Government Incentives

Over the years the Commonwealth Government has developed a number of "sticks and carrots" to encourage people to take out and maintain private health insurance, as described below. All health insurers will advise you how to benefit from these incentives when you are buying their products.

The private health insurance rebate

The Commonwealth Government pays a rebate to subsidise premiums paid for hospital and general (ancillary or extras) cover from a registered private health insurer. The rebate is 30% when the oldest person covered by the insurance is under 65 years of age, 35% when between 65 and 70 years, and 40% when 70 years or more. You get the rebate whether or not you pay income tax.

Your health insurer can claim the rebate on your behalf so you pay just the net amount. Insurers will automatically adjust the rebate for you so your premiums reduce as you pass through the theshold ages.

If your private health insurance has been in force since before 1 January 1999, you may be entitled to benefits under a previous tax incentive scheme that are more valuable than the rebate.

Lifetime Health Cover

Lifetime Health Cover (LHC) was introduced by the Australian Government in 2000 to encourage participation in hospital insurance. It does not apply to general (ancillary/extras) insurance.

Under LHC, for each year you wait after 1 July following your 31st birthday, your premium for hospital cover is loaded by 2%. That means that, if you wait for, say, 10 years before joining up, you pay a loading of 20% on your premiums for hospital cover.

There are some limits - the maximum loading applied is 70%, which applies if you are aged more than 66 years when you join up - and if you keep your cover going for 10 years the loading then ceases.

There are also some special "grandfathering" rules - the LHC loadings do not apply if you were born before 1 July 1934 or if you have had your hospital cover in place since before 1 July 2000. 

There are also special rules if you are newly arrived in Australia or if you suspend your cover while you are temporarily outside Australia. 

Full details of LHC are available on http://www.privatehealth.com.au .

Medicare Levy Surcharge

The Medicare Levy Surcharge (MLS) is another way the Australian Government encourages participation in private health insurance. When a taxpayer does not have appropriate private hospital insurance, the MLS is added to the normal Medicare Levy of 1.5%, and is an additional 1% levy on total taxable incomes, including total reportable fringe benefits and family trust distributions, which exceed $70,000 a year (individuals) or $140,000 a year (families).

General (ancillary/extras) cover does not affect the surcharge.

Some “grandfathering” rules also apply for cover in existence before 1 July 2000.

More details can be found on http://www.privatehealth.com.au .

Other tax benefits

If your net medical expenses after Medicare and other reimbursements amount to more than $1,500 in a tax year, you can claim an income tax offset of 20% of your net expenses in excess of the $1,500 threshold.