Rhonda Perky has asked me to explain private health insurance, that mysterious cover that older and or richer people seem to have. Does taking out private health insurance save us money or is that ‘Steve Young from Young’ ad making us feel anxious for no good reason?
Some people think that insurance is a way of saving money. It’s not. The concept behind insurance is to cover you for unexpected large costs that might otherwise cause financial difficulty. For this, you pay a price. (Peter Lavelle, ‘Private Health Insurance’, via ABC)
That price, however, is often offset by tax concessions. While private health insurance does not exempt taxpayers from the Medicare Levy (1.5% of taxable income), it does prevent high-income earners from attracting an additional Medicare Levy Surcharge (1-1.5% of taxable income). The surcharge is a slap on the wrist for those who earn $84,000 or more*. 1% of $84,000 is $840. Ouch.
Good lil’ taxpayers who have private health insurance get rewarded with a Private Health Insurance Rebate (read ‘discount’). Older taxpayers and those earning less than the magical $84,000* get the biggest rebates. For instance, someone who is over 70 and earning less than $84,000 per year gets a whopping 40% off their private health insurance premium. A young person like me who’s earning less than $84,000 gets 30%. Gee, thanks Father Government, I always wanted that for Christaxmas time.
But what kind of cover do you need to fatten up the tax return and how much does it all cost? In its explanation of the Medicare Levy Surcharge, the ATO states its private health cover requirements:
An appropriate level of private patient hospital cover is cover provided by a registered health insurer for hospital treatment in Australia which has an excess of:
- $500 or less (for a policy covering only one person), or
- $1,000 or less (for all other policies).
Excess is the amount you pay before your health insurer pays for any claim you make.
So how much does hospital cover cost? Public Hospital Cover for Singles** from nib costs $11.47 per week or $596.44 per year. With the 30% rebate, that drops to a yearly $417.51 premium. It’s cheap but very basic. If you’re fit and under thirty, you’re probably not going to use it; if you’re also earning less than $84,000, there’s no point.
However, individuals who wait until they’re 31 and over will get a 2% Lifetime Health Cover Loading on top of their premium. This increases with every year they hold out. A 31-year-old who signs up after July 1 will have to pay an extra 2% of their premium (or $11.93 per year, using the above example); someone who signs up at 35 will have to pay an extra 10% (or $119.30 per year, using the above example). The loading is removed only after 10 continuous years of private health cover.
So if you’re ‘young’ and approaching 31, and you’re planning to get private health insurance because your salary might increase in the next few years (let’s be optimistic shall we?), don’t put it off for too long or else you might end up in the naughty basket.
*$168,000 is the magical number for families.
** with $400 excess and living in Victoria