If I skip health insurance before EOFY, I’ll pay more tax in 2027: Here’s my plan
Key takeaways
- Australians who earn over a certain threshold pay a Medicare Levy Surcharge (MLS) if they don't have private health insurance with hospital cover.
- I'm one of them. And while a good policy will cost me more than the surcharge, I think there's value in getting cover now.
- What's next: Bronze hospital cover plus extras for a family of three is not cheap, but minus the MLS it ends up being decent value.
The end of financial year is days away. And I'm racing to complete an admin task that will help me avoid extra tax in 2027: getting health insurance.
Here are some quick facts:
- Once you earn over $101,000 ($202,000 for a couple), you pay an extra tax called the Medicare Levy Surcharge.
- You can avoid the MLS if you have private health insurance with hospital cover and an excess of $750 or lower ($1,500 for families).
- You have to maintain cover for an entire financial year to avoid the MLS. It's too late for the current financial year.
- My household is above the threshold and we do not have any health cover.
So with days left before the EOFY, I am on a mission to figure out my Medicare Levy Surcharge costs next financial year and whether getting health cover is worth it.
Figuring out my MLS costs
Luckily the first step is easy. Finder's Medicare Levy Surcharge Calculator gave me a result in seconds.
And my family is looking at an extra tax bill of more than $2,000 (I'm not going to use exact figures at any point in this article in order to maintain the thinnest veneer of privacy).
There's no way around the MLS in the current financial year. When I do my tax return in a couple of months, the MLS will eat away some, if not most of my return.
But I'm thinking for the future.
Finding the right cover
Now, I can avoid the MLS next financial year simply by getting any hospital cover policy with a $750 excess.
In other words, a basic health insurance policy with no extras, where I or other family members have to pay up to $750 for a hospital stay (that's the excess, the insurer pays the rest for covered treatments).
Running the numbers
It's going to be hard to break even. Private health insurance is not cheap. If my MLS bill is $2,500, for example, I'd need to find a policy that costs less than that to save money or break even.
Now this can work. I found hospital-only family cover for under $2,300. It covers basically nothing. It's essentially the "no MLS" policy.
If I actually want private health that covers my family for different treatments, I'm going to have to pay more than the MLS.
The policy I chose
In the end I compared several health insurance policies for around $3,000, from cheaper insurers. These policies all give me:
- Private room coverage.
- Ambulance cover.
- A range of hospital services like dental surgery, endoscopies and more.
- Some kind of new customer sign-up bonus, like weeks of free cover and gift cards (some even offer a generous Finder Reward).
I won't break even, but I am essentially getting reasonable private health cover for hundreds of dollars, once you minus the MLS cost.
With a slightly more basic policy, I could bring the difference down even further.
The extras question
If I add extras to the policy I'm looking at a further $300 to $1,000. For me at least, the price of extras seems to vary quite widely.
I have a family of three, and we all go to the dentist, and two of us wear glasses. So we should be able to get a fair bit back on an $800 extras policy.
The policy I choose also covers a little bit of physio and psychology services, which feels nice to have just in case.
Look closely at extras
Extras cover really vary widely. I found a more expensive extras policy that offered only $200 back on optical and $800 back on physio, dental and psychology services combined.
The policy I went with was cheaper, offered $360 back on optical, $1,300 on all dental and a separate $400 for physiotherapy and $200 for psychology.
Is it worth it?
All told, I'm looking at bronze hospital cover plus some basic (but not completely budget-tier) extras for $3,800.
Given I'd be paying around $2,500 thanks to the MLS, I'm essentially getting cover for $1,400 and avoiding the surcharge in 2027.
Of course, I'll have to pay the premium this year and the MLS. But next year it'll work out cheaper.
If you're a high earner, health insurance is a no-brainer. You might even end up paying less than you would with the surcharge.
For people in the middle, it's definitely worth considering.
Overall I'm fairly satisfied with where I've ended up. Of course, I'd rather pay more taxes and have a stronger public health system that everyone can use, instead of paying more just for myself.
But I'm only one man.
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