What’s the difference between the Medicare Levy and the Medicare Levy Surcharge (MLS)?

 The Medicare Levy Surcharge is payable by people who earn more than the MLS threshold and don’t have private hospital cover. 

The Medicare Levy is payable by most Australian taxpayers, regardless of whether or not you have private health insurance. It’s 2% of your taxable income, in addition to the tax you pay on your taxable income.

You don’t have to pay the Medicare Levy if you earn less than $23,365 (or $38,365 for seniors and pensioners). If you’re eligible to be charged the MLS, you’ll need to pay it in addition to the Medicare Levy. This means that without private health cover, you could be paying an extra 3.5% of your income in tax every year.

What is the minimum level of health insurance required to avoid the MLS?

 To avoid paying the MLS, you’ll need health insurance that includes:

• Private patient hospital cover

• A maximum excess of $750 for singles and $1,500 for couples or families

Generally speaking, having a basic tier of private hospital cover is enough to avoid paying the MLS. Keep in mind, though, that this level of cover might not offer all the benefits you’re looking for. That’s why it’s a good idea to compare different levels of cover from different health funds to find the one that fits your specific needs.

What is Lifetime Health Cover (LHC) loading?

Lifetime Health Cover (LHC) loading is a government initiative intended to encourage Aussies to get private hospital cover earlier in life. Although not directly related to tax, it’s an important consideration if you’re weighing up whether or not to get health insurance. If you don’t get hospital cover before 1st July following your 31st birthday, you’ll pay a 2% Lifetime Health Cover ‘loading’ on hospital cover. This means a 2% additional cost is added to your hospital cover premiums for every year you go without cover. For example, if you wait until you’re 40 to get hospital cover, you’ll be looking at paying an additional 18% on your premium. Loading is capped at 70% and stops after 10 years of continuous hospital cover.

How to avoid Lifetime Health Cover (LHC) loading:

 You can avoid paying the LHC loading by taking out hospital cover before 1st July following your 31st birthday. If you’re over 31, getting health insurance sooner rather than later can help you minimise the percentage of LHC loading you have to pay.

The government also allows ‘Days of Absence’, which means you can take a break from having hospital cover for a total of 1094 days, or switch policies, and still avoid the LHC loading. 

Why get health insurance before tax time?

In short, it could help you save on your tax bill. If you earn more than $93,000 as a single person, or $186,000 as a family, taking out hospital cover as a minimum can help you avoid the Medicare Levy Surcharge, as well as giving you access to the health insurance rebate. You can compare policies side-by-side to find a level of cover that suits your needs and helps you save at tax time. Ask the Compare Club specialists today.

This guide is opinion only and should not be taken as medical or financial advice. Check with a financial professional before making any decisions.