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A recent report reviewed by http://www.iselect.com.au has shown that people without private health insurance are paying on average an extra $614 a year in tax through the Medicare Levy Surcharge. Over the last 9 years it is estimated that taxpayers have paid a whopping $1 Billion dollars in extra tax buy not having eligible Private Health Insurance.

in many cases people end up in the black with private health insurance or can opt for a more comprehensive hospital and extras policy for little or no real out of pocket expense

Iselect.com.au has recently reviewed what Australians are paying in additional tax related to Private Health Insurance. A recent report released by the ATO has shown that people without private health insurance are paying on average an extra $614 a year in tax through the Medicare Levy Surcharge. Over the last 9 years it is estimated that taxpayers have paid a whopping $1 Billion dollars in extra tax buy not having eligible Private Health Insurance.

The irony is that Private health Insurance can cost less than the tax itself.

Who pays the Medicare levy Surcharge?

All taxpayers pay a 1.5% Medicare levy, however if your single and earning more than $50,000 or a family earning more than a combined income of over $100,000 you qualify for the extra 1% Medicare Levy Surcharge. Latest stats indicate that over 280,000 people are adding over $173 million to the MLS Tax. ATO statistics lag two years behind and Health Insurance Broker http://www.iSelect.com.au suggest that this year some half a million Australians will be affected.

Medicare Levy Surcharge (2004 stats released April 2006)

     Taxpayers %    $m     Amount    Average

Male    181,506    64.2    120    69.4    662

Female    101,169    35.8    53    30.6    528

Total    282,675    100.0    173    100.0    614

In 2004 (ATO only release this data each April which is 2 years old) a total of 282,675 taxpayers were liable to pay the Medicare levy surcharge, costing them $173 million in total. This translates to an average of $614 per person. On average males paid $662, while females paid $528. Roger McBride from iSelect.com.au, Australia’s leading Private Health Insurance intermediary said that “going without Private health insurance is bad for the hip pocket. We find that in the vast majority of cases people actually save money by taking out eligible private health insurance. Many people will be in for a rude surprise when they do their tax this year”.

$50,000 is not considered a high income for many and the government has not indexed this for inflation since introducing the surcharge some 8 years ago (1997). In many cases people’s income which may have been $45,000 last year may have tipped over the (SINGLE) $50,000 threshold or they may have had a partner return to the workforce and increased their combined income. These people will be caught out this financial year at tax time. McBride says “in many cases people end up in the black with private health insurance or can opt for a more comprehensive hospital and extras policy for little or no real out of pocket expense”.

Example situations where people are constantly being caught out

  • Single (teacher) on $49,500 gets a $1,000 pay rise moving him to above $50,000 – he loses half of his pay rise in tax through the Medicare Levy Surcharge.
  • Couple married in March each earning high $40’s get a 3.5% increase during the year tips them into the family threshold and they are hit with a $1,000 tax bill.
  • Couple with only one partner working, have the other partner return to the workforce tipping them over the combined $100K level and are hit with the $1000 plus tax bill in July.
  • Man on $75,000, loses job for part of the year is now technically unemployed and has cancelled his PHI. Because his earned over $50k he is still hit with a $500 tax bill.

The above are real examples of iSelect customers

What Having Private Health Insurance will Save You:

http://www.iselect.com.au have provided the following table to demonstrate the net effect of the surcharge and the “real” cost of Private Health Insurance. If you fit into the category below you will save.

iselect.com.au Examples

INCOME    TAX LIABILITY        COST OF         Real cost or

Single     MLS            Eligible PHI     Annual Saving

                 AHM $250x2 exces     Money you get $50,001     $501        $453.00            $47.00

$52,000     $520        $453.00            $67.00

$55,000     $550        $453.00            $97.00

$60,000     $600        $453.00            $147.00

$75,000     $750        $453.00            $297.00

Family Combined MLS    Eligible PHI    Annual Saving

$105,000    $1,050    $906.00            $144.00

$110,000    $1,100    $906.00            $194.00

$115,000    $1,150    $906.00            $244.00

$150,000    $1,500    $906.00            $756.00

Source iSelect.com.au – Based on eligible AHM hospital insurance prices (Melbourne) as at June 2005

What Consumers Can Do

  •     To ensure you’re not hit by this tax next year you should take out cover before July 1.
  •     Review their income and look at what their total income is likely to be in the financial year
  •     Shop around for good value health insurance, there are 38 health funds in the market !
  •     Look at their out of pocket expenses for extras (optical, dental, physio etc) and consider adding and extras policy that will be cost effective for them.

  •     Remember that is most cases (refer table) you will actually be better off and get private health insurance for less than it will actually cost you in tax.

Some Statistics

  •     Only 43% of the population is covered by Private Health Insurance
  •     This year the number of people that are expected to be hit with the Medicare levy Surcharge is expected to rise substantially to around 500,000 Australian Taxpayers.
  •     The Federal Government introduced the tax in 1997 and have never indexed the tax for inflation

What our customers are telling us

McBride says “Each July we have a rush of customers coming to us after they have got the tax refund or when they have just got back from their accountant. Usually it’s not until then that they realise that they could have actually saved money. Many people go through the process of looking for every single tax deduction just to find that their refund is wiped out by the Medicare Levy Surcharge.”

“Back in 1997 when the surcharge was first introduced it was considered borderline that a $50,000 was in fact a high income. Average earnings have risen by up to 20% since then and yet the surcharge is still locked in at $50,000 for singles and $100,000 for families despite 9 years going buy.”

“At iselect.com.au we find that people are often very surprised when they learn that having private health insurance actually saves them money.”

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Cameron Rosel
ISELECT
03 9519 0166
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