Common Question: “Why do I pay for private health insurance and pay the Medicare Levy with my tax?”
I first wrote about this in 2014 and is by far one of the most common questions I get.
As an Australian tax resident, when you go and see the doctor, the cost of the appointment can be paid in full by Medicare (also known as bulk billed) or Medicare pays a portion of the cost and you pay the remaining amount (the Medicare gap).
However the cost covered by Medicare is not entirely free. Depending on your taxable income for the financial year, you are required to pay a Medicare Levy of 2% of your taxable income to cover your annual medical costs. This is applicable to all individual tax payers.
If you are a resident for tax purposes but not entitled to Medicare benefits (International students and non-residents), then you will need to obtain a Medicare Levy Exemption Certificate prior to lodging your tax return.
So why do you need private health insurance if you can just claim medical expenses through Medicare?
Well, there is a catch. The government charges an ADDITIONAL LEVY called the Medicare Levy Surcharge(MLS). This can be confusing considering the words are really similar.
The MLS applies to Australian taxpayers who do not have private hospital cover AND who earn above a certain income. The MLS can be up to an additional 1.5% on top of the compulsory Medicare Levy of 1.5%. So that’s about another 3% of your taxable income paid to Medicare without any changes to what you can claim through Medicare (youch!).
If your taxable income 2016 financial year exceeds $90,000 for singles or $180,000 for families its worth considering taking up private health insurance to avoid the MLS. The plus side is you can claim other medical costs which Medicare does not cover.
2017 Budget Announcement
From 1 July 2019, the Medicare Levy will increase from 2% to 2.5%. This change is part of the 2017/18 Budget announcement and will fund the National Disability Scheme.
For more information on this topic, please contact Cat at Kalahari Business Advisors to discuss how this affects you.Back to all blogs