The Government provides a rebate on private health insurance to help Australians meet their private health insurance costs. The rebate is means or income tested, so the level of your rebate depends on your annual income, age and the number of dependent children you have.
| Government rebate from 1st April 2018 | ||||
| Income tiers | TIER 1 | TIER 2 | TIER 3 | |
| Singles | Less than $90,000 | $90,001 – $105,000 | $105,001 – $140,000 | $140,001+ |
| Couples / Families | Less than $180,000 | $180,001 – $210,000 | $210,001 – $280,000 | $280,001+ |
| Rebate | ||||
| Under 65 | 25.415% | 16.943% | 8.471% | 0% |
| 65-69 | 29.651% | 21.180% | 12.707% | 0% |
| 70+ | 33.887% | 25.415% | 16.943% | 0% |
So for example if you’re single and earn below $90,000 per year the good news is that you get the full rebate applied to your policy, anything above this and you won’t with the income test doubling if you’re a couple or married.
Rebate vs refund
Are you confused by the difference between a rebate vs refund? A rebates (or offset) works by reducing the amount that’s payable. For health insurance, a rebate would be a credit against your health insurance premiums so you pay less in premiums.
In contrast, a refund works by paying money back to you. In terms of private health insurance, a refund might work by paying a part of your health insurance premiums in cash to you.
So what’s the key takeaway here? The government credits the rebate against your premiums (or tax bill if you choose) while a refund would be paid out in cash after you pay the full premiums.
How the rebate has changed over time
So how has the rebate changed over time? Since it was introduced in the late 1990s, the private health insurance rebate has fallen. At the start, the rebate covered 30% of premiums for most Aussies, but this was changed when the government introduced means testing in 2012. This meant individuals and households with higher incomes got less in rebates. The government then introduced more changes in 2014. Thesetied the rebate to inflation, which means it’s been gradually falling each year.
Having a family and marital status: impact on the rebate
Could having a family affect how much you get in private health insurance rebates? The answer is yes, by affecting your income thresholds.
If you have a de facto partner or if you’re married, your rebate uses the family income thresholds. If you’re single parent with one or more dependants, you’ll also be tested using the family income thresholds. If you have more than one dependent child, the family income threshold increases by $1,500 for each Medicare levy surcharge dependent child after the first child.
So for example, if you’re a single 46-year-old with no dependants and you earned less than $90,000 in 2017/18, you would have received the full rebate of 25.415% of your total insurance premiums. If you earned $100,000, however, you’d have fallen into the Tier 1 category and received 16.94% in rebates. If you earned $130,000, you’d have received just 8.47% in rebates. If you earned $140,000 or more, you’d have received nothing in rebates. The income thresholds for couples and families are double what they are for singles.
The age of the oldest person covered by your health insurance policy will also impact how much rebate you get. The older the person, the higher your rebate amount is likely to be.
Private health insurance and the Medicare levy
Most Australians pay the Medicare levy, which is used to fund our health care costs. It’s a flat rate of 2% of your taxable income and it’s in addition to your income tax. Having private health insurance doesn’t exempt you. If you fulfil other criteria you might pay less than this or be completely exempt from having to pay it. For example, if you’re a low-income earner, you might pay less or nothing.
You might need to pay the Medicare levy surcharge (MLS) if you don’t have private hospital insurance. The MLS is different to and in addition to the Medicare levy.
So how does the MLS work? If you don’t have a suitable level of private hospital cover but you earn less than $90,000 ($180,000 for families), you don’t need to pay it. Note also if your household income is more than the threshold but your own income is $21,980 or less, you won’t need to pay the surcharge.
So the private health insurance rebate was introduced to encourage Australians to take out private cover. On the one hand the Medicare levy surcharge taxes you if you don’t have private cover, and on the other, the rebate helps you cover the costs of having private health insurance. Typically, the more you earn, the less the government helps you pay for health insurance.