At Freshwater Tax of late, we have been noticing that quite a few clients are earning above the medicare levy surcharge threshold, yet not in possession of Private Health Insurance.
The ongoing debate in the media revolves around the merits V drawbacks of private health insurance.
While opting for less expensive health insurance may help avoid the surcharge, you may not necessarily be covered for the full range of treatments that you need.
Currently, over half of Australia’s population have private health insurance. A significant number of whom may not fully comprehend the extent of their coverage or what services they are entitled to receive. In response to the escalating consumer discussion, the Australian Competition and Consumer Commission (ACCC) has called for standardisation of insurance policies across providers. In light of these discussions, the government has recently introduced changes to private health insurance to simplify the decision-making process for consumers. The initial wave of reforms introduced clear, easy-to-understand tiers, discounts for young policyholders, improved access to mental health treatments, and higher excess options in exchange for reduced premiums.
Medicare Levy Surcharge: The Tax-Saving Mechanism of Private Health Cover
For individuals earning $93,000 or more (or $186,000 for families), an additional 1-1.5% of their annual income must be paid to the government as the Medicare Levy Surcharge. This surcharge serves as an encouragement for higher-income individuals to take up private hospital cover.
Why Some Opt Out of Private Health Cover
Notwithstanding the advantages, many policyholders, especially those with moderate or lower incomes, may find private health insurance premiums unaffordable and are thus discontinuing their policies.
The reasons behind this trend include:
- Escalating costs: Annual fee increases, often surpassing the consumer price index (CPI), can make high-quality private health policies financially out of reach for many.
- Out-of-pocket expenses: Many policies still require policyholders to cover a portion of medical services, resulting in a “dollar gap” between what the medical specialist or hospital charges and what the policy covers.
- Confusing policies: The complexity of policies can lead to misconceptions, leaving policyholders without the coverage they anticipated.
Public Healthcare vs. Private Health Cover
It is often said that Medicare and the Australian public healthcare system is known to ensure the well-being of all Australians and residents. It offers high-quality care in public hospitals, generally comparable to private institutions. Having said this, public healthcare may involve longer waiting times for certain treatments and it does not cover services like dental care or optometry.
The Medicare system is funded through government revenue and the mandatory Medicare Levy, which accounts for 2% of individuals’ annual income. By this logic, higher-income earners are urged to adopt private hospital coverage to alleviate the public system’s strain.
The Decision: Private Health or Public System?
The decision regarding private health insurance is complex, involving various factors:
- Financial costs
- Tax benefits
- Access to private facilities and services
- Quality care in emergencies (depending on the chosen plan)
- Access to specialised services, e.g., maternity care
- The value and utilisation of extras
To make an informed choice, individuals should consider their unique circumstances and seek information from reliable sources, including health professionals and government resources. Interactive tools and checklists such as this one are available to assist in decision-making.
