The tax incentive of private health insurance

ARTICLE

25 July 2023

4 mins read

While common knowledge that having private health insurance (PHI) has tax incentives, are client conversations making the most of this?

The current cost of PHI has increased across the board, leaving many clients considering their options. However, by tweaking conversations slightly the overall cost of private health insurance may highlight a different story. Let’s start at the base level.

Government Surcharge and Incentives

The Australian Government has been incentivising Australians to take out PHI policies for many years. Incentives include:

Lifetime Health Cover – penalises individuals who take out PHI policies after the age of 30
Private Health Insurance Rebate – helps cover the cost of premiums based on age and income
Age-based Discount – a discount for people aged between 18-29
Medicare Levy Surcharge (MLS) – a fee charged at tax time for tax paying Australians without PHI [1]

Good to know information, but how can that change my client conversations?

Tax time and the Medicare Levy Surcharge

Let’s focus in on MLS as it’s the easiest to quantify. The MLS is an amount you pay on top of the Medicare levy come tax time – simply put, it’s a percentage based on a client’s individual income, or combined income for couples.

The MLS rate is 0%, 1%, 1.25% or 1.5% depending on:

Your taxable income (singles or couples) – see below for MLS income thresholds and rates for 2023-23
Total reportable fringe benefits, and
Any amount on which family trust distribution tax has been paid [2].

Threshold	Base tier	Tier 1	Tier 2	Tier 3
Single threshold	$93,000 or less	$93,001 - $108,000	$109,001 - $144,000	$144,001 or more
Family threshold	$186,000 or less	$186,001 – $216,000	$216,001 – $288,000	$288,001 or more
MLS	0%	1%	1.25%	1.5%

Other factors include:

Your spouse
Dependants

You can read more about the MLS here.

Let’s tweak the conversation – does MLS impact PHI?

Let’s consider a couple under the age of 30, without PHI, who have two dependant children. The couple earn $95,000 each per annum, or $190,000 combined. When combining incomes, their MLS will be calculated at 1% meaning they will each have to pay an additional $1,900 or $3,800 combined in additional tax.

The same couple have considered their options and take out a PHI policy to no longer pay the MLS in addition to having cover in place.

They’ve opted for an AIA Health insurance product (Silver Hospital cover with Medium extras with AIA Vitality included) which will cost the couple $4,508.53*.

Understandably, this amount appears a substantial financial outlay, but if you consider that they are exempt from paying the MLS of $3,800 at tax time, it could be argued that their policy will cost them $708.53 throughout the year compared to $4,508.53*.

Combined insurance cost	$4,508.53
MLS amount	$3,800.00
Combined insurance cost MINUS MLS amount	$708.53

While there is the initial outlay financially for an insurance policy, when we combine the various costs and incentives, the cost of a PHI policy may be seen as more palatable.

Further benefits

Further to taking out a PHI policy, clients get the added benefit of shorter wait periods, choice of doctor, and rebates on health services not covered by Medicare such as physiotherapy, dental and optical, to name a few.

In addition, with an AIA Health policy, clients have access to AIA Vitality which has added financial incentives when reaching specific goals. Clients can earn up to $760 in e-gift cards or cashback for reaching goals, plus discounts on gym memberships, flights, AIA Priority Protection policies and more.

To discuss how an AIA Health policy can further benefit your clients, please reach out to your Client Development Manager or Sales team.

References and Footnotes

*This quote was completed on 7 July 2023.Premium based on couple residing in New South Wales, this may vary for other states and territories. A first year 5% discount has also been applied, to uphold this discount the customer must reach and maintain AIA Vitality Silver Status or above.

The quote figure includes:

30-day cooling-off period - If you change your mind (and you haven’t made any claims) you can cancel your cover within 30 days of joining and you will receive a full refund by calling us on 1800 333 004.

16.405% Australian Government Rebate - The Australian Government Rebate (AGR) is an amount the government contributes towards the cost of your private health insurance. The rebate is income and age-tested, which means your eligibility to receive it is determined by your age and how much you earn.

AIA Vitality

5% discount on your premium if you have AIA Vitality - Simply achieve AIA Vitality Silver Status before December 31 each year to maintain the discount for the following year. If you join after September 30 in a given year, you will have until 31 December of the following year. Please see our Member Guide for more information.

$11.50 monthly fee for AIA Vitality or a $6 monthly fee for AIA Vitality Starter per eligible adult