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Ruling

Subject: Medicare Levy Surcharge

Question

Is the Medicare levy surcharge payable for the period you were overseas and had travel insurance, and suspended your private health insurance in Australia?

Answer

Yes.

This ruling applies for the following period:

Year ended 30 June 2010

The scheme commences on:

1 July 2009

Relevant facts and circumstances

You were travelling overseas for approximately three months.

You suspended your private health insurance.

You checked with your private health company who assured you that you would still be covered for the purposes of the Medicare Levy Surcharge.

You took out a separate travel insurance policy to cover you whilst travelling which included unlimited coverage for emergency medical and hospital expenses.

Relevant legislative provisions

Medicare Levy Act 1986 Subsection 3(5).

Medicare Levy Act 1986 Section 8B.

Reasons for decision

Medicare Levy Surcharge

Under the provisions of section 8B of the Medicare Levy Act 1986 (MLA 1986) a surcharge will be imposed on a single person without dependants where all the following tests apply for whole or part of a year of income. The tests are that the person:

(a) is not a married person; and

(b) does not have dependants; and

(c) does not have private patient hospital cover; and

(d) is not a prescribed person.

Where a person satisfies all the above tests for the whole of the year of income and the person's income for surcharge purposes exceeds $73,000, a surcharge at 1 per cent of the person's taxable income is payable in addition to the amount of Medicare levy otherwise payable.

Where you satisfy all of the requirements, but for only part of the year of income, your liability to the surcharge will be calculated according to the number of days in an income year in which you met all of the requirements.

Subsection 3(5) of the MLA 1986 provides:

'For the purposes of this Act, a person is covered by an insurance policy that provides private patient hospital cover if the policy is an applicable benefits arrangement, within the meaning of section 5A of the National Health Act 1953 (NHA 1953), to which paragraph 5A(1)(a) of that Act applies.'

Under paragraph 5A(1)(a) of the NHA 1953, an arrangement is an 'applicable benefits arrangement' if the contributor is covered for liability to pay fees and charges in respect of some or all hospital treatment provided by a hospital with which a 'registered organisation' has a hospital purchaser-provider agreement.

Travel insurance is not an applicable benefits arrangement for the purposes of section 5A of the NHA 1953. Accordingly, the travel insurance is not private patient hospital cover for the purposes of subsection 3(5) of the MLA 1986.  

Application to your circumstances

Even though your travel insurance covered you for medical expenses incurred while on your overseas trip, it was not an applicable benefits arrangement within the meaning of section 5A of the National Health Act 1953. Accordingly, the travel insurance is not considered to be private patient hospital cover.

In your case, you are not regarded as having private patient hospital cover for the period you were covered by travel insurance. Accordingly, you are liable for the Medicare levy surcharge for the relevant period.

You only had Australian private cover for part of the year as you suspended your private health cover whilst you were overseas. Therefore, you are liable to pay a part year Medicare Levy Surcharge.