Australians are being urged to review their health insurance policies to avoid the potential financial impact of the Medicare Levy Surcharge (MLS), a tax imposed by the Australian Taxation Office (ATO) aimed at encouraging higher-income individuals to obtain private hospital coverage. Recent ATO statistics indicate that 768,537 Australians faced this surcharge in the 2022-23 financial year, an increase of nearly 25% from the previous year, with an average surcharge amounting to $1,318.
From 1 July, the income thresholds for the surcharge will rise slightly, with the individual threshold set at $101,000 (up from $97,000) and the family threshold at $202,000 (increased from $194,000). The MLS is charged in addition to the standard Medicare levy of 2% and varies between 1% to 1.5% based on income levels.
Sophie Ryan, a spokesperson for iSelect, highlighted that many policyholders tend to overlook their health insurance when tax time arrives. She stressed the importance of including health insurance in end-of-financial-year checklists, especially as more than half of surveyed policyholders were unaware of reductions in the private health insurance rebate for the current year. Alarmingly, about 20% of Australians do not even know if they are liable for the MLS.
The private health insurance rebate, which assists individuals with their premiums, is income-tested and applies to singles earning up to $158,000 and families earning up to $316,000 for the 2025-26 financial year. The rebate can range from 8% to 32%, depending on the individual’s income and age.
Tax Experts Warn About the Surcharge
If individuals have already incurred the MLS for this financial year, it is too late to take out a health insurance policy to eliminate the charge for the current period. Belinda Raso, director of Tax Invest Accounting, noted that taxpayers are accountable for the surcharge for every day without private health insurance, making it difficult to avoid if they earn above the threshold. She also pointed out that many may unknowingly exceed the threshold due to reportable fringe benefits, which can inflate taxable income.
Potential Policyholders Urged to Act
Raso advised that anyone wishing to avoid the surcharge for the next financial year must secure private health insurance before 1 July. For those already covered, reviewing policies is equally important to ensure they are not paying a ‘loyalty tax.’ ISelect’s research found that 76% of policyholders have either never switched their health insurance provider or haven’t done so in over two years. This lack of action could mean they are missing out on significant savings; 65% of those who have switched discovered they saved at least $100 annually, while others reported savings of up to $500 or more.
Ryan encouraged Australians to assess their current health insurance coverage in terms of benefits and excesses, suggesting that a simple comparison could lead to considerable savings and enhance peace of mind.
In summary, as the end of the financial year approaches, Australians are reminded to assess their health insurance to avoid unnecessary tax burdens, ensure they are maximising government rebates, and potentially save on premiums by finding better-suited coverage options.
