With the end of the financial year fast approaching you would have noticed the significant increase in advertising by Private Health Insurance companies.
The Federal Government introduced the Lifetime Health Cover (LHC) initiative on the 1st July 2000 to encourage people to take out full private health insurance, not just extras such as physiotherapy, dental, optical, podiatry, before their 30th birthday. Therefore, anyone over the age of 30 who takes out Private Health insurance will incur a loading. The loading begins at 2% and increases 2% each year following your 30th birthday, this is capped at 70% for those aged 65 and over. The costs grow significantly the longer you wait to take out private health insurance. Another incentive for those who have private health insurance is they get a 30% rebate come tax time on their premiums.
There have been recent changes to the 30% rebate that is received from private health insurance premiums. From the 1st of July 2012 the Federal Government are bringing in an income test component for the eligibility of the rebate. Single people earning over $88,000pa and couples/families earning more than $176,000pa will receive a lower premium rebate. This will increase the cost of private health insurance to these groups. For those without private health insurance he Medicare Levy Surcharge has also been increased depending on your level of income. The Medicare Levy Surcharge is charged for singles earning over $102,000pa and couples/families earning over $204,000pa who don’t have private health insurance. The surcharge starts at 1% and increases to 1.5% for higher income earners.
Despite the lower premium rebate it will be generally more cost effective for higher income earners to have private health insurance than to be forced to pay the Medicare Levy Surcharge. This also reinforces the LHC initiative in that taking out private health insurance before incurring the loading will also significantly reduce premium costs.
When deciding on which private health insurance company to go with, its more important to think about the benefits than just the net premiums. You are going to get far more value this way if you have to claim on your policy.
You should regularly review your private health insurance requirements with your general insurance broker to ensure you are adequately protected.
| Income | Private health insurance rebate |
Medicare levy surcharge rate |
|||
| Single | Couples/families | <age 65 | Aged 65-69 | Aged 70+ | |
| < $88,000 | < $176,000 | 30% | 35% | 40% | 0% |
| $88,001-102,000 | $176,001-204,000 | 20% | 25% | 30% | 1% |
| $102,001-136,000 | $204,001-272,000 | 10% | 15% | 20% | 1.25% |
| ≥$136,001 | ≥$272,001 | 0% | 0% | 0% | 1.5% |
By Elise Ryan Income Solutions Financial Planning
