Private Health Insurance Rebate and the Medicare Levy Surcharge
As part of repairing the budget, income thresholds for the Medicare Levy Surcharge and Private Health Insurance Rebate will not be indexed for three years
The Private Health Insurance Rebate is an income tested payment by the Government to eligible Australians who hold complying private hospital cover (cover with an excess of $500 or less for singles, $1,000 or less for couples and families).
The Medicare Levy Surcharge is levied on Australian taxpayers who are not covered by a complying private hospital policy, and who have income above certain thresholds.
The surcharge can be avoided by taking out complying private hospital cover.
Under the current arrangements, the income tier thresholds are indexed every year by average weekly ordinary time earnings.
From 1 July 2015 to 30 June 2018, the Medicare Levy Surcharge and Private Health Insurance Rebate thresholds will not be indexed.
Savings from not indexing these thresholds will be invested in the $20 billion Medical Research Future Fund.
People with complying private hospital cover
If a person’s or family’s income increases enough for them to move up an income tier during this period they may receive less rebate. If not, they will receive the same rebate as they would otherwise have received.
People without complying private hospital cover
If a person’s or family’s income increases enough for them to move up an income tier during this period, they may pay a higher Medicare Levy Surcharge rate.
If their income remains in the same tier, they will pay the same Medicare Levy Surcharge rate.
Impact of the changes
Australians that will receive a different private health insurance rebate
Michael and Alana (both under 50) have two young children and hold a family policy with complying private hospital cover — it costs them $3,752 per year. At the moment, their combined income for surcharge purposes is $210,000. They are both likely to be assessed as tier 1 earners in the current year and will receive a rebate of $726.39. Next year their combined income for surcharge purposes will increase to $220,000. Based on current data, they are both likely to be assessed as tier 2 earners next year and receive a rebate of $363.19.
Australians that will pay a different Medicare Levy Surcharge
Luke is a single 38 year old who does not have private health insurance. In 2014-15, his income for surcharge purposes is $130,000. He is likely to be assessed as a tier 2 earner in 2014-15 and will be liable to pay a Medicare Levy Surcharge of $1,625. Luke’s salary increases during the following financial year so that his income for surcharge purposes is $143,000. He still has not taken out complying private health insurance. As a result he is likely to be assessed as a tier 3 earner in 2015-16 and will be liable to pay a Medicare Levy Surcharge of $2,145 (compared to $1,788 if he had remained in tier 2).