The rising cost of private health insurance has prompted many people to reconsider whether taking up or maintaining health insurance cover is financially beneficial.
There are several government incentives encouraging individuals and families to take up cover while penalising those who do not, in particular ‘higher income earners’. The incentives and penalties affect your hip-pocket, so it pays to consider your financial position.
Adjusted Taxable Income (ATI)
This figure is used to assess your eligibility for incentives and whether you are subject to any penalties relating to private health cover. It includes your Taxable Income as well as a few other items added back. The most common include:
- Reportable Fringe Benefits (grossed-up salary packaging amounts)
- Reportable Employer Superannuation Contributions (additional super amounts above the standard Superannuation Guarantee)
- Personal superannuation contributions (deductible voluntary contributions)
- Net investment losses (either from a negatively geared rental property or other investment)
The adjusted taxable income of medical practitioners working in the public health system can be substantial because of salary packaging. This is particularly the case when making use of this benefit multiple times during the financial year through several employers. While you may anticipate your gross salary to be below the relevant income threshold, Reportable Fringe Benefits amounts from your grossed-up salary packaging can push you over for the year.
Establishing a relationship with an accountant early in your career will ensure you are aware of potential issues in advance, receive ongoing advice and allow you to build rapport with a trusted lifelong advisor.
Medical Levy Surcharge (MLS)
If you earn above a certain threshold of ATI and do not have private health insurance, you may be taxed an extra 1-1.5% (payable on Adjusted Taxable Income) in the form of the Medicare Levy Surcharge. This is on top of the standard 2% Medicare Levy that is payable by anyone with access to Medicare benefits.
For couples and families, the relevant ATI threshold is double that for individuals. However, if either you, your spouse or any dependants are not covered by an appropriate policy, both income earners are liable for the MLS.
Lifetime Health Cover (LHC)
This loading is designed to encourage individuals to take out cover sooner rather than later in life and to hold the cover long-term.
The loading is calculated at 2% on top of your base premium amount for every year you are aged over 30. For example, if you first take out the cover at 32 years old, your premium will be 4% more expensive than someone who had the cover in place at age 30. Any loading on couple or family policies is averaged between the two adults on the policy.
The LHC loading is removed if you maintain the cover for 10 continuous years. You can pause or have gaps in cover totalling 1,094 days during your lifetime without affecting loading on your premium.
Private Health Insurance Rebate
This rebate is means-tested on ATI and can reduce your overall insurance premium cost for cover. It works on a tiered system where the cut-off for eligibility is an ATI of $140,000 (Combined ATI of $280,000 for couples and families).
Practically, if your fund is not applying the correct level of rebate during the year, an adjustment will take place through your income tax return and the tax assessment. A net refund or payable of the rebate may form part of the assessment if you have under or over-claimed the rebate on your premiums.
It’s important to remember that this article focuses on the tax impact and government charges applicable to private health cover. It does not consider your health or the cost of medical care. In making a choice on whether private health insurance is right for you, you should consider all relevant factors. To chat to a DPM Tax Consultant about your personal situation, call us on 1800 376 376 or book a free no-obligation initial consultation.
* The information contained in this site is general and is not intended to serve as advice. DPM Financial Services Group recommends you obtain advice concerning specific matters before making a decision.