Is private health insurance still relevant?

Transcription

1 Is private health insurance still relevant? Clients with higher levels of income may wish to review health insurance cover if legislation is passed to reduce the private health insurance offset. But before cancelling cover, the impact of the increased Medicare levy surcharge should be assessed. Changes to the private health insurance offset and the Medicare levy surcharge have passed the House of Representatives and are expected to become law, but still need to be passed by the Senate. The changes mean that clients on higher incomes will pay more for the cost of their private health insurance. But if people on higher incomes do not hold an appropriate hospital cover policy, they will pay a higher Medicare levy surcharge. Current offset rules The private health insurance offset reduces the premium for private health insurance, both hospital and ancillary cover. It can be claimed as a reduction in premiums or a refund in the tax return. The offset rate varies according to the age of the oldest person covered by the policy, as shown in the table below. Age of oldest person Offset % Under Between 65 and or over 40 New rules from 1 July 2012 The full offset will only be available for people on lower incomes: single people income* less than $83,001 per annum, and couples/families - combined income* less than $166,001 per annum. * Income is defined to include: taxable income (disregarding rules which have the effect of making amounts subject to family trust distribution tax non-assessable) reportable fringe benefits reportable superannuation contributions (personal deductible contributions plus any voluntary employer contributions) total net investment loss for the income year less the taxable component of a superannuation lump sum for which the effective tax rate is zero.

2 s and couples/families with income below these thresholds are not liable for the Medicare levy surcharge (MLS) even if they do not hold appropriate hospital cover. If income exceeds the thresholds, the available age-based offset will be reduced and Medicare surcharge levy will increase (if appropriate cover is not held). The impact of the changes for 2012/13 is shown in the table below. Income for $96,001- $83,001-$96,000 surcharge $129,000 Over $129,000 purposes $192,001- (combined) $166,001-$192,000 between $258,000 Over $258,000 Medicare levy surcharge 1% 1.25% 1.5% Private health insurance offset Reduced by 10%* Reduced by 20%* No offset * The reduction applies to the relevant age-based offset. Age of oldest Family person status Under 65 Between 65 and or older Income range Health insurance Medicare levy offset surcharge rate

3 Impact for clients Higher income clients may wish to review the cost effectiveness of private health insurance cover as they may pay higher premiums from 1 July However, these clients may pay higher tax under the Medicare levy surcharge if appropriate hospital cover is not held. The decision on whether or not to hold private health insurance should be based on the cost of premiums versus the cost of Medicare levy surcharge and the benefits of health insurance. The tables below provide an example of how the interaction between premiums and Medicare levy surcharge may work. Details need to be calculated for each client individually and will depend on income levels, health needs, age, family status and insurance premium rates. Based on the premium rates in this example (table below), despite paying more for cover in 2012/13 single clients with income over $96,000 and couples with income over $192,000 would find that it is cheaper to have the appropriate hospital cover than pay the Medicare levy surcharge. The cover may also provide them with health benefits. Tip It should be noted that where eligible, the offset applies to both hospital and extras cover. But to avoid the Medicare levy surcharge clients only need to have the appropriate levels of hospital cover for the whole financial year: person excess cannot exceed $500 per year /family excess cannot exceed $1,000 per year For clients under age 65 Net premium Net premium (hospital only) (hospital& extras) Under $83,000 $ $1, Nil $83,001 - $96,000 $1, $1, $830 - $960 (depends on $96,001 - $129,000 $1, $1, $1,200 - $1, (depends on Over $129,000 $1, $1,666.15

4 with Under $166,000 $1, $2, Nil $166,001 - $192,000 $2, $2, $1,660 - $1,920 (depends on $192,001 - $258,000 $2, $2, Over $258,000 $2, $3, At least $3,870 (depends on Clients aged 65 to 70 Net premium Net premium (hospital only) (hospital& extras) Under $83,000 $ $1, Nil $83,001 - $96,000 $1, $1, $830 - $960 (depends on $96,001 - $129,000 $1, $1, $1,200 - $1, (depends on Over $129,000 $1, $1, with Under $166,000 $1, $2, Nil Between $166,001 - $192,000 Between $192,001 - $258,000 $2, $2, $2, $2, Over $258,000 $2, $3, $1,660 - $1,920 (depends on At least $3,870 (depends on

5 Clients who age 70 or over Net premium Net premium (hospital only) (hospital & extras) Under $83,000 $ $ Nil $83,001 - $96,000 $ $1, $830 - $960 (depends on $96,001 - $129,000 $1, $1, $1,200 - $1, (depends on Over $129,000 $1, $1, with Under $166,000 $1, $1, Nil $166,001 - $192,000 $1, $2, $1,660 - $1,920 (depends on $192,001 - $258,000 $2, $2, Over $258,000 $2, $3, At least $3,870 (depends on Note: This is not personal advice. It is guidance provided in respect of proposed legislation. It is intended for general information and should not be acted upon until legislation is formally passed and Royal Ascent given. If you wish to receive personal advice on how these proposals will affect you as an individual in relation to your personal circumstances then you should seek professional personal advice.