Generally speaking, deciding whether you need private health insurance is subjective – each person will have their own preferences and risk tolerance. But when it comes to the tax implications of having (and not having) private health insurance, the decision is much more straightforward.
Medicare levy surcharge
If you earn more than $90,000 (as an individual) or $180,000 (as a couple), you will be required to pay additional tax in the form of the Medicare levy surcharge. At a minimum this will add $900 in taxes each year for individuals, and $1,800 for families. The following table outlines the current Medicare levy surcharge thresholds and tax rates:
|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%|
|Additional tax per year||$0||$900 – $1,050 (single)|
$1,800 – $2,100 (family)
|$1,313 – $1,750 (single)|
$2,625 – $3,500 (family)
(Source: ATO). If you have children, the thresholds in the table above go up by $1,500 for each child after the first. For example, you and your partner will fall into the base tier if your combined income is less than $181,500 and you have 2 children.
So how does this extra tax compare to the premiums you might pay on a health insurance policy? Looking at one of the more affordable complying policies, an individual aged less than 65 earning between $90,000-$105,000 would pay between $757.09 and $947.45 per year in premiums (different states have slightly different pricing).
Of course, this analysis ignores any other benefits that private health insurance provides, such as the ability to choose your own doctor, skip waiting lists, and be seen in a private hospital.
Before you start looking for the cheapest policy…
Make sure that any policy you look at is considered a complying policy – if it’s not, you won’t be exempt from paying the surcharge.
When you buy a private health insurance policy, you will be buying one of three types – hospital, extras (sometimes referred to as general) or hospital and extras. If your policy is extras only, you won’t be exempt from the surcharge. Any hospital only or hospitals and extras may exempt you from the surcharge.
If your policy includes hospital cover, the next thing to do is to check with your insurer whether being covered by the policy will allow you to avoid the surcharge. Most hospital policies will be sufficient, but especially at the very cheap end of the market there are policies that will not exempt you from the surcharge.