Kerryn Boogaard Kerryn Boogaard
Beverly Goldsmith Beverly Goldsmith
Zoe Bingley-Pullin Zoe Bingley-Pullin

Understanding the magic behind private health insurance:

What you need to know about private health insurance
By Expert Tips
Date: June 26 2017
Editor Rating:

When it comes to private health insurance, the magical “June 30” deadline is talked about everywhere. With this date fast approaching, it’s important to get your ducks in a row – but what exactly does this entail?

As a parent of young children, sorting health insurance might be the last thing on your mind, but it’s worth taking a moment to review the private health insurance plan that your family is on (if any) – because the longer you leave it, the more it could end up costing you in the long run.

The lead up to the end of financial year is the busiest time for private health insurance with many Australian families scrambling to secure a policy before the June 30 deadline. That’s because there are two additional costs that you might have to pay if you don’t get sorted by then.  

Lifetime Health Cover (LHC)

Remember being young, fanciful and free? Before responsibility and before kids, you were reckless and invincible, with private health insurance probably not even crossing your mind as something worth investing in.

Unfortunately, if this was the case, and you were over the age of 31 before you took out private health insurance, you are paying the LHC. This is a government initiative designed to encourage younger Australians to take out private cover earlier in life, and maintain it. Australians who haven’t taken out private hospital cover before 1 July following their 31st birthday generally face paying an annual 2% fee of what they are already paying for their private hospital cover.

If you find yourself taking out private cover later in life, there is nothing you can do to avoid LHC completely but you can minimise its impact. LHC loading is calculated as a percentage of your premium, meaning that the higher your hospital premium, the greater the LHC impact. It therefore makes sense to ensure that you are on the best value policy to minimise your LHC burden.

Medicare Levy Surcharge (MLS)

The Medicare Levy Surcharge (MLS) is an additional tax (on top of the standard 2% Medicare Levy paid by all Australian taxpayers) for those who earn above a certain income and don’t have private hospital cover.

The income threshold is $90,000 for singles and $180,000 for families. It’s worth doing a recon of your combined yearly income to see whether or not you’re required to pay this. If you are, then it could make good financial sense to take out a private health insurance policy, because otherwise you could end up paying even more in tax. The policy also provides the added bonus of having peace of mind should something unexpectedly go wrong in life.

Understanding how the above factors affect you and your family is key to ensuring you don’t get stung on your tax return or your upcoming private health insurance bill. This is easier said than done, given the sheer volume and complexity of private health insurance options out there.

When reviewing your cover, you should consider speaking to a private health insurance expert such as iSelect to discuss your family’s current needs and financial boundaries to discover what would be the most suitable plan.

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