Will you be one of the 2 million Australians facing higher health costs because of the Federal Government’s decision to means test the private insurance rebate? If so, what should you do about it?
If your household earns more than $166,000 per year or if you’re a single earning over $83,000, a new law that made it through the House of Representatives recently will see you paying hundreds of dollars more each year for private health insurance.
How will the means test work?
The current private health insurance rebate is set at 30%, irrespective of what you earn. That means everyone who has private health cover pays 30% lower premiums because the government pays the private health funds the additional 30%.
On the basis that lower income earners should not be subsidising the private health insurance costs of higher income earners, the government has campaigned to introduce means testing of the rebate. When the law is finally introduced (it has passed the lower house) here’s how the rebate will be phased out based on income means testing:
Singles with income of more than $83,000 and couples/families with income of more than $166,000 Rebate reduced to 20%
Singles with income of more than $96,000 and couples/families with income of more than $192,000 Rebate reduced to 10%
Singles with income of more than $129,000 and couples/families with income of more than $258,000 Rebate removed altogether
So should you ditch private cover?
However, to prevent a mass exodus from private health insurance, the government has also increased the Medicare levy surcharge from 1% to 1.5%. That means if you are a high income earner and you decide not to continue with private health insurance you will pay an additional 1.5% in tax.
For a single earning $100,000, that’s an additional $1,500 in tax each year. It may well be that if you shop around you will be able to find private hospital cover that is less expensive than $1500, even with the reduced rebate.
For more information read our article on how to choose the best value private health insurance.
It can be confusing to know whether to get a variable rate or fixed rate mortgage, and what features are important. That's why it's important to not only check the right rates, but make sure that you're getting the right features in your home loan. Get help choosing the right home loan