This article talks about the following levies and surcharges:
  • Medicare Levy,
  • Medicare Levy Surcharge (MLS),
  • Lifetime Health Cover (LHC) Loading, and
  • Private Health Insurance (PHI) Rebate.

Medicare Levy

The Medicare scheme gives all Australian residents free access to health care services. To help fund this scheme almost everyone contributes to this by paying the Medicare levy. Your contribution is 2% of your taxable income and reportable fringe benefits. E.g. someone earning 80k taxable income with 15k reportable fringe benefits will be paying about 2k on Medicare levy yearly.

You are exempted from contributing to Medicare if you earn less than 20k a year, the nation takes care of you. You will have to pay part of the levy if you earn between 20k and 24k yearly.

Medicare Levy Surcharge (MLS)

This is a surcharge placed upon the people who can afford to have private health but are depending on Medicare for hospital cover. We are not taking about the extras like dental and optical here.

When you start earning over 180k as a family or 90k as single yearly, you are considered to be someone who can afford to have your own private health. If you do not go out and get a private hospital cover, you will have to pay  a surcharge upto 1.5% based on your taxable income and reportable fringe benefits. It is a three tier system, in which:
  • Tier 1 is 1% (>90k – 105k single or >180k – 210k family)
  • Tier 2 is  1.25% (>105k-140k single or >210k – 280k family)
  • Tier 3 is 1.5% for (>140k single or >280k family)
A family earning 215k annually will be paying 2.6k annually for depending on the public health care system. If they were to get a budget private hospital cover it will costs about 1.5k annually. So it does make sense to get private health to avoid paying extra 1.1k on levy for no extra benefit.
It a good area to look at to start saving money.

Lifetime Health Cover (LHC) Loading

This is the incentive that the government has in place for private health insurers to charge people penalty fees on top of their base policy premium, if they decide to get private health (hospital cover) at a later stage in life. They expect you to take out private health when you turn 31 and who ever takes out a hospital cover after 31 is considered risky.
For every year you are without a hospital cover, from your 31st birthday, a 2% penalty levy applies. The levy can go up to 70%.

Let say a basic hospital cover policy costs $100 a month. If you take out that policy when u turn 31, you just pay $100. If a 50 years old takes it out, then they will pay 40% levy which comes to $140 a month. The same policy will attract 70% levy for a 65+ person bringing the total to $170 a month.

As you get old and closer to the retirement age you usually need better cover and your monthly income isn’t going to be as high as what you are earning now. Ideally that is what we want, but its not always practical. Better cover costs more money. At your old age you want to reduce your expenses and certainly not pay this levy.

LHC loading is calculated on the base policy premium. A policy costing $100 a month and 50 year old person takes it out then it will cost that person $140, which includes the $40 levy. If that person is eligible for full 30% PHI rebate, see section below. Then the rebate is calculated on the base preimum amount and not the loading. As in, you are not going to get discount on your fine. You will still pay the $40 fine but you will get discount on the base premium. So it will cost the 50 year old the total $70+$40 = $110 per month.

Private Health Insurance (PHI) Rebate

To reduce the load on the public health system, the government is incentivising people to take out private health insurance by means of PHI rebate. If you take out private health insurance (extras and/or hospital cover), they will contribute a percentage toward paying the premium.
The incentive is given out through a multi-tiered system based income threshold as well as age. The age categories are under 65, over 70 and those who are in between. The income threshold is same as the one they use for Medicare Levy Surcharge:
  • Base Tier (<90k single or <180k family)
  • Tier 1 (90k – 105k single or 180k – 210k family)
  • Tier 2 (>105k-140k single or >210k – 280k family)
  • Tier 3 (>140k single or >280k family)
If you are in Tier 3, you will get no rebate and if you are in Base Tier, you will get the maximum available for your age category. The maximum rebate you can get is 38.7% for a 70+ year old in Base Tier and the minimum you can get (excluding Tier 3) is 9.6% for someone under the age of 65 in Tier 2.
In principal, rich gets nothing and poor and elderly gets good compensation. Not a bad idea.

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