The Private Health Insurance Rebate is an Australian Government initiative to make private health insurance more affordable. By giving a partial refund on premiums, this rebate helps Australians manage the cost of their hospital and extras cover. And it encourages people to have private health insurance which takes the pressure off the public system.

You can claim the rebate in one of two ways:

1. Premium Reduction: The rebate is applied as a discount on your premiums, which can be paid weekly, monthly, quarterly or yearly.
2. Tax Refund: You can also claim the rebate as a refundable amount when you lodge your annual tax return.

The amount you get is influenced by:

• Income Tier: Your annual income determines the percentage of the rebate you get; higher-income earners get a smaller rebate.
• Age: Older Australians get a higher rebate as their healthcare needs increase over time.

Private Health Insurance Rebate Eligibility:

To get the rebate, you must:

• Have a qualifying health insurance policy with an Australian registered insurer.
• Be eligible for Medicare.
• Have an income below the Tier 3 income threshold.

The rebate is designed to help those who need it most, like seniors who need more medical attention. This rebate structure makes healthcare more accessible to a larger portion of the population.

The private health insurance rebate is income-tested, so the amount you get is based on your income. Higher-income earners get small or no rebates, while lower-income earners get a bigger one. The income threshold is reviewed each year, and eligibility is based on your “income for Medicare surcharge purposes” as of June 30th each year.

This “income for Medicare surcharge purposes” includes:

• Taxable income: Your total gross income minus work-related expenses and self-education costs.
• Fringe benefits: Non-cash benefits provided by your employer like a company car or private health insurance contributions.
• Superannuation contributions: Include reportable employer superannuation contributions (RESC) and any salary sacrificed super contributions. (Drawings from superannuation do not count towards income.)
• Investment income: Earnings from dividends, interest and rental income.

For example, if you are single, earning between $97,001 and $113,000 and under 65 years of age, you get a 16.405% rebate. If you earn below $97,000 in the same age bracket, you get a 24.608% rebate.

The table below shows the income tiers and rebate percentages for singles and families by age and income:

We have only included singles and families because single parents and couples (including de facto couples) are in family tiers. For families with children, the income thresholds are increased by $1,500 for each child after the first.

• The Australian Government private health insurance rebate is only for:

  • Private hospital cover (for treatment in a private hospital),
  • General treatment cover (also known as extras, such as dental, optical or physiotherapy) or
  • Combined hospital and general cover.

  If you are eligible for the rebate, there are two ways you can claim it:

  1. Through Your Private Health Insurance Provider

  The most common way to claim the rebate is by reducing your premiums through your insurer. Your insurer will adjust the premium after you nominate your income tier and family status. This way, you pay less upfront whether you pay fortnightly, monthly, quarterly or yearly.

  To claim through this method:

  • Tell your insurer your income tier and family status.
  • The insurer will apply the rebate to your premium.

  2. When You Lodge Your Tax Return

  The second way to claim a rebate is on your tax return. In this case, you will pay the full premium for the year, and when you lodge your tax return, the Australian Taxation Office (ATO) will apply the rebate as a tax credit and reduce your tax for the financial year.

  The ATO will calculate the rebate based on your income and adjust your tax. This method is good for those who want to claim the rebate all in one go instead of having it reduced throughout the year.

The Medicare Levy Surcharge (MLS) is an extra tax on Australian taxpayers who earn above a certain income threshold and don’t have private hospital insurance. The surcharge encourages higher-income earners to take out private health insurance to reduce the pressure on the public system by reducing the number of people who only use Medicare.

The MLS rates are as follows:

The MLS applies to singles and families; the family income thresholds increase by $1,500 for each additional child after the first.

MLS and the Private Health Insurance Rebate

The MLS and the private health insurance rebate are both to make private healthcare more affordable and reduce the pressure on the public system. But they work in slightly different ways:

• Medicare Levy Surcharge (MLS): If you earn above the threshold and don’t have private hospital cover, you will be required to pay the MLS, which is 1% to 1.5% of your income, depending on your income tier.
• Private Health Insurance Rebate: On the other hand, if you do take out private hospital insurance, you may be eligible for a government rebate on your premium, which reduces your ongoing costs.

To avoid paying the Medicare Levy Surcharge (MLS) you need to have private hospital cover with an excess of no more than $750 for singles (or $1,500 for families). This means your policy meets the government’s requirements for MLS exemption.

Avoiding the MLS

If you have adequate and qualifying hospital cover you won’t pay the MLS no matter how much you earn. Paying premiums on hospital cover is cheaper than the MLS which is 1-1.5% of your income. This is a strong incentive to keep private hospital cover. Instead of paying the surcharge, the funds can go towards keeping your private hospital cover, which has extra benefits like shorter waiting times for treatment and the ability to choose your healthcare provider. By having an eligible hospital policy, you avoid the MLS and also qualify for the government rebate, making private health insurance more affordable.

The Private Health Insurance Rebate is structured to offer different rebate percentages based on age and family status. The system recognises that healthcare needs and financial situations change as people age.

Age Groups:

The rebate is tiered across three age categories:

• Under 65: This group gets the base rebate as they have lower healthcare needs and generally higher income as part of the working population.
• 65-69: This group gets a higher rebate. This is not only to account for increased healthcare needs but also because many people in this group are transitioning into retirement and often have a drop in income.
• 70 and over: The highest rebate is for seniors. This is not only because they have greater healthcare needs but also because people over 70 are more likely to be fully retired with significantly reduced income compared to the working population. The higher rebate helps offset private health insurance costs for those on reduced income during their retirement years.

Family Types:

Rebate eligibility also takes into account family status. Couples (including de facto couples) and single parents are classified as family, so their combined income is used to determine their rebate. Families with children get an increased income threshold, which increases by $1,500 for each additional child after the first. This means larger families get more support to help with their healthcare costs. By adjusting rebates for age and family composition, the system provides more financial help to those with higher healthcare costs or reduced income, such as retirees and large families.

In recent years, private health insurance rebates have been decreasing, and out-of-pocket costs have increased for consumers. This is mainly due to the Rebate Adjustment Factor, which is recalculated every year to account for inflation and average premium increases. As premiums have increased faster than inflation, the rebate percentage hasn’t kept pace, and many policyholders have seen a reduction in their rebates.

If inflation and healthcare costs continue to rise, rebates may decrease further unless there are significant policy changes. However, potential government reforms such as changes to income thresholds, increased healthcare funding, or changes to how the Rebate Adjustment Factor is calculated could offset these decreases.

Be aware of these changes as they affect your private health insurance costs. Monitor the annual updates to income tiers and rebate levels to help you plan and budget for your healthcare expenses in the future.

If you have private health insurance in Australia, you may be eligible for rebates and tax offsets depending on your income and family status. At Health Deal, we encourage you to check them out and get the most out of your health insurance. Knowing your rebate entitlement can make a big difference to your out-of-pocket costs.

Need help with your rebate eligibility or have questions about your private health insurance? Our team is here to assist. Contact Health Deal at enquiries@healthdeal.com.au or call one of our specialists on 1300 369 399 or fill out our online form for personal advice and support. We’ll help you make informed decisions about your health insurance and get the most out of your policy.

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