Changes coming to health insurance from July 1
As the new financial year dawns upon us, it brings the familiar, almost comforting, rhythm of changes to our financial landscape. Alongside your fresh stationery and ambitious resolutions, it's time to look at the annual tweaks to Australia's health insurance system. While the big price hikes already hit your wallet back in April, the 1st of July ushers in some significant adjustments to the tax side of things. Let's break down what's changing, what's not, and how you can navigate it all without losing your cool.
Price are going up (well, they already have)
Let's get the bad news out of the way first. Your health insurance premiums have already gone up. On April 1, 2025, prices jumped by a national average of 3.73%. That's higher than inflation (which was around 2.5%), but lower than the 6-7% some industry doomsayers were predicting (including me tbh).
Of course, this 'average' hides a multitude of sins. Depending on your fund, you might have seen a gentle nudge or a downright shove. HIF members saw the lowest average increase at just 1.91%, while Police Health customers were slapped with a hefty 9.56% hike. Medibank/ahm and Bupa, two of the largest funds, came in with average increases of 3.99% and 5.10% respectively.
It's the annual dance where the government praises its own toughness for keeping the increase 'low' while insurers have a whinge about rising costs. The truth, as always, is somewhere in the middle. An ageing population, the cost of incredible new medical tech, and fewer young people taking up cover all contribute to the relentless upward march of premiums.
The key takeaway? If you haven't already, now is a good time to check if you're still getting value for money by comparing health insurance.
Changes to the Private Health Insurance rebate
Here's the first of the major changes kicking in from July 1, 2025. The Australian Government provides a rebate to help cover the cost of your premiums, but the amount you get back is income-tested. From the start of this new financial year, the income thresholds are being updated.
This is actually good news for many people. The thresholds have been increased, meaning you can earn more before your rebate is reduced.For singles, the base tier income threshold has risen from $97,000 to $101,000. For families, it's up from $194,000 to $202,000. (The family threshold also increases by $1,500 for each dependent child after the first).
New Private Health Insurance Rebate & MLS Thresholds (2025-26)
| Tier | Single Threshold | Family Threshold | Rebate (under 65) | MLS Rate |
|---|---|---|---|---|
| Base | $101,000 or less | $202,000 or less | 24.29% | 0% |
| Tier 1 | $101,001 – $118,000 | $202,001 – $236,000 | 16.19% | 1.00% |
| Tier 2 | $118,001 – $158,000 | $236,001 – $316,000 | 8.10% | 1.25% |
| Tier 3 | $158,001 or more | $316,001 or more | 0% | 1.50% |
Who this affects:
- If your income was just above a previous threshold, you might now fall into a lower tier, making you eligible for a higher rebate. For example, a single person earning $100,000 was in Tier 1 last financial year, but is in the Base Tier this year, meaning their rebate jumps from 16.405% to 24.288%.
- If you're getting a pay rise, these higher thresholds might prevent you from being pushed into a tier with a lower rebate.
Changes to the Medicare Levy Surcharge
Now for the stick that accompanies the rebate's carrot: the Medicare Levy Surcharge (MLS). This is an extra tax you pay if you earn above a certain income and don't have an appropriate level of private hospital cover.
The income thresholds for the MLS are the exact same ones used for the private health insurance rebate, and they are also increasing from July 1, 2025.
Who this affects:
This primarily affects high-income earners without private hospital cover. The increase in the thresholds gives you a little more breathing room before the surcharge kicks in. A single person can now earn up to $101,000 without hospital cover before being liable for the MLS.
However, if your income is climbing and you're hovering around these new thresholds, it's time to do the maths. For a single person earning $117,000, the 1% MLS amounts to an extra tax of $1,170. In many cases, a basic hospital policy will cost less than the surcharge, making it a financially sound decision to get covered.
No changes for the Lifetime Health Cover
In a rare moment of stability, there are no changes to the Lifetime Health Cover (LHC) loading. But just because it isn't changing doesn't mean you can ignore it.
Here's your friendly, slightly sarcastic reminder: LHC is a 2% loading added to your hospital cover premium for every year you are over 30 when you first take it out. If you wait until you're 40, you'll pay an extra 20% on your premiums. Wait until you're 50, and that's a 40% loading. This loading stays in place for 10 years of continuous cover, and the maximum loading is a whopping 70%. The government does not pay the rebate on the LHC portion of your premium. So, procrastinate at your peril.
Tax tips for health insurance
Navigating the tax implications of health insurance can feel like a chore, but getting it right can save you a significant amount of money (or a nasty surprise from the ATO).
- Check Your Rebate Tier: With the new income thresholds, take a moment to estimate your income for the 2025-26 financial year. If you think you've moved into a different rebate tier, contact your insurer. You can choose to receive your rebate as a reduction in your regular premiums. Nominating the correct tier ensures you get the right discount upfront and avoids having to pay back an over-claimed rebate at tax time.
- Claiming at Tax Time: If you prefer a lump sum, or if your income is variable and hard to predict, you can choose not to claim the rebate as a premium reduction. Instead, you can claim it as a refundable tax offset when you lodge your tax return.
- Prepapre for the Next Price Rise: You can't avoid this year's increase, but you can get ahead of the next one. Most funds allow you to prepay your premium for 12 months. By paying before April 1, 2026, you can lock in the current rate and delay the impact of the next price hike.
- Understand Your Statement: Your private health insurance statement is a crucial document for your tax return. It proves you had an appropriate level of hospital cover, which is your get-out-of-jail-free card for the Medicare Levy Surcharge. Ensure the details are pre-filled correctly in myTax or that you enter them accurately.
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