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A small window of time exists between now and 30 June 2012 to pre-pay your health insurance and preserve your rebate. You should contact your fund for their specific offer. Some funds are offering to preserve their current terms until December 2013. You could save up to $1,500 in premiums, depending on your income and your fund's terms.
What are the proposed changes?
The essence of the proposed changes is to effectively "income test" the 30% private health insurance rebate for individuals whose income for Medicare levy surcharge purposes is more than $83,000 p/a and for families where that income is more than $168,000 p/a.
To achieve the means testing, the legislation introduces three new "Private health incentive tiers".
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In future years, the singles thresholds will be indexed to average weekly ordinary time earnings and increased in $1,000 increments (rounding down). The couples/family thresholds will be double the relevant singles thresholds.
Income Test
For those who think they may be affected by the changes, the income test includes the sum of a person's:
- taxable income (including the net amount on which family trust distribution tax has been paid, lump sums in arrears payments that form part of taxable income, and payments for unused annual and long service leave); plus
- reportable fringe benefits (as reported on the person's payment summary); plus
- total net investment losses (includes both net financial investment losses (eg. shares) and net rental property losses); plus
- reportable super contributions (includes reportable employer super contributions (eg. under salary sacrifice arrangements) and deductible personal super contributions),
- where the person is aged 55-59 years old, any taxed element of a lump sum superannuation benefit, other than a death benefit, which they received that does not exceed their low rate cap.
- The health fund can provide the rebate as a premium reduction.
- Where the full, upfront cost of the private health cover premiums has been paid, people can receive a cash payment from the Government through their local Medicare office or by lodging the claim form by post.
- The rebate can be claimed on annual income tax returns if the full, upfront cost has been paid.
Please call me if you need to discuss your specific "income test".
But from July 1, the MLS will increase for some high income earners. See the ATO table above.
The bottom line is that many of us will be reassessing our health insurance options to see if the choices we've made in the past still make sense under the new rules.
But...remember the changes depend on your income.
To ditch or not to ditch? What about Extras Cover?
Health insurance premiums have already risen by an average of more than 5 per cent since April 2012. So the rebate changes mean affected health fund members will be faced with forking out substantially more cash for their cover than this time last year.
If that's enough to make you think about ditching your cover altogether, the consumer group CHOICE has some advice. It says you'll likely still end up ahead by keeping your hospital cover, even with the reduced rebate, because of the changes to the MLS.
To avoid paying the MLS, you need to have only basic hospital cover (ie cover that limits or excludes a range of services), which is cheaper than full hospital cover. The requirement for avoiding the surcharge is that the policy has an annual excess of up to $500 (single) or $1000 (family).
Even if you take out more expensive full hospital cover, CHOICE says it will normally cost you less than the MLS if you fall into higher income tiers, or are aged 65 or older and therefore eligible for a higher rebate.
If you can't prepay your premium, you should contact your insurer now to tell them which income tier you are in to avoid paying extra tax in the new financial year.
CHOICE is less clear cut about whether it will be worth hanging on to any cover you have for "extras" after July. (Extras, or ancillaries, is cover for non-hospital treatments not covered by Medicare such as dental, optical, physiotherapy, and some products such as glasses.)
The 30 per cent rebate applies to both hospital cover and extras, but unlike hospital cover, dropping extras won't see you pay extra tax through the MLS.
When considering your extras cover, CHOICE advises checking how much you've received in extras claims over the past year against what your new premium will be from July 1.
Depending on how often you use the extras services, you could be ahead by dropping the extras cover and simply paying the total amount for the services you use. Alternatively, you might consider changing your extras cover.
The best place to get unbiased up-to-date information about the different policies on offer is the website run by the private health insurance ombudsman, privatehealth.gov.au.
