How the Medicare Levy changes affect you

The Medicare Levy thresholds have increased, meaning it could affect your household budget. The threshold determines whether you will be required to pay extra tax, or if you'd be better off taking out private Hospital Cover in order to avoid it.

Background

In Australia, all taxpayers contribute towards the Medicare system in the form of the Medicare Levy, a tax of 1.5% that helps keep the public health system operating. Those in higher income brackets, however, are required to pay an extra 1% tax called the Medicare Levy Surcharge. The income thresholds for the Surcharge were previously set at $50,000 for singles and $100,000 for couples and families, rising by $1,500 for each child after the first.

However, by taking out private Hospital Cover with a registered health fund, those earning over the threshold are able to avoid the Surcharge. In some cases, it is even possible to take out a basic level of private Hospital Cover that costs less than the Surcharge, while still being protected by modest 'just in case' health cover.

The Change

In September 2008, a Bill put forward by the Government to increase the thresholds to $100,000 for singles and $150,000 for couples and families failed to pass the Senate. As a result, after negotiating with opposing members, Health Minister Nicola Roxon announced that an agreement was reached to set the thresholds at $70,000 for singles and $140,000 for couples. As before, the threshold rises by $1,500 for each child after the first.

How do the changes affect me?

These changes particularly affect singles earning between $50,000-70,000 and couples and families with a combined income between $100,000-$140,000. Effectively, for people in those brackets, the threshold changes mean that there are no longer any tax penalties for not having private Hospital Cover, as the Medicare Levy Surcharge will no longer apply in those income brackets.

If you are a single person earning over $70,000 or a couple or family with a combined income over $140,000, then the changes will not affect you. The Medicare Levy Surcharge will still apply, so you are still better off taking out or keeping private Hospital Cover.

Can I drop my private health cover with no consequences?

If you are in an income bracket where the Medicare Levy Surcharge no longer applies, there are no immediate tax consequences for dropping your health cover, but there are other issues you should consider before making this decision:

• Peace of mind: Private health cover offers peace of mind that you and your family will be covered for medical emergencies to the extent of your policy. Private health cover gives you your choice of hospital, doctor and greater flexibility in scheduling elective surgery, which you cannot expect from the public health system.
• Lifetime Health Cover: Although the Medicare Levy Surcharge may no longer apply to you, the Lifetime Health Cover regulations still do. If you currently have zero age loading (a benefit of taking out Hospital Cover before the age of 30) but choose to drop your health insurance, you could be hit with an age loading later on when you want to take up Hospital Cover again.
• Extra features: There are loads of Extras covered by health insurance that Medicare doesn't cover, like general dental, optical, physio, chiro, acupuncture, remedial massage and more. You would miss out on these benefits if you discontinue health cover.

The most important thing is for you to consider how important health cover is to you and what you are able to afford. Don't go beyond your budget to get health insurance (or anything else!), but if you can afford it, private health insurance offers the protection you need if you or your family is involved in any kind of medical mishap.

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