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Tax time and getting health insurance

Did you know private health insurance can help lower how much tax you pay? While health insurance isn’t tax deductible, there may be tax benefits you can take advantage of when you have private health cover. 

Happy couple planning and designing their future home
Happy couple planning and designing their future home

Did you know private health insurance can help lower how much tax you pay? While health insurance isn’t tax deductible, there may be tax benefits you can take advantage of when you have private health cover.

To help work out how health cover can help you save money at tax time, here’s a complete guide to making the most of private health insurance tax benefits.

What is health insurance?

Private health insurance pays some or all the costs of being treated as a private patient in a private or public hospital. Depending on the cover you choose, it may also cover a portion or all of the costs of some health services that aren’t covered by Medicare. These are known as “extras” and include services such as dental, optical and physiotherapy.

Why do you need private health insurance?

Private health insurance might not be essential, but it does offer peace of mind and a sense of security, especially with the rising cost of living. Having private health cover provides faster access to certain hospital services and helps cut down your out-of-pocket expenses for treatments not covered by Medicare. Plus, it gives you the freedom to choose your healthcare provider and brings potential tax savings.

Why should you have health insurance at tax time?

Having health insurance at tax time gives you two main benefits:

If you’re eligible for Medicare, have the appropriate level of health insurance cover and earn of $144,000 or less per year as a single, or $288,000 or less as a family, you’re eligible for the Australian Government Rebate (AGR) on private insurance. The AGR is financial assistance applied to Australian residents Hospital, Extras, and Ambulance policies determined by your income tier and age (The Department of Health provides a breakdown). The rebate can be used to reduce your premiums, or claimed when you lodge your tax return with the Australian Taxation Office.

So, what does this actually mean for you? Here’s an example:

Blair, 37, is single without children and earns $95,000 over the 2023/24 financial year. Based on their wage and circumstances, they would be entitled to an AGR rebate of 16.405% on premiums paid over this time. This rebate can either come in the form of reduced premiums across the year, or as a refundable tax offset at tax time.

If you don’t have an appropriate level of private hospital cover and earn above $93,000 as a single or $186,000 (plus $1,500 for each dependent child after the first one) as a family, you may need to pay a Medicare Levy Surcharge (MLS) of between 1% and 1.5% on top of the Medicare Levy everyone has to pay. The benefit to private cover is avoiding this levy.

For example, Alex is 52, married and has 12-year-old son. They have a household combined income of $220,000 in the financial year. This puts their family income in the Tier 2 family threshold according to the Income Tiers for the Australian Government rebate, As their family does not have private hospital cover over the financial year, they will pay an MLS of 1.25% of his taxable income 1 in his tax return.

Related: What is the Medicare Levy Surcharge and do I pay it?

The purpose of LHC loading and MLS

On top of the MLS that encourages Australians to take out private health insurance, the government has another initiative in place to motivate people to purchase cover early in life.

If you haven’t taken out and maintained private hospital cover from the year you turn 31, you’ll need to pay a 2% Lifetime Health Cover (LHC) loading on top of your premium – how much you pay for your private health cover – for every year you don’t have hospital cover (capped at 70%).

This means you’ll need to pay an extra 20% per year if you take out private cover for the first time when you’re 40, and an extra 40% if you take it out when you’re 50.

Once you’ve paid continuous LHC for 10 years, it no longer applies.

Find out more on our Lifetime Health Cover information page.

Tax benefits of having health insurance

To make the most of these tax benefits of private health insurance, it can be helpful to speak to an accountant.

The main benefits include:

Paying less tax

If you’re eligible for the AGR, you can either claim it through your health insurance provider through reduced premiums or as a refund when you lodge your tax return. There isn't an official health insurance tax penalty, however the government does take some money back at tax time if you claimed too much AGR as a premium reduction. If your income has dropped and you’re in a higher income tier than you should be, you’ll get a refund back from the ATO at tax time.

If you’re unsure about how to claim the AGR, contact us and we’ll check what income tier you’re in. If you’re an existing nib member, you can update your AGR tier in your online member account.

Getting cover before you turn 30

You can save money by taking out private health cover before you turn 30. If you’re an eligible nib member aged between 18 and 29 you will get a 2% discount for each year you’re under 30, up to a maximum of 10% for those aged 18-25.2

Additionally, by getting private health cover by 1 July following your 31st birthday you can avoid paying a Lifetime Health Cover (LHC).

Avoiding loadings and surcharges

As well as avoiding LHC loading by taking out health insurance early in life, you won’t have to pay the MLS tax time surcharge each year (if your income is above the threshold).

Picking the right cover for you

Not sure what type of health insurance is best for you and your family? Check out Choosing the right health insurance for you or get in touch with one of our health cover experts through our contact us page.

What cover type do you need for tax?

One of the most common questions we’re asked is: what health insurance do I need for tax?

To be eligible for the AGR and to avoid the MLS, your health insurance policy must:

  • be provided by a registered health insurer

  • be at an appropriate level of cover with an excess of $750 or less for singles. For couples or families, you must have an excess of $1,500 or less.

  • meet other complying private health insurance policy requirements.

    All nib health insurance cover meets these criteria.

When should you start your plan?

There are heaps of benefits to taking out private health insurance when you’re young.

That said, it’s never too late to take advantage of private health insurance tax benefits. Have more questions? Contact our friendly and knowledgeable team today.

I'm already an nib member, how can I take advantage of these tax benefits?

If you complete your tax return online or through an accountant, there's nothing you need to do! We automatically send your private health insurance policy details to the ATO, ensuring that your private health insurance rebate information is automatically uploaded for you.

However, if you opt for a paper tax return, you'll need to have your Private Health Insurance Statement ready. You can access your Private Health Insurance Statement via the nib App or online through your member account.

Find out more about health insurance and tax.

1The ATO uses a special definition of income (called income for MLS purposes) to determine whether you are liable to pay the MLS, and the rate of MLS you will have to pay. This income is different to your taxable income.

2Not available to dependants on the Policy. If you have a partner on the Policy, the total discount will be an average of your individual age-based discount. Discount applies until age 41, and reduces by 2% per year until removed. See Discounts for People under 30 for more information.