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Don’t get caught out with the new private health rebate rules

18th June 2012

People who earn over $84,000 and continue to claim their usual 30% rebate as a reduced private health insurance premium, could face a nasty bill at the end of the financial year.

From 1 July 2012, the private health insurance rebate will be income tested and Accountant Kerry Schmidt from the BMO Business Centre, is urging people to make sure they are familiar with the new thresholds.

If you have private health insurance, the amount of rebate you will be entitled to receive from 1 July may be reduced depending on your age, income and how many children you have.

As an example, singles aged under 65 earning more than $84,000, will see their rebate drop from 30 per cent to 20 per cent from 1 July.

Meanwhile, some people will lose the rebate altogether. For example, if you’re a single earning more than $130,000, or a family with one child earning $260,000, then you will no longer receive the rebate at all.

It’s predicted that around one in five health insurance policy holders are likely to be affected. So don’t put your head in the sand. If you are in these income thresholds, then it’s up to you to contact your health insurer to advise them of your expected annual income so they can adjust your premium.

If you don’t contact your health insurer, and you continue to receive more rebate on your private health policy than you’re entitled to, then you’ll have to pay the money back when you do your tax return.

Some families are taking up the option of pre-paying their premium for the next year or two to beat the income testing for up to 12 months. We understand that most of the major health funds are offering this option, and we have recommended to our clients to consider doing this if it’s right for them.

However, there are some traps.
First of all, you need to have spare cash available in your family budget to do this. There’s no point pre-paying your health insurance if you need the money to pay important bills like groceries, electricity, or loan repayments. Although, some people in higher income brackets being prepared to borrow the money to pre-pay, as the 9 or 10 per cent interest they would pay on a loan is less than the cost of the additional premiums they’d have to fork out for once they lose the 30 per cent rebate.

Also, you need to be really sure that you won’t be making changes to your policy during the period that you will pre-pay for.

We recently read a media report that quoted Mr Matthew Cuming from iSelect saying that if “affected policyholders changed their mind about the type of cover they wanted, the prepaid policy would be cancelled, under the Private Health Insurance Act, and a new one issued under the new rebate system”.

So when it comes to making this choice you have to look at your own circumstances and weigh up the gains versus the risks.
For those who don’t have private health cover, unfortunately you’re not off the hook. The Medicare Levy Surcharge, which is also means tested, is increasing. so if you do not have an appropriate level of private patient hospital cover, and your income is over a certain amount, your Medicare Levy will increase. 

View this table to see if you're affected>

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