The Private Health Insurance Rebate

Published: April 30, 2019

You can generally get cheaper private health insurance if you’re eligible to claim a health insurance rebate; which you can choose to receive as either a reduction on your premiums or a refund when claiming it through your tax return to the ATO.

Furthermore, having private health insurance also helps you avoid the Medicare Levy Surcharge and Lifetime Health Cover (LHC) loading while enabling you to claim for services and treatments that Medicare doesn't cover.

This article will help you understand how the Australian Government rebate on private health insurance works, and how much you are eligible to claim.

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Table of contents

Take note: ComparingExpert and consultants are not tax specialist. Please consult with your accountant or a tax professional should require any accounting or tax advice.

How much tax do you save with private health insurance?

There are generally three big financial incentives to getting private health cover. The first is to avoid the additional tax of the Medicare Levy Surcharge, the second is to dodge the 2% yearly Lifetime Health Cover (LHC) loading that kicks in after your 31st birthday and the third is the possible benefit of a premium discount or tax refund.

1Avoid the Medicare Levy Surcharge

Avoid paying the additional 1% to 1.5% Medicare Levy Surcharge (MLS) by taking out a private health insurance policy. If you don't have a health plan, your percentage surcharge will be calculated based on your income as a single person or your combined income as a family (including single parents and couples).

MLS income threshold for 1 April 2018 to 31 March 2019

Base tier Tier 1 Tier 2 Tier 3
Singles $90,000 or less $90,001 to $105,000 $105,001 to $140,000 $140,001 or more
Families $180,000 or less $180,001 to $210,000 $210,001 to $280,000 $280,001 or more
Medicare Levy Surcharge % 0% 1% 1.25% 1.5%
Source: privatehealth.gov.au (April 2019)

2Avoid the Lifetime Health Cover (LHC) loading

If you don’t have appropriate private health insurance before the 30th of June following your 31st birthday, and you take up health cover later, you’ll have to pay an additional 2% on your premium for every year you did not have private health cover, up to a maximum of 70%.

For example, if you decide to purchase private health cover at age 37, your policy that would have cost around $2000 per year, will now include an additional 12% LCH loading, meaning you’ll pay an additional $240 on top of your premium.

Take note: If you are currently paying an LHC loading, your rebate will not be applied to the LHC part or your private health insurance premium.

3Receive the Australian government rebate on private health insurance

The Australian Government Rebate (AGR) helps pay a percentage of the cost of your private health insurance premiums, up to a maximum of 33.413% (1 April 2019 to 31 March 2020) if you qualify for a private health insurance tax return. The amount you can claim depends on various factors, including your taxable income, your age, and your family structure.

Private health funds that qualify for the rebate

Not all private health funds guarantee eligibility for the Australian Government Rebate. The refund/discount is only made available to private health insurers that are registered under the Private Health Insurance Act 2007.

You can check a health fund's registration status by visiting the Private Health Insurance Ombudsman, but generally, it’s best to contact your health fund directly to inquire if the policy that you have or want to purchase is eligible for a health insurance tax return.

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How does the health insurance tax rebate work?

The rebate is adjusted annually on the 1st of April according to the Rebate Adjustment Factor (0.986 for 2019) which is calculated on the difference between the Consumer Price Index (CPI) and the industry weighted average premium increase (3.25% in 2019). The amount you’ll receive depends on the age of the oldest person on your policy, and your expected taxable income for the current financial year as a single person or family/couple.

Health insurance rebate tiers and threshold

Your private health insurance government rebate is based on the rebate tier you've selected; each tier/level is determined by your estimated taxable income for the financial year and family structure.

ATO Private health insurance rebate tiers

  • Base Tier: $90,000 or less for singles and $180,000 or less for couples/family
  • Tier 1: $90,001 to $105,000 for singles and $180,001 to $210,000 for couples/family
  • Tier 2: $105,001 to $140,000 for singles and $210,001 to $280,000 for couples/family
  • Tier 3: $140,001 or more for singles and $280,001 or more for couples/family

Take note: If you’re part of a family with children, then the income threshold for each tier will increase by $1,500 for every child after your firstborn.

Private health insurance rebate threshold for 1 April 2019 to 31 March 2020

Under age 65
Tier Rebate Threshold
Base Tier 25.059%
Tier 1 16.706%
Tier 2 8.352%
Tier 3 0%
Age 65 to 69
Tier Rebate Threshold
Base Tier 29.236%
Tier 1 20.883%
Tier 2 12.529%
Tier 3 0%
70 Years and older
Tier Rebate Threshold
Base Tier 33.413%
Tier 1 25.059%
Tier 2 16.706%
Tier 3 0%
Source: privatehealth.gov.au (April 2019). The income threshold will remain as above up until 30 June 2021.

Who is eligible to claim a health insurance rebate in Australia?

You are generally eligible to receive the tax refund/discount if you pay a private health insurance premium, are entitled to Medicare and have an income that is less than $140,001 for singles and $280,001 for families and couples (2019). The Australian Government Rebate (ARG) does not apply to people with overseas visitors' health insurance cover.

Important: If the policy covers multiple adults, each adult is income tested to determine their health insurance rebate entitlements for their share of the policy cost. Your share of the policy is equal to the premium divided by the number of adults covered on the policy at the time of payment.

To calculate your private health insurance government rebate, please visit the Australian Taxation Office website and use their private health insurance rebate calculator.

How to claim your private health insurance rebate

There are 2 ways in which you can claim your private health insurance tax rebate from the ATO:

1

Upfront reduction from your health insurer

You can receive your rebate claim as an upfront reduction on your private health insurance premium. Meaning, you’ll pay less for your health insurance because the rebate will be paid directly to your health fund and the fund will subtract the amount received from your premium.

To receive your rebate as an upfront premium discount, you'll need to register with your health insurer to do this. They'll generally provide you with an application to receive the Australian Government Rebate, which you then need to complete and return to your fund via mail or email. Alternatively, you might be able to log into the insurer's Online Service and complete your details there.

2

Through your tax return

You can claim a refund through your annual tax return from the Australian Taxation Office. Your health fund will usually supply you with a statement at the end of each financial year. Remember to submit these forms before the 31st of October. You can lodge your tax return online with myTax; you’ll need to set up a myGov account to use myTax.

Frequently asked questions and answers

What if you selected the wrong rebate tier?

If you choose the wrong income tier when submitting your tax return or on your AGR application to your health fund, your actual rate will generally be calculated by the ATO during the financial year end, and you may have to repay any rebate you received that was higher than your actual entitlement. However, you'll usually receive a tax offset through your tax return at the end of the financial year if you've chosen a tier that resulted in a lower rebate than your income entitles you to.

If your income were to change, and you’ve registered with your health fund for the ARG, you can generally update your health insurance rebate tier online by visiting the fund’s member’s portal or download and submit a new ARG application form.

Does the level of rebate for private health insurance change?

Yes, the health insurance tax rebate is adjusted yearly on the 1st of April. Because the rebate value is based on a percentage, it will keep up with any private health insurance premium increases.

Is health insurance tax deductible?

Generally, yes, a percentage of your health insurance premiums might be tax deductible. Anyone who pays a private health insurance premium and qualifies for Medicare can get a rebate either as a premium discount or as a refund on your tax return.

Why was the rebate created?

When more people purchase private health insurance, it reduces the burden on the public healthcare system and increases the affordability of private health insurance for everyone. To encourage people to take private cover, the Australian Government created the private health insurance rebate as an incentive.

How to claim your spouse’s health insurance rebate

You may be able to claim your spouse's health insurance discount/refund, as well as your own, if they’ve given you their consent, you’re both covered under the same health insurance policy at the same time, and they were still your spouse on the last day of the income year.

You’ll generally need to include their details in the spouse section of your tax return, and your rebate will be income tested on your combined income.

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2 Comments

  • Barry Foote |

    How does the ATO collect the Lifetime Health Cover Loading? Is it debited on annual assessment or is adjusted through premiums/rebate?

    • SPECIALIST
      Anneke Van Aswegen |

      Hi Barry.
      Great question.

      I assume you purchased private health insurance after you turned 31. The yearly 2% LHC loading will be added on top of your health insurance premium. The way ATO collects this by not including the loading in your private health insurance rebate.

      For example, let’s suppose your health insurance premium is $220, however 10% ($20) of it is your Lifetime health cover loading. The premium amount that is eligible for the rebate is then $200 and not $220.