In Australia when you earn over a certain income and you don’t have private health insurance you pay a Medicare Levy Surcharge. This system was designed to encourage individuals to take out private patient hospital cover and to use the private hospital system to reduce demand on the public Medicare system.

Medicare Levy Surcharge only appears after you’ve lodged your tax return and often turns an expected nice tax refund into a nasty tax bill.

 

How does Medicare Levy Surcharge work?

Whether you’re likely to pay Medicare Levy Surcharge will depend on your marital status & income.

  Base Tier Tier 1 Tier 2 Tier 3
Single Threshold $90,000 or less $90,001 – $105,000 $105,001 – $140,000 $140,001 or more
Family Threshold $180,000 or less $180,001 – $210,000 $210,001 – $280,000 $280,001 or more
Medicare Levy Surcharge 0% 1% 1.25% 1.5%

Source: https://www.ato.gov.au/individuals/medicare-levy/medicare-levy-surcharge/income-thresholds-and-rates-for-the-medicare-levy-surcharge/#Incomethresholdandratesfrom201415to20181

 

The Medicare Levy Surcharge means at tax time, you’re paying a percentage of your income back in tax to cover the levy.

For example, John is an engineer and earns $90,000 p.a. Tracey is a senior teacher and earns $100,000 p.a. John & Tracey live together and are planning to have kids in the future. They don’t have private health insurance.

Based on the above tier system, Tracey and John would be categorised as Tier 1 and have a Medicare levy surcharge bill of $90,000 + $100,000 = $190,000 at a 1% Medicare levy surcharge = $1,900 of additional tax payable at tax time.

If John & Tracey took out a basic hospitals policy without the extra’s then it’s likely the policy would be cheaper than the $1,900 of Medicare Levy Surcharge payable.

You SHOULD consider private health insurance when you’re approaching the Medicare Levy Tiers.

But wait … what about the fact that their planning on having kids?

The other important consideration for private health insurance is how often you might need health services. Family cover can be included as part of your private health cover for those unforeseen trips to the hospital for the kids. A basic hospital cover for private health, doesn’t cover optical, chiropractic, physio among other services. When you start to bundle these services into your private health this is where the cost starts to increase.

 

I want to be able to go and see my physio if I tweak my back, how can I get a cheaper deal on my private health?

Insurance companies love to bundle policies together and offer multi-policy discounts. This can occur where a couple might take out a joint policy together and save up to 20% on the total cost.

Additionally, life insurance and private health insurance providers are starting to offer discounts across joint policies.

One of the largest life insurance companies in the world, AIA, has partnered with a new private health insurer called MyOwn. If you have life insurance with AIA and Private health insurance with MyOwn, you’ll receive significant discounts on both policies and have access to the rewards programs that both providers offer.

If you’re approaching the Medicare Levy Surcharge or having kids now might be the time to consider Private Health.