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Private Health Insurance

Private Health Insurance Costs are Set to Rise

Chris Morcom
Partner/Private Client Adviser
18 Apr 2012

Those with Private Health Insurance will have got used to the regular increase in premiums each year.  However, for those on higher incomes, the cost of insurance is about to rise even higher from 1st of July this year.

Recent legislation changes have been passed in relation to the Private Health Insurance Tax Offset to limit the 30% rebate on health insurance premiums to those earning less than $84,000 per annum.  The legislation also changes the Medicare Levy Surcharge for those who do not have any Private Health Insurance.  The table at the end of this article summarises the changes that will apply from 1 July 2012.

The income measurement used in relation to the Private Health Insurance Tax Offset and Medicare Levy Surcharge includes:

-Your taxable income

-Exempt foreign employment income

-Reportable fringe benefits (as per your annual PAYG Payment Summary)

-Your total net  investment loss (ie. you add back any negative gearing impact of investment arrangements)

-Your Reportable Super Contributions (ie. your salary sacrifice contributions or your personal tax deductible super contributions)

An example of the impact of these changes might help.

Consider Bob and Mary who are in their late 40s and have two dependent children.  They have a combined taxable income of $190,000, after taking into account the negative gearing loss of $10,000 a year on their investment property.  They each salary sacrifice $20,000 per annum into their respective superannuation funds.  They pay for Private Health Insurance for their family, which costs $3,600 per annum (before the 30% rebate) and they don’t have to pay the Medicare Levy Surcharge.  The table below shows the difference between now and the new rules:

Due to the changes to apply from 1 July 2012, Bob and Mary’s health insurance costs will rise by around 28%, and they now have to make the decision whether to retain the insurance, or pay the Medicare Surcharge Levy instead and use the public health system.

Your health fund is unlikely to reduce the rebate currently claimed on your premiums.  This will mean that you will have an extra tax liability at the end of the financial year when you lodge your tax return.  In Bob and Mary’s case, that would result in a combined tax bill of around $720 (being the difference between the rebate at 30% and the new applicable rebate for them of 10%).

To avoid such a bill you would need to nominate a lower rebate amount with your health insurer.

Table of new Rebates that apply from 1 July 2012


Hewison Private Wealth is a Melbourne based independent financial planning firm. Our financial advisers are highly qualified wealth managers and specialise in self managed super funds (SMSF), financial planning, retirement planning advice and investment portfolio management. If you would like to speak to a financial adviser on how you can secure your financial future please contact us 03 8548 4800, email info@hewison.com.au or visit www.hewison.com.auPlease note: The advice provided above is general information only and individuals should seek specialised advice from a qualified financial advisor. The views in this blog are those of the individual and may not represent the general opinion of the firm. Please contact Hewison Private Wealth for more information.