Private Health Insurance Tax
Learn all about private health insurance tax implications with Savvy in our informative guide.
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Numerous policies from the Australian government are in place to encourage Aussies to take out private health insurance. These include the lifetime health cover loading, health insurance rebates, age-related discounts and the Medicare Levy Surcharge. As such, it's important to understand how paying for private health insurance can affect the tax you pay.
You can find out all about the tax implications of purchasing your private health insurance right here with Savvy in our informative guide. Learn more about the tax benefits of having cover in place before you purchase your policy.
How does having private health insurance affect the tax I have to pay?
The percentage of tax you are required by law to pay on your income won’t be changed by whether or not you have private health insurance. You’ll still have to pay the legislated income tax according to the tax bracket your income falls into. As such, the cost of private health insurance premiums is not directly tax-deductible in the same way other business or work expenses are.
However, where the outcome of your tax return will be affected by private health insurance is in the Medicare Levy Surcharge and other age and income-related reductions you may be entitled to claim as a tax offset. This could potentially result in you receiving a tax refund (according to your income and if you haven’t previously claimed the health insurance rebate through your health insurer).
On the other hand, if you don’t have private health insurance, there could be additional tax to pay, rather than being able to claim a tax offset. You may have to pay the Medicare Levy Surcharge, which is as a percentage of your income. In addition, if you don’t take out health insurance before the age of 31, your premiums could end up costing you more than those for a person who did have private health cover beforehand. You can find out how much Medicare Levy you have to pay and how much private health insurance rebate you may be entitled to by using a health rebate calculator.
What tax rebates and reductions are available from the Australian Government for the cost of private health insurance?
There are numerous policies in place from the Australian Government designed to encourage Aussies to buy private health insurance. Many of these involve either a reduction in the cost of health insurance for those eligible for the health insurance rebate or an additional levy payable by higher income earners who choose not to take out private health insurance. Some Australians may also be exempt from paying the standard Medicare Levy.
Medicare Levy
The Medicare Levy is an amount you are required to pay each year in addition to standard income tax. As of May 2023, the Medicare Levy is 2% of your taxable income. It is this levy which helps to fund some of the Australian Medicare system. However, there are exemptions and reductions available to this 2% levy in the following circumstances:
Medicare Levy Exemptions
Either full or partial exemptions to paying the Medicare Levy are available for:
- blind pensioners
- those who hold a Veterans’ Affairs Gold Repatriation Health Card
- those who qualify for Defence Force medical arrangements
- foreign residents for tax purposes (with either no dependents or exempt dependents)
- those who are not entitled to Medicare benefits
- members of a diplomatic mission or consular post in Australia
Before claiming a Medicare Levy exemption, it is important to check your eligibility with a tax professional, as legislation may have recently changed.
Medicare Levy reductions for low income
The amount of Medicare Levy you are required to pay is reduced or eliminated if you are on a low income:
- in 2022-2023, you won’t have to pay the Medicare Levy if your taxable income is less than $23,365 (or $36,925 for pensioners and seniors)
- you’ll pay a reduced Levy if your income is between $23,365 and $29,207 (or between $36,925 and $46,157 for seniors and pensioners entitled to the Seniors and Pensioners Tax Offset, or SAPTO). The percentage of reduction you’re entitled to will be worked out by the ATO and will depend on a number of other considerations
Private Health Insurance Rebate
The private health insurance rebate is an amount the Australian Government contributes towards the cost of your health insurance for eligible Australians. It is based on income and age. By working out what percentage rebate you are entitled to, you’ll be able to work out the net cost of having private health insurance.
For those aged under 65 years:
- The rebate can range from around 24.6%* if you’re a single person earning less than $90,000 p.a., down to a low of 8.2% p.a. for higher income-earners and 0% for those in the top income tier
- For a family, the income threshold is increased by $1,500 for each dependent child from the second child onwards
- The rebate is income tested and the percentage rebate you’re entitled to decreases as your income increases
- The rebate percentage applies to the cost of your health insurance premiums and is adjusted by the government each April based on the increase in the consumer price index that year
- You can either claim your rebate once a year in your tax return or apply to your health insurer to reduce your premiums on a month-by-month basis
- The rebate applies to the cost of eligible private hospital cover, extras cover or a combined hospital and extras policy
- The rebate will be applied to that portion of your premiums excluding any lifetime health cover loading you may be paying
- The rebate must be claimed on the tax return for the financial year in which the premiums were paid
- The rebate will be calculated based on your private health insurance statement, which your insurer will provide to you at the end of each financial year
For those aged over 65 years:
- For those aged over 65, the rebate ranges from 28.7%* (for those earning less than $90,000 p.a.) down to 12.3% for higher income-earners and 0% for those in the top income tier.
For those aged 70 years or older:
- For those aged over 70 years in Australia, the rebate ranges from a maximum of 32.81%* for those earning less than $90,000 p.a., down to 16.40% for higher income-earners and 0% for those in the top income tier
*This information is intended as a guide only. Rebate rates, income thresholds and other details may be subject to change, so it’s important to check the latest government tax information or consult a professional before submitting your tax return.
What additional taxes and costs will I have to pay if I don’t have private health insurance?
Medicare Levy Surcharge (MLS)
This is an additional amount you’ll have to pay at tax time on top of the standard Medicare Levy if you don’t have private health insurance and earn over $90,000 p.a.(single) You have to pay an additional percentage of your salary for each day in the previous financial year that you were not covered by private health insurance. If you earn above the threshold, to avoid paying the MLS, you must have an appropriate level of hospital cover (defined as a hospital cover health insurance policy with an excess of $750 or less).
How much extra you’ll be required to pay is as follows:
| Base tier taxable income | Tier 1 income | Tier 2 income | Tier 3 income | |
|---|---|---|---|---|
|
Single threshold |
Up to $93,000 |
$93,001 to $108,000 |
$108,001 to $144,000 |
$144,001 or more |
|
Family threshold |
Up to $186,000 |
$186,001 to $216,000 |
$216,001 to $288,000 |
$288,001 or more |
|
Medicare Levy surcharge rate |
0% |
1% |
1.25% |
1.5% |
*Thresholds and amounts correct as of the 2023-24 financial year, but you should check with the ATO, as changes may occur.
Lifetime Health Cover (LHC) loading
This is an additional cost legislated by the Australian Government and paid by those aged over 31 if they haven’t had health insurance previously, but have decided to buy health insurance later in life. The LHC loading only applies to hospital cover, not extras cover.
- You will pay an additional 2% loading on top of the standard cost of a private health insurance policy for every year you are aged over 31 at the time of joining, up to a maximum of 70%
- The additional loading applies for a period of ten years
- The loading is based on your LHC base day, which is calculated as the 1st July following your 31st birthday
- You're not entitled to the health insurance rebate on the portion of your premiums which relate to your LHC loading
- You won't have to pay a LHC loading if you were born before 1st July 1934
For example, if you first take out private health cover at the age of 40, you could pay an additional 20% on top of the cost of a standard policy (2% for each of the ten years over the age of 30) for ten years.
Frequently asked questions about private health insurance and tax
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