Pre-Paying your Health Cover may be a smart choice

You may be aware that as of 1 July 2012, the Private Health Insurance rebate will be means tested and health insurance policyholders will no longer be guaranteed the minimum 30% rebate.

You may also be wondering how the changes will affect you, and whether it still makes sense to continue paying for private health insurance.

You could also prepay your Health Insurance Premiums for 1-2 years ahead to minimise the effects of the new changes on your Health Insurance Costs. The period of prepayment depends on your individual insurance provider and you would have to check with them as to what is allowed under the rules of your policy.

1. The new Health Insurance Rebate Policy.
   We are concerned for those high income earners who are likely to lose their Private Health Insurance Rebate completely. In those instances, the cost of your health insurance policies could increase by up to 43% for those who currently receive the 30% rebate.

   The new policy change introduces three ‘Private Health Insurance Incentive Tiers’ based on income thresholds which will continue to remain indexed to wages. For low and middle-income earners, the existing 30, 35 and 40 per cent private health insurance rebates will remain in place. Higher income earners will receive a lower rebate if they choose to hold private health cover, but will face a higher Medicare Levy Surcharge (MLS) if they choose not to hold private hospital cover (having ancillary cover doesn’t exempt people from the MLS).

2. What are the new income thresholds?
   The private health insurance rebate and Medicare levy surcharge will be income tested against the income thresholds in the table below:- RebateMedicare Levy Surcharge

   	Unchanged	Tier 1	Tier 2	Tier 3
   Singles	$84,000 or less	$84,001-97,000	$97,001-130,000	$130,001 or more
   Families*	$168,000 or less	$168,001-194,000	$194,001-260,000	$260,001 or more
   Aged under 65	30%	20%	10%	0%
   Aged 65-69	35%	25%	15%	0%
   Aged 65-69	35%	25%	15%	0%
   Aged 70 or over	40%	30%	20%	0%
   Rate	0.0%	1%	1.25%	1.5%

   *The family income threshold is increased by $1,500 for every child after the first child

3. Income for the purposes of the Private Health Insurance Rebate changes:
   It is not as simple as just taking your taxable income level to work out whether you are eligible for the Health Insurance Rebate

   Please be aware that after taking into account the following definition of income it may be that your income level for the New Health Insurance Rebate purposes leaves you not eligible for any rebate

   Your Income

   Income, for medicare levy surcharge and health insurance rebate purposes, is the sum of your:

   • taxable income (including the net amount on which family trust distribution tax has been paid)
   • reportable fringe benefits (as reported on your payment summary)
   • total net investment losses (includes both net financial investment losses and net rental property losses)
   • reportable super contributions (includes reportable employer super contributions and deductible personal super contributions)

   Less:

   • if you are aged 55-59 years old, any taxed element of a super lump sum, other than a death benefit, which you received that does not exceed your low rate cap
   • if you had any exempt foreign employment income and a taxable income of $1 or more, you need to complete this item as if the exempt foreign employment income were added to your taxable income.

   Spouses income

   Your spouse’s income for MLS purposes is the total of:

   • taxable income – including the net amount on which family trust distribution tax has been paid
   • reportable fringe benefits as reported on your payment summary
   • total net investment losses – including net financial investment losses and net rental property losses
   • reportable super contributions – including reportable employer super contributions and deductible personal super contributions.