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).
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 2017 to 31 March 2018 are:
< Age 65
< Age 65
Medicare Levy Surcharge (MLS)
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.
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
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.
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.
$500 excess on hospital items
Bronze Hospital Options
Public Hospital Cover
ADF Essentials Package
Admission excess per person $500 per year
Super Saver Hospital
Single Cover Public Hospital
*Quotes for Tier 1 single male, under 30, living in NSW
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.
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.
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.
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.
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.