Private health cover; the incentives explained

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You may have noticed the advertisements on television; health funds urging Australians to sign up to cash in on government incentives or to avoid paying surcharges or lifetime loading. But what’s it all about?

There are a number of ways the government encourages Australians to take out private health cover including the Medicare levy surcharge, the Federal Government Rebate and the Lifetime Health Cover Loading.

The Medicare Levy Surcharge

Most of us who work pay 1.5 percent of our income towards the nation’s public health system via our taxes, which is known as the Medicare Levy. But if you earn over a certain threshold and are considered a high income earner, you may be required to pitch in a greater amount than those on smaller wages, such as an extra 1 percent of your income. This is known as the Medicare Levy Surcharge. From the 2012-2013 financial year onwards, this will be means tested; the higher your income, the higher the surcharge, up to a maximum of 1.5 percent.

If you’re part of a couple or family, the amount you contribute will be calculated by your combined income and the number of children you have will help to determine whether you’re required to pay extra. But there is a way around paying this extra amount each year and that’s by having private health insurance that includes hospital cover with an excess capped at $500 for singles and $1000 for couples and families (Medicare levy surcharge income thresholds may change each financial year).

Federal Government Rebate

If you’re eligible for Medicare then you can claim this rebate, which is calculated depending on your age and personal circumstances. So if you take out private health insurance and you’re under 65 years old you’ll get a 30 percent rebate from the government on your premium. If you’re aged between 65 and 69 years you may be entitled to 35 percent cash back, while Australians aged 70 and older will get a 40 percent rebate. The rebate will also be means tested from the 2012-2013 financial year onwards; the higher your income, the lower the rebate.

If there is more than one of you on your health cover policy then the amount you can claim back from the government will be based on the oldest person covered.

There is more than one way to claim your rebate; either you can claim it upfront and pay a reduced premium or pay the full amount and claim your rebate later – at tax time or from Medicare.

Lifetime Health Cover Loading

If you’re an Australian resident thinking about taking up hospital cover after July 1 following your 31st birthday then the Lifetime Health Cover Loading will make it more expensive to do so. Get hospital cover prior to this date and you’ll pay the regular premium. But for every year after 31 that you wait to get hospital cover, you’ll need to pay an extra 2 percent loading on top of the usual premium.

The loading increases by 2 percent for each year you don’t have cover until the point you reach a maximum loading of 70 percent or until you’ve had continuous cover for 10 years.

So by joining a health fund you’ll not only be getting the health-related benefits but your hip pocket will get some reprieve too.

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