Australian Private Health Insurance, Tax, and the Medical ‘Gap’

By Your Health Magazine

Your Health Magazine

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Australian Private Health Insurance, Tax, and the Medical ‘Gap’

Medicare is the name of the public healthcare system in Australia. The Medicare Levy, which is currently 2% of taxable income for most people, helps pay for it. Private health insurance is a voluntary, community-rated system. This means that everyone pays the same premium for the same policy, no matter what their health is like. However, it is closely tied to the tax system through incentives and extra costs.

1. The AGR, or Australian Government Rebate

The Australian government gives people a discount on the cost of private health insurance premiums based on their income. The Australian Government Rebate on Private Health Insurance (AGR) is what this is called.

Goal: To get people to buy and keep private health insurance, which will ease the burden on the public system.

How it works: The more money you make, the lower the rebate percentage (there are different tiers for singles and families).

How to Claim: You can get the rebate in one of two ways:

Lowering Your Premium: Your insurance company lowers your premium by the amount of the rebate.

When you file your yearly tax return, you can claim the full amount as a tax offset.

2. The Medicare Levy Surcharge (MLS)

The Medicare Levy Surcharge (MLS) is a tax that people with higher incomes who don’t have enough private hospital insurance have to pay.

Goal: To get people with high incomes to use the private health system so that public hospitals can use their resources more efficiently.

Thresholds: It only applies to single people who make more than a certain amount (for example, $93,000 in 2023–24) and families who make more than a higher amount (for example, $186,000 in 2023–24). These amounts are indexed.

Rate: The surcharge is an extra tax that is between 1.0% and 1.5% of your taxable income, depending on how much you make.

Avoidance: If you have a private hospital insurance policy that meets the requirements for the whole year, you can avoid the MLS.

3. Health Insurance for Life (LHC)

The Lifetime Health Cover (LHC) loading isn’t a tax; it’s an extra fee you might have to pay if you don’t get private hospital coverage right away.

Goal: To get people to get hospital insurance when they are younger and keep it.

Important Date: If you don’t have private hospital coverage by July 1 of the year after your 31st birthday, you’ll have to pay an extra 2% on top of your hospital premium for every year you are over 30.

Duration: This loading can go up to a maximum of 70%, and it won’t go away until you’ve had eligible private hospital coverage for 10 years in a row.

4. The Medical “Gap” (Costs You Have to Pay Yourself)

You may still have to pay for things out of your own pocket, even if you have private health insurance. This is often called “the gap.”

The gap is the difference between the total amount that a doctor or specialist charges for a medical service, like surgery, and the total amount that Medicare and your private health insurance pay.

The Medicare Benefit Schedule (MBS) is a list of all the medical services that the government sets a standard fee for. Your insurance company pays the last 25% of the MBS fee, and Medicare pays the first 75% for services done in the hospital.

The Problem: Doctors can charge more than the MBS fee. The patient has to pay the difference, which is the gap, if the doctor charges more than the MBS fee.

Most private health funds offer Gap Cover Schemes (like Access Gap or No-Gap/Known-Gap arrangements) to help lower or get rid of this cost. If a doctor agrees to take part in the fund’s plan for your treatment, they agree to charge a fee that lowers or eliminates your out-of-pocket costs. Before you get treatment, you should ask your doctor if they will use your fund’s gap cover scheme.