Is private health insurance in Australia worth the tax benefit?

‍

Below we will discuss the breakeven point when private health premiums cost less than the Medicare levy surcharge which would be imposed if you did not have insurance.

Will getting private health insurance save me tax?

‍

The short answer is that private health insurance will most likely save you money if you earn over $90,000 a year. This is because having private health insurance which includes hospital cover will exempt you from paying the Medicare levy surcharge which is 1 - 1.5% of taxable income and is imposed on individuals with taxable income over $90,000 per annum.

What is the Medicare levy surcharge?

‍

The Medicare levy surcharge is not to be confused with the regular Medicare levy. Everyone who earns over $23,226 will pay the regular Medicare levy of up to 2%. Only people who earn over $90,000 will pay the Medicare levy surcharge. Note there are some exemptions from the Medicare levy such as being a foreign resident.

The Medicare levy surcharge is designed to encourage people to take up private health insurance and therefore take some burden off the public health system.

How much is the Medicare levy surcharge?

‍

Income = $90,000 or less, Medicare levy surcharge = 0%

Income = $90,001 - $105,000, Medicare levy surcharge = 1%

Income = $105,001 - $140,000, Medicare levy surcharge = 1.25%

Income = $140,001 or more, Medicare levy surcharge = 1.5%

What is the private health insurance rebate and why is it important?‍

‍

The private health insurance rebate is a government rebate which you receive as a percentage of your insurance premiums, therefore reducing the cost of your premiums.

How do I claim the government rebate on private health insurance?

‍

The rebate is claimed either on your tax return at year end or as a reduction on your insurance premiums at the time you purchase your plan from the provider.

Private health insurance rebate rates:

‍

If you are under 65 years old rebates on your insurance costs are as follows:

Income = $90,000 or less, Rebate = 24.6%

Income = $90,001 - $105,000, Rebate = 16.4%

Income = $105,001 - $140,000, Rebate = 8.2%

Income = $140,001 or more, Rebate = 0%

Is private health insurance worth it if I earn $95,000?

‍

Medicare levy Surcharge = $950

Average cost of mid-tier private health cover = $1,440

Private health care rebate = $236 ($1,440 x 16.4%)

In this case you are paying $1,204 for private health insurance to avoid the $950 Medicare levy surcharge so it is likely not worth it unless you are prone to needing dental and other elective type medical services which private health will partially cover.

Is private health insurance worth it if I earn $130,000?

‍

Medicare levy Surcharge = $1,625

Average cost of mid-tier private health cover = $1,440

Private health care rebate = $118 ($1,440 x 8.2%)

In this case you are paying $1,322 for private health insurance to avoid the $1,625 Medicare levy surcharge which means private health insurance is saving you money.

CTK Accounting, Wollongong.

‍

CTK Accounting is a tax and bookkeeping firm based in Wollongong, servicing clients both locally and Australia wide. If you need help with personal or business tax affairs, reach out to us at admin@ctkaccounting.com.au

Note: Information correct as of the date of this article only. This blog is for entertainment purposes only and should not be relied on as tax advice as it does not consider the individuals unique circumstances and other factors outside the scope of this blog.

‍