Health Care in Australia

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Incentives for Health Insurance

In recent years, the Australian Government has introduced taxes and rebates to encourage the take-up of private health cover, as detailed in this section.

The Medicare Levy

Medicare is funded by income tax - currently 1.5% of taxable income goes to Medicare.

This applies to almost everyone, but there is an exemption for very low income earners.

Note that this levy is charged on all taxable earnings, including for example, bank interest and rental income.

The Medicare Levy Surcharge

The Medicare Levy Surcharge is an extra tax on income which must be paid by higher earners who do not take out sufficient private patient hospital cover. 'Higher Earners' means people earning over the Medicare Levy Surcharge Threshold, which is $84,000 for a single person or $168,000 for couples/families.

The surcharge is tiered; it increases as you earn more, as shown in the table:

Tier 0
Tier 1
Tier 2
Tier 3
Singles
$84,000
or less
$84,001
to $97,000
$97,001
to $130,000
$130,0001
or more
Families*
$168,000
or less
$168,001
to $194,000
$194,001
to $260,000
$260,0001
or more
Medicare Levy
Surcharge Rate
0.0%
1.0%
1.25%
1.5%

*The family income threshold is increased by $1500 for eeach dependent child after the first child.

Importantly, in determining the applicable tier, Reportable Fringe Benefits are taken into account - something to watch out for if you salary package (see Jobs & Wages)

The Private Health Insurance Rebate

This is a contribution from Medicare, towards the cost of private health insurance. It is normally taken as a reduction in the premiums you pay to your health fund (they claim it back from Medicare).

The basic rebate is 30%, but it increases with your age and decreases as you earn more, as shown below:

Tier 0
Tier 1
Tier 2
Tier 3
Singles
$84,000
or less
$84,001
to $97,000
$97,001
to $130,000
$130,0001
or more
Families*
$168,000
or less
$168,001
to $194,000
$194,001
to $260,000
$260,0001
or more
Aged under 65
30%
20%
10%
0%
Aged 65-69
35%
25%
15%
0%
Aged 70 or over
40%
30%
20%
0%

*The family income threshold is increased by $1500 for each dependent child after the first child.

Lifetime Health Cover

This is a Government initiative intended to encourage Australians to take out hospital cover earlier in life rather than waiting until they are older and more likely to use the benefits.

Those who take out cover before their 31st birthday will pay normal premiums throughout their lives. For every year over the age of 30, a 2% loading is added to the premiums. The LHC loading applies for 10 years.

Example: Let's say John (30 years old) pays $1000 a year in Private Health Insurance premiums. Fred (40 years old) takes out the same cover, but has to pay 2% x 10 years (over 30) = 20% more, so $1200 per year. He pays the extra $200 per year for 10 years, then the LHC loading is removed.

Lifetime Health Cover for New Migrants

Clearly new migrants over the age of 30 would be unfairly penalised, so they are given a window of 12 months to get their private health care in place.

In this context 'New Migrants' means people with permanent residency settling in Australia. It does not apply to temporary visa holders who do not qualify for Medicare.

Resources

1Australian Taxation Office for tax aspects of Medicare.