How Legislative Changes Affect Your Health Insurance Costs

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If you are among the 10.5 million Australians who own a private health insurance policy, you already know that the Australian government subsidises the cost of your premiums by as much as 30 percent through its rebate program, or more if you are over 65 years of age and eligible for a higher rebate.

However, beginning July 1, higher income earners could face a reduction in their private health insurance rebate or, for those who have waived private health insurance coverage, an increase in the Medicare Levy Surcharge (MLS).

Beginning July 1, new legislative rules have established that singles with an income exceeding $84,000, or couples and families earning more than $168,000 (adjustable, according to the number of dependent children in the family) will see their private health insurance rebate reduced. If these higher income earners do not have the appropriate level of private health insurance coverage, their MLS could increase, as both will now be income tested against three newly established income tier thresholds.

The Australian Taxation Office (ATO) will determine each taxpayer’s private health insurance rebate entitlement based on their income tax returns.

Means testing for private health insurance rebates is going to affect most high income earners, including those over 65.  Singles earning more than $130,000 a year can find themselves paying  up to $900 more annually for private health insurance, and families with an annual income over $260,000 could end up paying  an additional $2,200 per year on their health insurance premiums.

The rise comes on top of a recent round of premium increases from most health funds and follows the federal budget announcement that those earning more than $300,000 will no longer get the same tax concessions for superannuation as those earning less than that figure.

Just when you may have thought insurance could not get more confusing, for those high income earners affected by these new rules, the government has already planned ahead for your cost-savings strategies. If you choose to ditch your private health cover, expect the one percent Medicare Levy Surcharge to increase to 1.25 percent if you’re earning more than $97,000 (or $194,000 for families), or up to 1.5 percent if your income exceeds $130,000 (or $260,000 for families).

Most of the time, you can find private hospital cover for less than these surcharges. The appropriate level of hospital cover generally refers to health insurance with an excess of less than $500 for a policy providing single person coverage, or $1,000 for family coverage, provided by a registered health insurer for hospital treatment in Australia, provides a wide variety of health insurance policies and providers to compare insurance costs and products.

As of July 1, private health insurance rebates and Medicare Levy Surcharges will be income tested against the following income tier thresholds:

Tier 1: Singles with incomes between $84,000 and $97,000 (inclusive), and couples and families with incomes between $168,000 and $194,000 (inclusive) who own a complying health insurance policy will have their rebate reduced to 20 percent. The Medicare Levy Surcharge of one percent will remain intact for tier one income earners who do not have appropriate private health insurance.

Tier 2:  Singles earning incomes between $97,001 and $130,000 (inclusive), and couples and families earning between $194,001 and $260,000 who own a complying health insurance policy will have their rebate reduced to 10 percent, and their Medicare Levy Surcharge increased to 1.25 percent.

Tier 3: Singles with incomes of $130,001 or more, and couples and families with incomes of $260,001 or more who own a complying health insurance policy will no longer receive any rebate after 1 July 2012.  Additionally, their Medicare Levy Surcharge will increase to 1.5 percent.

Keep in mind that families with more than one dependent child will have a threshold increase of $1,500 per child to work with.

These new rules will have many Australians reassessing and comparing health insurance options to determine what health cover choices make the most sense under the new rules, especially taking into account the fact that health insurance premiums have already risen by an average of five per cent or more since April 2012. The new rules can mean those affected will be paying significantly more for their health insurance policies than they paid just one year ago.

However, abandoning your health insurance policy altogether may not be the answer, especially when you consider the reduced Medicare rebate.  In order to avoid paying the Medicare Levy Surcharge, you only need to have basic hospital cover in place, which is less expensive than full health insurance coverage. In order to avoid the MLS, your health insurance policy must have an annual excess of up to $500 for single coverage,  or $1000 for family coverage, which is a good reason to compare health insurance policies to find the best option for your income threshold.

Additionally, depending on which higher income tier you fall into, even full private health insurance coverage may cost less than the MLS. The same holds true if you are over 65 and eligible for a higher rebate.  You may also be able to reduce the financial impact of these rule changes by prepaying your annual premium before June 30, and covering the next 12 months or longer if your insurer permits.

To be absolutely sure of the costs involved when these new rules take effect, consult with a professional financial advisor to guide you through the new rulings and help you make the best decisions regarding your health insurance costs.

Always compare health insurance policies to find the best rates and products for your needs.

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