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What is the Private Health Insurance Rebate?

Are you confused by the health insurance means test? What you need to know about health cover and the Australian Government Rebate.

The Australian Government Rebate (AGR) is an incentive that was introduced to encourage more Australians to take out private health insurance. It effectively reduces the cost of your insurance premium and makes private health cover more affordable than it would otherwise be for many.

To be eligible for the Private Health Insurance Rebate, you must be eligible for Medicare, have a complying health insurance product (either hospital cover, extras cover or both) and have an income for Medicare Levy Surcharge purposes below the maximum threshold (known as Tier 3).

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What is (means testing) income testing?

Income testing (also known as means testing) is a process of deducing from someone’s level of income whether or not they are eligible for a government benefit and how much they should receive.

In the case of the Australian Government Rebate (AGR) for private health insurance, the income test requires that your income fall within three defined tiers in order to be eligible for the Private Health Insurance Rebate.

The rebate levels applicable from 1 April 2016 to 31 March 2017 are:

Rebate

Singles≤$90,000$90,001-105,000$105,001-140,000≥$140,001
< Age 65
26.791%
17.861%
8.930%
0%
Age 65-69
31.256%
22.326%
13.395%
0%
Age 70+
35.722%
26.791%
17.861%
0%
Families≤$180,000$180,001-210,000$210,001-280,000≥$280,001
< Age 65
26.791%
17.861%
8.930%
0%
Age 65-69
31.256%
22.326%
13.395%
0%
Age 70+
35.722%
26.791%
17.861%
0%
Medicare Levy Surcharge (MLS)
Singles≤$90,000$90,001-105,000$105,001-140,000≥$140,001
All ages
0.0%
1.0%
1.25%
1.5%
Families≤$180,000$180,001-210,000$210,001-280,000≥$280,001
All ages
0.0%
1.0%
1.25%
1.5%

Rebate rates are adjusted every year by the government and are based on changes to the cost of living and to the cost of the average health insurance premium.

Income thresholds facts and figures

There are several important points to note about the Australian Government Rebate (AGR) and the income thresholds associated with it.

  • Your income for the Private Health Insurance Rebate is not your taxable income, but your income for Medicare levy surcharge purposes (covered in more detail later in this guide)
  • The family income threshold increases by $1,500 for every dependant child after the first
  • Single parent families are subject to the family income tiers
  • The family threshold applies irrespective of whether family members are on the same or different health insurance policies
  • A family’s age is determined by the age of the oldest person. This means you may qualify for a higher Private Health Insurance Rebate as a family if the oldest person is over 65 and you share a policy with them
  • Those from countries with Reciprocal Health Care Agreements with Australia who purchase private health insurance can also claim the Private Health Insurance Rebate
  • The Private Health Insurance Rebate does not apply to those with Overseas Visitors cover.

Calculating your needs

The ATO provides special calculators on their website for working out your income and Private Health Insurance Rebate percentage. These are:

  • Income For Medicare Levy Surcharge Purposes Calculator
  • Private Health Insurance Rebate Calculator

How do I claim a rebate?

There are two ways you can claim your Australian Government Rebate (AGR):

  • Through your insurer – when you buy your health insurance, select the Private Health Insurance Rebate tier you expect to fall under and your insurer will calculate the rebate for you and provide it in the form of a reduced premium.
  • From the ATO at tax time – claim the Private Health Insurance Rebate in your tax return as a refundable tax offset. This option doesn’t require you to nominate a tier.

What is the cheapest health insurance to avoid the levy?

Want to avoid the Medicare Levy Surcharge (MLS) and pay less tax? The policies listed below can provide you with private health insurance that costs less than the Medicare Levy Surcharge.

Health fund
Product
Excess
Apply
Lite Cover
$500 excess on hospital items
Basic Hospital
$500 excess
Active Saver
$100 Copay
Bronze Hospital Options
$500 excess
Kickstarter
$500 excess
Public Hospital Cover
No
ADF Essentials Package
$200
Essentials Hospital
$200
Smart Starter
$500 excess
Basic Hospital
Admission excess per person $500 per year
Super Saver Hospital
$500 excess
Lite Hospital
$500 excess
Single Cover Public Hospital
$500 excess

 

*Quotes for Tier 1 single male, under 30, living in NSW

What happens if I nominate the wrong tier?

It is important to accurately estimate the tier you expect to fall under when claiming your rebate through your insurer because, while there is no penalty for nominating the wrong tier, it could result in one of the following:

  • If you claim too low a Private Health Insurance Rebate, you will be entitled to a refund and will receive a tax offset in your tax return
  • If you claim too high a Private Health Insurance Rebate, you will have a tax liability in your tax return and will have a tax debt that you will be required to repay.

Which portion of my income will determine my rebate entitlement?

The portion of your income that will determine your Private Health Insurance Rebate entitlement is not your taxable income, but your income for Medicare Levy Surcharge purposes. This includes your taxable income plus any fringe benefits and super contributions and minus any net investment losses.

The portion of your health insurance contributions that will determine the amount of rebate you receive is the standard membership payment portion of your cover. If you are paying a Lifetime Health Cover (LHC) loading, the Private Health Insurance Rebate is not payable on that portion.

The LHC loading is a financial loading applied on top of your hospital premium at 2% for each year you are aged over 30 when you take out hospital cover, up to a maximum of 70%. You will not receive the Private Health Insurance Rebate on this component of your hospital cover, but will only receive it on the standard component.

How do rebates affect families?

If you have dependant children, take note that the family income thresholds (listed in the table above) apply, with the threshold increasing by $1,500 for every dependant child after the first. However, if you have only one dependant child, the threshold is not affected. Family income is calculated on the income of both parents, and if you’re a single parent only your income is included in the calculation.

Single parents and couples (including de facto couples) are considered to be a family and are therefore subject to the family income tiers. Even if you have different health insurance policies, the family thresholds still apply.

Finally, you are also eligible to claim the rebate if you don’t have private health insurance but your dependant child does, provided that you pay the premiums on your child’s health cover.

Health insurance rebate FAQs

Q: Is private health insurance worth having?

A: It depends on your situation, but in most cases the answer is yes. The benefits of private health cover include:

  • Choice of surgeon/doctor
  • Choice of hospital
  • Private or shared room
  • Shorter waiting periods
  • Ambulance cover
  • Extras cover for dental, optical, physio etc
  • Eligibility for the Australian Government Rebate (AGR)
  • Avoidance of the Medicare Levy Surcharge (MLS).

Q: What is the Medicare Levy Surcharge (MLS)?

A: It is an additional tax levied on those who earn above a certain income and do not have private hospital cover.

Q: Can I avoid the MLS by taking out Extras Cover only?

A: No, you must have an adequate level of hospital cover.

Q: Which portion of my income will determine my rebate entitlement?

A: Your rebate entitlement is determined based on your income for Medicare Levy Surcharge (MLS) purposes. This means that your annual taxable income, fringe benefits, and super contributions minus any net investment losses will all be taken into account.

If you have a spouse, your combined income will be used to determine your rebate entitlement.

Q: How do I keep my health insurance premiums low?

A: There are a number of ways to reduce your premiums. These include increasing your excess, paying annually rather than monthly, paying by direct debit and taking out your health insurance through your super fund or joining a restricted fund if eligible.

Q: Can I get health insurance if I have a pre-existing medical condition?

A: Yes. Health insurance is community-rated rather than risk-rated, so insurers must allow you to purchase it, even if you have a pre-existing illness. They can, however, impose a waiting period of up to one year.

Q: Why do insurers have waiting periods?

A:  These are to protect both insurers and long-term fund members from those who join a fund, knowing they require expensive treatment and then cancel their insurance once they have received it.

Q: What are the common waiting periods?

A: 12 months for pre-existing medical conditions and pregnancy cover and 2 months in all other circumstances. Waiting periods for Extras Cover are determined by individual insurers.

Q: What is a gap?

A: A gap is the amount you must pay from your own pocket for treatment not covered by Medicare or your insurer.

Q: If I take out private health insurance, would I still be covered by Medicare?

A: Yes, you are still entitled to access the public hospital system and have access to subsidised or free medical services.

Compare health insurance policies from funds in the finder.com.au panel

Rates last updated December 7th, 2016
Details Features
Base Hospital
Base Hospital
A base hospital product providing affordable cover for the essentials for healthy people.
  • Cover starting from $17.39 weekly
  • Accidental injury cover
  • Emergency Ambulance cover
  • $500 hospital excess
More info
White starter
White starter
White starter provides cover for hospital treatment and some of the rehabilitation.
  • Accident
  • Ambulance
  • Rehabilitation
  • Psych
Enquire Now More info
Basic Hospital
Basic Hospital
Basic Hospital takes care of the essentials and is Australian Unity's most affordable Hospital Cover.
  • Can help to avoid extra tax
  • Emergency ambulance transportation
  • No excess for accidents
  • Appendix removal
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GoldVital
GoldVital
Available for singles and couples looking for vital medical treatment cover. Save 4% when you pay for 12 months of your cover upfront.
  • Cover for the essentials
  • Surgical removal of wisdom teeth, tonsils and adenoids
  • Intensive care
  • Standard $500 excess per person
Get Quote More info
Basic Hospital
Basic Hospital
Basic hospital cover for the essentials with the option to choose own doctor or specialist. Restricted fund: Only current and former employees of the Commonwealth Bank of Australia Group and their eligible families can join.
  • Theatre and labour ward fees waived
  • Emergency ambulance cover
  • Excess options available
  • Access to gap cover
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Bronze Hospital
Bronze Hospital
Entry level hospital cover.
  • Public hospital accommodation
  • Shared room
  • Accidental injury
  • Joint reconstructions and investigations
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Basic Hospital Cover
Basic Hospital Cover
Entry level hospital cover for the essentials including accidental injury, ambulance and joint procedures.
  • $250 / $500 excess options
  • Unlimited emergency ambulance cover
  • Dental surgery cover
  • Joint surgery cover
Enquire Now More info
Basic Hospital Cover
Basic Hospital Cover
Basic hospital cover tailored for the healthy and budget conscious.
  • No excess for kids
  • No excess for accidents
  • Emergency ambulance cover
  • Cancer-related services
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Public Hospital
Public Hospital
Transport's health budget hospital cover offering protection as a private patient in a shared ward of a public hospital. Choice of doctor also included.
  • Emergency ambulance cover
  • Govt. approved prostheses for covered services
Enquire Now More info

Speak with an adviser and find the right cover

The Australian Government Rebate (AGR), along with the Medicare Levy Surcharge and Lifetime Health Cover loading, provides a further incentive for Australians to take out private health cover. And as this guide shows, the rewards for doing so or penalties for not having private cover depend largely on how early you join, how old you are and how much you earn.

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Richard Laycock

Richard is the senior insurance writer at finder.com.au and is on a mission to make insurance easier to understand.

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