Is health insurance tax deductible?

Health insurance isn’t tax deductible in Australia - but it can be a tax offset. Here are 4 ways to pay less.

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What you need to know

  • Private health insurance is not tax deductible in Australia, but there are other ways to save.
  • The private health insurance rebate offers up to 33% back on your premiums at tax time.
  • If you earn over $90k, health insurance will help you avoid the Medicare Levy Surcharge

The private health insurance rebate: save up to 33%

Health insurance may not be tax deductible, but you can get cash back in the form of the private health insurance rebate. The rebate is the government's way of rewarding you for buying private health cover.

Every year you hold cover, you get a little bit back from the government – ideally leading to a juicy refund (or a smaller tax bill at the very least). If you earn under $140,000, you can get back up to 33% of what you spent on a health insurance policy.

If you're eligible, you can get it one of two ways: by getting a discount on your premium (often called the Australian Government Rebate when you sign up) or by claiming it back on your tax. The best news is you can claim for any policy, whether that's extras cover, hospital cover or a combined package.

Earn more than 90k? Avoid the Medicare Levy Surcharge (MLS)

If you make more than $90,000 a year as an individual or $180,000 as a couple and you don't carry private cover, the taxman will come looking for the Medicare Levy Surcharge, a tax hike of up to 1.5%. This is in addition to the 2% Medicare Levy that most tax payers pay.

Luckily, the MLS is easy to avoid. If you have private hospital cover - even basic coverage - you avoid surcharge entirely. In fact, you can often purchase health insurance for less than the cost of the MLS would be, so you'll actually be saving money alongside getting private health cover.

Medicare Levy Surcharge tax rates

MLS rateSingle incomeCouples income
0%$0 - $90k$0 - $180k
0.5%$90k - $105k$180k - $210k
1.0%$105k - $140k$210k - $280k
1.5%$140k+$280k+

Turning 31? Avoid the lifetime health cover loading (LHC)

If you haven't yet got private health insurance and you turned 31 this year, you should seriously think about signing up. If you don't sign up before 30 June after you turn 31, you'll start to incur the Lifetime Health Cover Loading, which makes private health more expensive, if you decide to get it in the future. The LHC is a 2% loading added to your hospital cover for every year you go without cover.

Let's put that in real terms. Say a health insurance policy is available for $600 per year – well if you only take out your first policy when you're 40, it's going to cost you 20% more than that: that's $720 per year.

Lifetime health Cover loading examples

AgeLoadingCost of coverYou've had cover since 31If this is your first hospital cover
3510%$600$600$660
4020%$650$650$780
5040%$700$700$980
6060%$800$800$1280

Unless you're 100% sure you're never going to need any sort of private health cover, it's a wise move to take it out now. Below are some basic policies from Finder partners with enough cover to avoid the Lifetime Health Cover Loading.

Name Product Excess Price Per Month Hide CompareBox Hide More Info Button
Frank Entry Hospital (Basic+)
$750
$73.85
ahm starter basic
$750
$77.80
Medibank Basic Accident and Ambulance
$750
$81.15
Qantas Basic Hospital
$750
$83.14
Peoplecare Basic Plus Hospital
$500
$86.70
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Compare up to 4 providers

Keep an eye on the dates

Get your taxes filed by 31 October to avoid any nasty surprises, and make sure they're in tip-top shape. To do that, you'll need your private health insurance statement which your insurer should send out around July.

Simply copy the details from that statement onto the private health insurance policy section of your tax return and voila! Hello rebate and R.I.P. Medicare Levy Surcharge.

Start comparing policies before 30 June if you're looking to avoid that LHC 2% yearly premium. If you're earning over $90,000, you just need to make sure you pick at least a hospital cover with an excess of less than $500 ($1,000 for couples). It starts from $17.79 a week, so it's not hard to get your money's worth.

Compare private health from 30+ Australian funds

Health insurance and tax: Frequently asked questions

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