Understanding Private Health Insurance

Private health insurance is one of the valuable tools that you can use as part of your lifestyle safety net.

One of the big benefits is access to a private hospital and avoidance of lengthy public waiting lists if you ever need surgery. (Of course deep pockets also gives you such access.)

The private health system in Australia takes pressure off the public health system so the Government provides incentives and penalties to encourage you to participate.

Thirty Percent Rebate

The Australian Government currently subsidises private health insurance with a 30% rebate. In one sense that is equivalent to making the insurance ‘tax deductible’ to the vast majority of Australians.

Medicare Levy Surcharge

I’ll let the Government explain this penalty:

The Medicare Levy Surcharge is levied on Australian taxpayers who do not have private hospital cover and who earn above a certain income. The surcharge aims to encourage individuals to take out private hospital cover, and where possible, to use the private system to reduce the demand on the public system.

The surcharge is calculated at the rate of 1% of taxable income. It is in addition to the Medicare Levy of 1.5%, which is paid by most Australian taxpayers. The Medicare Levy Surcharge is imposed on individuals earning over the threshold who do not have an appropriate level of hospital insurance. The threshold is $73,000 for individuals and $146,000 for families.

You do not have to pay the surcharge if your taxable income is below the income threshold.

A key thing to understand is that for many higher income earners the cost of the surcharge is higher than the cost of the private hospital cover insurance that would enable them to avoid the surcharge. So once you earn above the threshold it is a no brainer decision to purchase hospital cover. Remember there is no obligation to choose the more expensive ancillary cover.

Learn More

To learn more about private health insurance I recommend the following websites:

  • PrivateHealth.gov.au is an Australian Government website which includes a database of all policies offered by Australian health funds.
  • PrivateHealth.com.au is an initiative of the Heath Insurance Association and includes some statistics and discussion of the benefits of private health insurance.

Author: Matt Hern

Certified Financial Planner professional, Matt Hern has three times been awarded as one of Australia's Top 50 Financial Planners by The Australian Financial Review Smart Investor. He is passionate about guiding you on the right financial choices to achieve what you really want. Matt Hern is an Authorised Representative of Charter Financial Planning Limited AFSL 234665. All information is general advice only.