Private health insurance and tax time

LHC loading is an Australian Government initiative designed to encourage Australians to take out and maintain private patient hospital cover earlier in life. The more people who are treated privately, the less pressure there is on our public healthcare system.

If you don’t take out private health insurance by 1 July following your 31^st 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 31^st birthday If you take out cover for the first time after this date 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Once you hold hospital cover for 10 continuous years, any LHC loading you’ve accrued is no longer applicable.

Let’s say you take out a private hospital policy for the first time at 32 years old. When you pay your policy premiums, you’ll pay an extra 4% on your premium each year you hold the policy.

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 each year. For example, if you’re paying $2,000 annually on a policy, you’d also be paying an extra $400 in LHC loading each year.

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.

Being under the age of 31 or taking out and maintaining a private hospital insurance policy prior to 1 July following your 31^st 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 31^st birthday

LHC loading won’t start accruing if you weren’t in Australia on 1 July following your 31^st birthday. However, you typically need to purchase cover within a year of arriving back in Australia to prevent LHC loading from starting to accrue. You will also need to provide your new health fund with your International Movement Record.

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. These customers will be required to provide their Medicare Eligibility Letter to their health fund.

Australian Defence Force members who are discharged after 1 July following their 31^st birthday

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. When taking out a hospital insurance policy, they will be required to provide a cop of their discharge letter to their health fund confirming their dates of service.

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.

The MLS is a government 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 $97k a year as a single, or a family income of over $194k, you accumulate the MLS every day you don’t have hospital 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 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 or speak to your accountant for more details.

Let’s say:

• You earn $100,000 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 $1000 at tax time.

Our table below outlines how the MLS may impact you this tax time.

Not unless you’re earning under the income threshold, have an eligible 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, private hospital cover can offer some great benefits that you might want to take advantage of.

Look for a 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*
• Pays a benefit towards the cost of ambulance services in your state (if required).

*Subject to availability.

Our free comparison service makes it easy to look for a policy that offers all this and more.

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.

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.

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 2023-24:³

• $26,000 per year
• $41,089 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:

• $26,000 and $32,500 per year
• $41,089 and $51,361 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.

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.

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:

The rebate percentages are subject to change every year on 1 April. Learn more about the Australian Government rebate.