Australian Government Rebates & Incentives for Private Health Insurance
There are a number of government rebates, discounts, and additional charges that could apply to you when taking out private health insurance. We've outlined the main ones here so you don't have to dig through all the research yourself.
Medicare Levy Surcharge
If you earn above $90,000 as an individual, or above $180,000 as a family per year and do not have private hospital cover for any period during the year, you may be charged an extra 1% to 1.5% of your income towards the Medicare Levy (the standard rate is 2%).
Depending on your personal circumstances, it may or may not be worth it (from a purely financial perspective) for you to take out a basic hospital cover policy just to avoid this 1%+ levy.
Australian Government Private Health Insurance Rebate
You can also receive a rebate from the government to help cover the cost of your private health insurance premiums. If, like most people, you are under 65 and earn less than $90,000 per year, you can get just over 25% of your premiums back as a tax rebate. This is the case whether you have hospital cover, extras cover or combined hospital and extras.
There are several other salary tiers that decrease the amount you get back, down to 0% for those earning over $140,000 annually. You can claim more back than the standard amount dictated by your income tier if you are 65-69, and more again if you are over 70.
As an incentive to get people to take up private hospital cover earlier, under 30s can receive a discount off their total hospital premiums. Young people aged 18-25 get the best discount (maxing out at 10%), and the age-based discount stops being offered by health insurance providers when you turn 30. The discounted rates in between these ages vary.
For example, if you take out private hospital cover at age 27, you will get a 6% discount. This is compared to someone who signs up for the same policy at ages 18-25 for a 10% discount, or someone who signs up when they're 30, and receives a 0% discount.
You retain this 6% annual discount until you turn 41, at which point it phases out gradually. For example, it'll drop to 4% when you're 41, then 2% the next year, and then you begin paying the full standard amount at age 43.
Lifetime Health Cover
The LHC initiative is designed to prompt people to take out hospital cover before they turn 30, and to hold onto it by charging more to those who wait until later in life to take up cover. You will pay an extra 2% for every year you are aged over 30 and do not have private hospital cover.
This means that if you wait until you are 40 to take out private hospital cover you will pay an additional 20% (10 years over 30 x 2%) on top of your normal premiums. The maximum additional loading you can pay is 70%.
To avoid paying the LHC loading, make sure you take out hospital cover before the Lifetime Health Cover base day. This is by the 1st July following your 31st birthday.