply to you.
If you were overseas on 1 July following your 31st birthday
LHC loading won’t start accruing if you weren’t in Australia on 1 July following your 31st birthday. However, you typically need to purchase cover within a year of arriving back in Australia to prevent LHC loading from starting to accrue.
Loading will also not increase if you cancel or suspend your cover to go overseas for more than 12 months. You’ll still be considered as overseas if your visits back to Australia don’t exceed 90 days. If your visit back to Australia does exceed the 90-day period, your Days of Absence* will accumulate for every day past the 90-day period.
*‘Days of Absence’ refers to the number of days you can take a break from your private hospital cover before LHC loading will start accruing. So, if you have cancelled your policy and you are over 31, you will have a total period of 1,094 days in your lifetime before the loading kicks back in.
Similar to Australians who travel overseas, new migrants over 31 will also be given 12 months to purchase a policy from the time they become eligible for Medicare.
Australian Defence Force members who are discharged after 1 July following their 31st birthdays
Since coverage is provided for the Australian Defence Force while serving, members are technically seen as having private insurance. People in this position have the Days of Absence period to register their private health policy without a loading being applied.
Any person who acquired a Department of Veterans’ Affairs Gold Card after 1 July 1999
These cardholders are already determined to have a form of private health insurance, which will be taken into consideration if they’re looking to take out a private cover.
Any person born on or before 1 July 1934
Those who fit this category are exempt from paying the loading.
Medicare Levy Surcharge
Do you earn more than the income thresholds? You might need to pay the MLS
The MLS is an additional levy designed as an incentive for higher income earners without hospital cover to take out a policy. Ultimately, the MLS is designed to help reduce the burden on public hospitals.
If you don’t have an appropriate level of hospital cover and have an annual income of over $93k a year as a single, or a family income of over $186,000, you accumulate the MLS every day you don’t have cover (unless you fall into one of the exemption categories).
In total, you would be charged between 1 and 1.5% of your taxable income each year, depending on exactly how much you earn, which is paid when you complete your annual income tax return.
It’s important to note that the Australian Taxation Office (ATO) calculates your income for the MLS differently than your standard taxable income. Your income for MLS purposes is your regular taxable income (not including any assessable First Home Super Saver released amount) plus any reportable fringe benefits and super contributions, minus your net property and investment losses.1 See the ATO website for more details.
How could the Medicare Levy Surcharge (MLS) affect you?
Let’s say:
- You earn $95,000 per financial year
- You’re single
- You’re not exempt from the MLS
- You don’t have hospital cover for the full tax year.
In this case, your total MLS would be charged at 1% of your taxable income.
This means you may need to pay $950 at tax time.
Our table below outlines how the MLS may impact you this tax time.
| Medicare Levy Surcharge – Income Thresholds | ||||
|---|---|---|---|---|
| Surcharge | 0% | 1% | 1.25% | 1.5% |
| Singles |
Under $93,000 ($0 payable) |
$93,001 – $108,000 (~$930 – $1,080 payable) |
$108,001 – $144,000 ($1,350 – $1,800 payable) |
$144,001+ (~$2,160+ payable) |
| Families^ |
Under $186,000 ($0 payable) |
$186,001 – $216,000 (~$1,860 – $2,160 payable) |
$216,001 – $288,000 ($2,700 – $3,600 payable) |
$288,001+ (~$4,320+ payable) |
|
Retrieved from the Australian Taxation Office | Information current from 1 July 2023. Dollar amounts payable are rounded up. ^For families with children, thresholds increase by $1,500 for each child after the first. Families include couples, de facto couples, and single parents. |
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Can you avoid the MLS?
Not unless you’re earning under the income threshold when MLS starts applying, have a hospital policy (or combined hospital and extras cover) or you fall into one of the exemption categories.
Worried about whether your health insurance can impact your tax return? Remember, having hospital cover goes far beyond its ability to avoid the Medicare Levy Surcharge. While it can be tempting to take out the lowest level of hospital cover to avoid the MLS, there are some great benefits to higher level policies that you might want to take advantage of.
As such, it’s important you consider a competitive cover option that:
- Provides cover towards treatments you need
- Can help you avoid public waiting lists for injuries or illnesses as a private patient
- Offers you a choice of doctor*
- Allows you to enjoy the privacy of your own room*
- Covers the cost of ambulance services in some states.
*Subject to availability.
Our free comparison service makes it easy to find a policy that offers all this and more at a great price.
Medicare Levy
How is the Medicare Levy different to the MLS?
The Medicare Levy is a tax that applies to almost all Australian taxpayers. The main point of difference between MLS and the Medicare Levy is that you’re still charged the Medicare Levy even if you hold hospital cover (so long as you’re not exempt from the levy).
The Medicare Levy partly funds the public health system, Medicare, which provides all Australians with access to free or subsidised healthcare.
How could the Medicare Levy affect you this tax time?
The Australian Taxation Office (ATO) says the Medicare Levy is charged as 2% of your taxable income.2 The levy is included in the total tax withheld from your employer.
When won’t you need to pay the Levy?
You may be exempt from the levy if you’re a single and your taxable income is equal or less than the following thresholds for 2022-23:3
- $24,276 per year
- $38,365 per year for those eligible for the seniors and pensioners tax offset.
You’re only required to pay part of the Medicare Levy if your taxable income is between:
- $24,276 and $30,345 per year
- $38,365 and $47,956 per year for those eligible for seniors and pensioners tax offset.
You may also be exempt if you’re a foreign resident, aren’t eligible to receive Medicare benefits or meet specific medical requirements.
Australian Government Rebate
Do you qualify for the health insurance rebate?
The government’s private health insurance rebate is a benefit paid by the government to help you afford your health insurance policy. This support encourages you to keep cover and ultimately lighten the load on the public healthcare system.
This rebate may be applicable to hospital, extras or combined policies. You can either claim this rebate through your tax return or in the form of reduced policy premiums.
How could the rebate help you?
The rebate amount depends on your relationship or family status, your annual taxable income and your age.
We’ve outlined the rebate percentages below, which may be applied to your health insurance premium depending on the category you fall into:
| Income tiers | Base tier | Tier one | Tier two | Tier three |
|---|---|---|---|---|
| Single income | Under $93,000 | $93,001-108,000 | $108,001-144,000 | Over $144,001 |
| Family income | Under $186,000 | $186,001-216,000 | $216,001-288,000 | Over $288,001 |
| Rebate amount | ||||
| Under 65 | 24.608% | 16.405% | 8.202% | 0% |
| 65-69 | 28.710% | 20.507% | 12.303% | 0% |
| Over 70 | 32.812% | 24.608% | 16.405% | 0% |
|
Source: privatehealth.gov.au. Current from 1 July 2023 Single parents and couples are included in the family tiers. The income thresholds for families with dependent children are increased by $1,500 for each child after the first. |
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The rebate percentages are subject to change every year on 1 April. Learn more about the Australian Government rebate.
What is my private health insurance tax claim code?
When it comes time to lodge your tax return, you’ll need to provide the ATO with a tax claim code so they know what category you fall under to calculate your total rebate amount. This information is often prefilled on your tax return. However, if it isn’t, here is a private health insurance tax claim code list as of November 2023.4
| Tax claim code | Circumstance |
|---|---|
| Tax claim code A |
You’re single with no dependants. |
| Tax claim code B |
You have a dependant child or paid for a dependant-child-only policy. |
| Tax claim code C |
You’re married or in a de facto relationship and want to claim your share of your joint policy or you’re a parent claiming for a dependant-child-only policy. You want to claim your share and your spouse’s share of the rebate for your joint policy, provided that you’re both covered under the same policy for the same period, are together on 30 June and your spouse agrees to the claim. |
| Tax claim code D |
If your spouse claims the rebate for your share of your joint policy, you will automatically fall under this claim code. |
| Tax claim code E |
Your spouse is claiming your share of the rebate for your joint policy. |
| Tax claim code F |
You were covered as a dependent child on a private health insurance policy. |
Why switch health insurance before the end of financial year?
For some, it’s entirely possible the health insurance policy you’re currently on is the best available. If that’s true and none of the below points apply to you, stay with your current fund.
Before you decide to switch, consider the following:
- A new product or health fund may have entered the market during the year. Such policies may offer better value than your existing policy, and you won’t know until you look.
- Your circumstances may have changed. For example, perhaps you’re considering starting a family, or you’re eager to finally fix your teeth with a set of braces.
- Waiting periods don’t have to be re-served when you move from an active policy to lesser or the same level of cover, you will only need to serve a waiting period for any upgrades to your policy.
- The paperwork is handled for you. When you use our service, we organise all the paperwork with your new health fund. In addition, waiting periods you’ve already served will carry over, your LHC status remains unchanged, and any eligible rebates continue to apply.
Meet our health insurance expert, Steven Spicer
As the Executive General Manager of Health, Life and Energy, Steven Spicer is a strong believer in the benefits of private cover and knows just how valuable the peace of mind that comes with cover can be. He is passionate about demystifying the health insurance industry and advocates for the benefits of comparison when it comes to saving money on your premiums.
Want to know more about health insurance?
1 Australian Taxation Office: Medicare levy surcharge income, thresholds and rates. Accessed November 2023.
2 Australian Taxation Office: Medicare Levy. Accessed November 2023.
3 Australian Taxation Office: Medicare levy reduction for low-income earners. Accessed November 2023.
4 Australian Taxation Office: Private health insurance policy details 2023. Accessed November 2023.