Changes to private health insurance rebate and Medicare levy surcharge
Changes to private health insurance rebate and Medicare levy surcharge
A number of changes have been introduced to the private health insurance rebate. From 1 July 2012:
- You are income tested on your share of the payments made for a private health insurance policy (whether you made the payments or not).
- Payments to private health insurance are tested against three new income thresholds to determine if you are entitled to a rebate from the government.
This means that if you have private health insurance both of the following apply:
- The amount of private health insurance rebate you are entitled to receive is reduced if your income is more than a certain amount.
- We determine the amount of private health insurance rebate you are entitled to receive when you lodge your tax return.
This may result in you receiving a refund or a liability depending on how you claim your rebate.
If you do not have an appropriate level of private patient hospital cover, and your income is more than a certain amount, a higher rate of Medicare levy surcharge may apply.
Income test thresholds for 2012-13
The private health insurance rebate and Medicare levy surcharge are income tested against the income thresholds in the table below.
Table 1: Income thresholds
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Base tier
(no change)
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Tier 1
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Tier 2
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Tier 3
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Singles
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$84,000
or less
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$84,001-97,000
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$97,001-130,000
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$130,001
or more
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Families*
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$168,000
or less
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$168,001-194,000
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$194,001-260,000
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$260,001
or more
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Private health insurance rebate entitlement
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Under 65 years old
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30%
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20%
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10%
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0%
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65-69 years old
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35%
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25%
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15%
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0%
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70 years old or over
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40%
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30%
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20%
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0%
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Medicare levy surcharge
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Rate
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0.0%
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1.0%
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1.25%
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1.5%
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* The family income threshold is increased by $1,500 for each Medicare levy surcharge dependent child after the first child.
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The income thresholds are indexed annually.
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The legislation to income test the private health insurance rebate started on 1 July 2012 and only applies to premiums paid on or after that date.
We determine your private health insurance rebate entitlement for the income year based on information provided on your tax return.
Income that the test applies to
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The income test for the private health insurance rebate is called 'income for surcharge purposes'.
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When you lodge your tax return, we calculate your income for surcharge purposes and determine your private health insurance rebate entitlement.
To determine your entitlement to the private health insurance rebate, your income for surcharge purposes is the sum of:
- your taxable income, including the net amount family trust distribution that tax has been paid on
- your reportable fringe benefits, as reported on your payment summary
- your total net investment losses, including both net financial investment losses and net rental property losses
- your reportable super contributions, including reportable employer super contributions and deductible personal super contributions
less
- if you are 55-59 years old, any taxed element of a super lump sum, other than a death benefit, which you received that does not exceed your low rate cap.
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To determine the rate of Medicare levy surcharge that applies, you use your income for (Medicare levy) surcharge purposes, which is the total of the above list plus, if your taxable income is $1 or more, any exempt foreign employment income belonging to you and your spouse (if applicable).
For information about income for Medicare levy surcharge purposes, refer to Guide to Medicare levy.
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If you have a spouse on 30 June of the income year, your spouse's income for surcharge purposes is also taken into account to determine the couple/family threshold. You will be asked to provide details of your spouse's income for surcharge purposes on your tax return so we can correctly determine your rebate entitlement based on the family income.
However, if you had a spouse during part of the income year, but on 30 June of the income year you no longer had a spouse, you are treated as single and your spouse's income for surcharge purposes is not taken into account to determine the single income threshold.
Example
Michael and Antonia lived together as a couple on a genuine domestic basis for two years, but on 12 October 2012 they separated and each stayed single.
Because Michael and Antonia are single on 30 June 2013, they are both treated as single for 2012-13 and only their individual incomes are taken into account to determine the single income thresholds that apply for surcharge purposes.
Estimating your income
When you estimate your income, you need to think about how your circumstances may affect whether the single or family threshold applies.
You should also consider what income is included in the definition of income for surcharge purposes.
You need to consider:
- whether you or your spouse expect increased income in the income year - for example, from a promotion, change in employment or overtime
- your single or family status - for example, having a partner at the end of the income year
- whether any dependent children will no longer be in your care
- if any dependent children are
- turning 21 years old
- older than 21 and under 25 years old, and are no longer in full-time study.
Each adult covered by the policy is income tested to determine their entitlement to a private health insurance rebate, regardless of who pays for the insurance policy. Previously, the payer of the policy was entitled to the private health insurance rebate.
Each adult will be income tested based on their share of the cost of the insurance policy.
Single
If you are the only adult covered by the policy, your share of the private health insurance policy is 100%. You are income tested to determine your private health insurance rebate entitlement based on the total cost of your health insurance policy regardless of who pays for the policy.
Example
Narelle is single, 45 years old and is the only adult covered by her private health insurance policy. The total cost of her policy is $1,000. However, when she paid for the policy, Narelle nominated her rebate tier as tier 1 and received a premium reduction of 20%, reducing the amount paid for her insurance premiums to $800.
When Narelle lodges her tax return, her income for surcharge purposes is $83,000. Her income is below $84,000, so Narelle's private health insurance rebate entitlement is actually 30% of the total cost of her health insurance policy. Narelle received 20% upfront from her insurer through reduced premiums and receives the remaining 10% ($100) as an offset in her tax return. This offset is listed on her notice of assessment.
Example
Peta is 50 years old and is single. As a condition of Peta's employment, her employer pays part of her private health insurance policy. The total cost of Peta's insurance policy is $1,000. Peta claims a 30% premium reduction for the policy and Peta's employer has agreed to pay the remaining $700 for the policy.
Peta lodges her tax return and her income for surcharge purposes for the year is calculated as $86,000. Peta's income falls into the income threshold for rebate tier 1 so her rebate entitlement for the cost of her insurance policy is actually 20%. As Peta's employer paid 70% of the policy, and Peta elected to receive 30% as a premium reduction, Peta incurs a liability for the extra 10% rebate that she had already claimed. The liability is listed on her income tax notice of assessment.
Multiple adults
If a policy covers more than one adult, the premiums paid are divided into equal shares by the number of adults covered by the policy at the time of the payment, regardless of who paid the premium. This occurs regardless of whether the adults on the policy are a part of a couple.
Each adult's share of the policy is equal to:
Total cost of policy
Number of adults covered by policy at time of payment
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Each adult is income tested when they lodge their tax return to determine their private health insurance rebate entitlement for their share of the cost of the policy. Each adult will be income tested according to their circumstances, which may result in different outcomes for each adult.
Example
Mike and Elle are both single and live together in share accommodation. For convenience, Mike and Elle take out an insurance policy together and it is paid as a joint expense of the house.
The policy costs $1,000, which means they each have a $500 share in the policy. They do not claim the rebate as a premium reduction from the fund.
Mike's income is $150,000 and he is not entitled to any rebate when he lodges his tax return.
Elle's income is $55,000 and she is entitled to a 30% rebate from the government and is paid $150 as a tax offset.
Example
Charlie and Zoe are divorced. However, they share the same complying private health insurance policy. The total cost of the policy is $1,000. Under their family agreement, Zoe pays the full cost of the policy.
Charlie and Zoe will be income tested on the policy in equal shares. Their share of the private health insurance policy is $500 each, and any rebate entitlement they are individually eligible for applies to their share of the policy. Zoe elects to receive a 30% premium reduction of $300 when she paid for the policy.
Charlie and Zoe are both under 65 years old. Zoe has an income of $100,000 and Charlie has an income of $135,000.
They are both assessed under the income thresholds as singles.
Zoe's individual income places her in the tier 2 income threshold so her rebate entitlement is 10% of her share of the private health insurance policy. When Zoe lodges her tax return for the year she will need to pay back 20% of her share of the rebate entitlement she claimed as a premium reduction. Zoe will incur a $100 private health insurance liability on her notice of assessment.
Charlie's individual income is above the first income threshold and he is not entitled to any rebate. Charlie will need to pay back the 30% rebate entitlement that was received for his share of the policy (regardless of the fact that Charlie did not pay for the policy). Charlie will receive a liability of $150 on his notice of assessment for his share of the private health insurance policy.
Dependent children
Dependent children are not income tested and their income does not count towards the income test. Anybody that is covered as a dependent child on a private health insurance policy is not considered to have a share of the cost of the policy and is not income tested to determine their entitlement to a private health insurance rebate. Dependent children under the Private Health Insurance Act 2007 include either:
- a person who is under 18 years old
- a dependent child under the rules of the private health insurer that is not 25 years old or over, and who does not have a partner.
Your private health insurer can advise you who is covered as a dependent child on your policy.
Example
Caroline and Gordon are married with a son, Archie. Archie is 19 years old, studying full time at university, and earns $95,000 a year as a part-time model. Under the rules of their private health insurer, Archie is classified as a dependent child because he is studying full time. Because Archie is covered under the private health insurance policy, Archie:
- is covered as a dependent child on the family policy and his income is not taken into consideration for the family income threshold
- is not income tested for any share of the family private health insurance policy because he is not entitled to a private health insurance rebate; and
- is also exempt from the Medicare levy surcharge as he has an appropriate level of private patient hospital cover.
Dependent child only policies
If a dependent child is covered by a child only policy, they are not income tested to determine their rebate entitlement to a private health insurance rebate.
The following people are income tested to determine the private health insurance rebate - either the:
- parents of the dependent child if they are together at the end of the income year
- payer of the policy (who may or may not be the parent of the child).
What income threshold applies
There are single and family income thresholds.
Single income thresholds
If you are single on the last day of the income year and have no dependants, you are income tested against the single income thresholds.
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If you had a spouse during part of the income year, but on 30 June of the income year you no longer had a spouse, you are treated as single and you are income tested against the single income thresholds.
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Spouse
If you have a spouse on the last day of the income year, you are income tested on your and your spouse's combined family income under the family income thresholds.
If as a couple you have two or more children, the family income threshold is increased by $1,500 for every Medicare levy surcharge dependent child after the first child. For example, if you have three dependent children, your family income threshold increases by $3,000.
The income of dependent children is not included when calculating family income.
Single parent
If you are a single parent with one or more dependants, you are also income tested under the family income thresholds. If you have more than one dependent child, the family income threshold is increased by $1,500 for every Medicare levy surcharge dependent child after the first child.
The income of dependent children is not included when calculating family income.
Claiming your rebate
You can claim your private health insurance rebate as either a:
- premium reduction, which lowers the policy price charged by your insurer
- refundable tax offset through your tax return.
Claiming the rebate for your spouse
If you have a spouse on the last day of the income year, and you are covered by the same complying private health insurance policy for the same period of time, you can make a choice to receive the total rebate entitlement, which may be a tax offset or a liability.
You make this choice when you lodge your tax return. You may decide to do this if:
- your spouse is not required to lodge a tax return
- you and your spouse lodge your tax returns at separate times.
One person in the relationship can choose to claim the private health insurance rebate for their spouse but they must inform their spouse so their spouse does not also claim the rebate or liability.
Example
Leo and Sam are a de facto couple who live together and share a complying private health insurance policy. They are both under 65 years old. The total cost of their policy is $4,000, but they have received a 30% premium reduction and paid $2,800 for their policy as a result.
Sam earned $180,000 as a financial consultant, while Leo spent the year undertaking volunteer work and did not earn any income. Their family income of $180,000 places them into the family tier 1 threshold where the private health insurance rebate available is 20% of the total premium.
Leo and Sam received a 30% premium reduction of $1,200. Based on their income test, they are in the family tier 1 threshold and only entitled to a 20% reduction of $800. This means that Leo and Sam have a combined (private health insurance rebate) liability of $400, and are each liable for $200.
Since Leo did not earn any income, he does not need to lodge a tax return. Sam and Leo agree that when Sam is completing his tax return, he will be income tested for his and Leo's rebate entitlement when he lodges his tax return. This means that Sam receives Leo's share of the liability.
If you and your partner decide to claim the private health insurance rebate separately, you are still income tested using the family income thresholds to determine the correct percentage of your private health insurance rebate.
Example
Abby and Jed are in a de facto relationship and are both under 65 years old. They have a combined income of $170,000 and their private health insurance policy costs $3,000, which they have paid in full without any premium reduction. Their combined income places them into income tier 1, where they are entitled to a 20% rebate as a couple ($600).
Even though they claimed the private health insurance rebate separately through their tax return, they are income tested using the family income threshold. Therefore, they each receive a tax offset of $300.
If you aren't required to lodge a tax return
You are still entitled to the rebate if you are covered by private health insurance and you are:
- a single person who is not required to lodge a tax return
- part of a couple who are both not required to lodge a tax return.
You can receive your rebate entitlement through a reduction in the amount of premium you pay to your health insurance fund.
If you have a spouse and they are required to lodge a tax return, they can claim both their share and your share of the rebate when they lodge their tax return. They do this by completing the relevant section of their tax return.
If you claim too much private health insurance rebate as a premium reduction, we recover the amount as a tax liability. This liability is listed on your notice of assessment. This will be called a private health insurance refund or reduction.
Example
Toby is single and 67 years old. He has a complying private health insurance policy at a cost of $1,000. Toby received a 35% private health insurance rebate of $350 as a premium reduction to the total cost of his policy.
When Toby lodges his tax return, his income for surcharge purposes is calculated as $95,000, which puts him in the tier 1 income threshold.
The rebate under tier 1 for a person who is 65 years old is 25% of the total cost of the policy. As Toby was only eligible for a $250 premium reduction, he incurs a $100 private health insurance liability which is listed on his notice of assessment.
Avoiding a private health insurance liability in the future
If you have an existing insurance policy and you have been claiming a premium reduction from your insurer, your insurer will continue to reduce the amount of premiums you pay by the base tier percentage. If your income is above the base threshold, you may be receiving too much private health insurance rebate and you may incur a private health insurance liability.
Nominating a new rebate tier
You can avoid receiving a private health insurance liability by changing the amount of private health insurance rebate you receive from your insurer as a premium reduction at the beginning of the income year.
You can do this by estimating your income for 2012-13 and contacting your private health insurer to nominate a new rebate tier.
Example
Chris is 71 years old and single. His income for surcharge purposes last income year was $100,000. Chris estimates he will earn a similar amount in 2012-13. Chris reviews the income threshold table and notes his income threshold places him in rebate tier 2.
Chris contacts his insurer and nominates to receive a tier 2 private health insurance rebate as a premium reduction. Chris's insurer reduces the amount of rebate he receives for the cost of his policy to 20%.
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There are no penalties for making an incorrect rebate tier nomination with your insurer.
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To calculate the rebate percentage and tier to match your income for surcharge purposes, refer to our Private health insurance rebate calculator.
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If you did not claim enough rebate
If you have not received your full private health insurance rebate entitlement, we calculate the rebate amount you are due and refund this to you as a tax offset when we assess your tax return. The tax offset is listed on your notice of assessment.
Example
Donna is 35 years old and single, and has a complying health insurance policy worth $1,500. Donna expects to receive a promotion with income of $100,000 in 2012-13. To avoid a potential liability, she contacts her insurer and nominates to receive a tier 2 private health insurance rebate as a premium reduction. Donna receives a reduction of 10% on her premiums, which equates to $150.
Donna did not end up getting her promotion and when she lodges her tax return, her income for surcharge purposes is calculated as $75,000. Donna's income is below the base tier income threshold, meaning she is eligible for a 30% private health insurance rebate. This means Donna is entitled to a total private health insurance rebate of $450 for her policy.
As Donna only received a $150 premium reduction from her insurer, she receives an additional $300 as a refundable tax offset when she lodges her tax return. The offset is listed on her notice of assessment.
Paying premiums to your insurer
A premium payment occurs when your private health insurer receives the amount you paid. That is, the time your insurer physically receives the amount, not the date the payment was made to the insurer or when the insurer allocated the amount to your account.
Table 2: When a premium is paid
Payment type
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When the premium is paid
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Cash
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When the cash is received by the private health insurer.
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Electronic transfer of funds
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When the funds are credited to the private health insurer's account.
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Money order or bank cheque
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When the money order or cheque is received by the private health insurer, unless the money order or cheque is dishonoured.
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If you make a payment to a legal agent of your private health insurer - for example, if your insurer has an agreement for Australia Post to receive payments on their behalf - the payment of the premium occurs when the agent receives your premium payment.
If you have an arrangement with your employer to pay the premium
A premium payment occurs when your private health insurer receives the amount your employer paid. For example, if your employer withholds an amount for a private health insurance premium, the amount is paid to your insurer when they receive the payment from your employer (this may be a different time from when your employer withholds the amount).
You can claim a private health insurance tax offset on your 2011-12 tax return for premiums that provide insurance cover for a future income year, if both of the following apply:
- you paid the premiums in the 2011-12 income year (that is, before 30 June 2012)
- you have not already claimed the private health insurance rebate as a premium reduction, or as a claim from a Medicare office.
Premium payments you made in 2011-12 may be for a policy that provides insurance cover for a period that includes a future income year.
Example
Wendy is 40 years old, and paid $4,500 for 18 months of private health insurance cover on 20 June 2012. She doesn't have any dependants. Wendy claimed her 30% private health insurance rebate as a premium reduction in the cost of the policy she paid to her insurer.
Wendy won't pay her insurance premiums again until 20 December 2013. Because Wendy will not make any insurance premium payments in the 2012-13 income year she will not be:
- able to claim a rebate
- subject to the income test.
Because Wendy has an appropriate level of private patient hospital cover for all of 2012-13, the Medicare levy surcharge won't apply to her.
We check claims made for the private health insurance tax offset against information provided by private health insurers.
If you prepaid your private health insurance cover in the 2011-12 income year
If you prepaid your insurance in the 2011-12 income year and decided to cancel your insurance in the 2012-13 income year, any other payments you make for private health insurance in the 2012-13 income year is income tested.
Example
Brian paid for two years private health insurance on 10 June 2012. Brian claimed the private health insurance rebate as a 30% premium reduction in the cost of the policy, and paid the fund $4,200 for the remaining cost of the policy. Brian won't need to pay his next private health insurance premium until 10 June 2014.
On 10 August 2012, Brian decides that he is not happy with the level of service from his current fund, and cancels his insurance and receives a refund for the portion of premiums he paid that he did not use.
At the same time, Brian joins a new fund and paid for 12 months of private health insurance coverage. Brian's new policy costs $2,500 and Brian claims his private health insurance rebate as a premium reduction of 30%, reducing the amount he pays to the insurer by $750.
Because Brian paid for the new policy in the 2012-13 income year, he is income tested to determine his entitlement to the private health insurance rebate.
Lifetime health cover
Lifetime health cover (LHC) is designed to encourage people to purchase hospital cover earlier in life and to maintain their cover. LHC loading is a penalty that generally applies when a person has not taken out and maintained private health insurance from the year they turn 31 years old.
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Lifetime health cover is not paid by all people. To avoid incurring a LHC loading, residents of Australia must ensure they hold appropriate hospital cover before they reach their LHC base day.
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For many people, their LHC base day is 1 July following their 31st birthday, but this can change depending on personal circumstances.
LHC loadings apply only to private hospital cover. They do not apply to general treatment cover (also known as 'ancillary' or 'extras' cover).
The amount of a person's loading is determined by the number of years they are over 30 years old at the time they take out hospital cover. Each year will attract an extra 2% to their hospital cover premium. For example, a person who waits until they are 40 years old could pay an extra 20% on the cost of their hospital cover. If they wait until they are 50 years old, they could pay 40% more. The maximum LHC loading that can be applied is 70%.
The government is proposing to cease paying the private health insurance rebate on LHC loading applied to the costs of a policy from 1 July 2013.
Example: Effect of the proposed changes
On 1 July 2013, Rebecca pays a premium for two months cover under a complying health insurance policy of $220. Due to Rebecca's circumstances, she incurs a 10% increase in her premium because of the LHC loading. The base premium for the policy is $200 and the LHC loading is $20. Rebecca's income is $59,000 and she is eligible for the 30% rebate.
Rebecca receives a rebate of $60, which is 30% of the $200 base premium. Rebecca does not receive any rebate on the $20 paid for LHC loading.
Medicare levy surcharge
The Medicare levy surcharge is income tested against the following income tier thresholds:
Table 3: Income thresholds
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Unchanged
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Tier 1
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Tier 2
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Tier 3
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Singles
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$84,000
or less
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$84,001-97,000
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$97,001-130,000
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$130,001
or more
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Families*
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$168,000
or less
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$168,001-194,000
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$194,001-260,000
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$260,001
or more
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Rates
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0.0%
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1.0%
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1.25%
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1.5%
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* The family income threshold is increased by $1,500 for each Medicare levy surcharge dependent child after the first child.
There is no change to how the Medicare levy surcharge applies and any exemptions that may apply to your circumstances. The only change has been the introduction of new income thresholds and Medicare levy surcharge rates.
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For more information about the application of Medicare levy surcharge and the exemptions that may apply to your circumstances, refer to Guide to Medicare levy.
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You may have to pay Medicare levy surcharge for any period during the income year that you, your spouse, or any of your dependants:
However, from 1 July 2012, the Medicare levy surcharge rate you are charged may increase depending on your income tier.
Example
Josh is 35 years old, is single, and does not have the appropriate level of private patient hospital cover. In 2012-13, Josh's taxable income is $90,000.
When Josh completes his tax return, he also completes the income test section of the tax return and declares:
- reportable fringe benefits of $20,000
- net investment losses of $7,000.
Josh's total income for Medicare levy surcharge purposes is $117,000, which makes him a tier 2 income earner for calculating the Medicare levy surcharge. The amount of Medicare levy surcharge is only calculated against taxable income and reportable fringe benefits.
In 2011-12, Josh's Medicare levy surcharge liability is:
- ($90,000 taxable income + $20,000 reportable fringe benefits) x 1%
- = $1,100.
In 2012-13, Josh's Medicare levy surcharge liability is:
- ($90,000 taxable income + $20,000 reportable fringe benefits) x 1.25%
- = $1,375.
The way you calculate your income for Medicare levy surcharge purposes has not changed.
Definitions
Adult
An adult is any person that is not a dependent child under the Private Health Insurance Act 2007 and is covered by the private health insurance policy.
Complying private health insurance policy
Your health insurance policy is complying if the following applies:
- it is provided by a registered health insurer
- it provides hospital or general (also known as 'extras') cover or combined hospital and general cover
- it meets other complying private health insurance policy requirements.
If you are unsure, your private health insurer can tell you whether your policy meets these conditions. The Private Health Insurance Administration Council website at phiac.gov.au can tell you if your insurer is a registered health insurer.
Dependent child for family income testing
For the purposes of the definition of a family for the private health insurance rebate, a dependent child is any of the following:
- your child under 18 years old
- your child who is classified as a dependant under the private health insurer's rules and who is under 25 years old and does not have a partner
- your sibling who is under 25 years old, does not have a partner and is dependent on you for economic support on any day of the year.
To claim the family thresholds as a single parent, you must have contributed in a substantial way to the maintenance of the dependent child during the income year.
Dependent child under the Private Health Insurance Act 2007
A dependent child for the purposes of the Private Health Insurance Act 2007 is a person who is either:
- under 18 years old
- a dependent child under the rules of the private health insurer that is not 25 years old or over and who does not have a partner.
Medicare levy surcharge dependent child
An Australian resident child who is your child and either:
- under 21 years old
- 21 years old or older and under 25 years old and a full-time student.
Premium reduction
Reducing the amount paid for your private health insurance policy by claiming the private health insurance rebate directly through your insurer.
Private health insurance rebate entitlement
The amount of private health insurance rebate you are entitled to based on your income for Medicare levy surcharge purposes as either a single or family.
Spouse
Can be the same sex or opposite sex if on the last day of the income year any of the following apply:
- you are legally married
- you are in a relationship that is registered under a prescribed state or territory law
- you live with another person on a genuine domestic basis as a couple.
Last Modified: Friday, 15 February 2013
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