The issue of Private Health Insurance and income testing is back in the spotlight with a legislative start date of 1 July 2012 fast approaching. While not yet law, a Bill on point has passed through the House of Representatives and now only needs the Senate to pass it as legislation.Announced in the 2009-2010 budget, the legislation is an attempt by the government to rebalance support for private health insurance so ‘those with a greater capacity to pay for their own private health insurance do so’. Means testing the rebate will also result in the government saving some $100 billion over the next 40 years.So what is the current status of the Private Health Insurance rebate and the Medicare Levy Surcharge? And how will this status change come 1 July 2012?
Current status of the Private Health Insurance rebate & Medicare Levy Surcharge:
Currently the Private Health Insurance Rebate is calculated as a percentage (%) of the premium paid to a registered health insurer for private health insurance. The rebate is not affected by the level of a taxpayer’s income and is only dependent on the age of the oldest person covered by the policy and the number of days this person was in this age category as follows:
| Age of the oldest person covered by the policy* | Amount of tax offset |
| Less than 65 years | 30% of the amount of premium paid |
| 65 years to under 70 years | 35% of the amount of premium paid |
| 70 years or over | 40% of the amount of premium paid |
| *If the oldest person moved into the next age group during the year, the tax offset is based on the number of days that person was in each group. Your health insurer will calculate this automatically. |
The rebate may be claimed as a reduction in premium, a cash rebate from Medicare, a refundable tax offset at the end of the income year or a combination of options.The Medicare Levy Surcharge is a levy that applies in addition to the Medicare Levy where a taxpayer (or ependant/s) does not have appropriate private patient hospital cover for the income tax year and the taxpayer’s level of income is above the surcharge threshold. The 2011-2012 surcharge thresholds are yet to be finalised but the ATO has indicated that the Singles Threshold is likely to be $80,000 while the Families Threshold is likely to be $160,000 (with increases of $1,500 for each dependant child after the first).
Proposed Income Test for Private Health Insurance & the Medicare Levy Surcharge:
From 1 July 2012 the government will introduce the following 3 Tiers of income testing for Private Health Insurance and the Medicare Levy Surcharge
| Tier | Income | Private health insurance rebate | Medicare levy surcharge | ||
| Below 65 Years of age | 65 to 70 Years of age | Over 70 years of aage | |||
| No Tiers | Singles $0 – $80,000 & Families $0 – $160,000 | 30% | 35% | 40% | Nil |
| 1 | Singles $80,001 – $93,000 & Families $160,001 – $186,000 | 20% | 25% | 30% | 1% |
| 2 | Singles $93,001 – $124,000 & Families $186,001 – $248,000 | 10% | 15% | 20% | 1.25% |
| 3 | Singles $124,001+ & Families $248,001+ | 0% | 0% | 0% | 1.5% |
As per Tier 1 above, singles on more than $80,000 and families with combined income of more than $160,000 will have the private health insurance rebate cut thereby increasing the cost of private health insurance. The rebate further reduces as income levels increase to Tier 2 (singles > $93,000 and families > $186,000) and Tier 3 (singles > $124,000 and families > $248,000).
More Information:
For more information on the topic of the proposed income testing of Private Health Insurance please refer to:
- ATO website – proposed income testing: http://www.ato.gov.au/content/00285805.htm
- Treasury Press Release: http://ministers.treasury.gov.au/wmsDisplayDocs.aspx?doc=pressreleases/2009/048.htm&pageID=003&min=wms&Year=2009&DocType=0
