If you've ever wondered what all the different government levies actually mean, don't worry you're not alone; it's a question that has many Australians stumped! Here's a quick breakdown to help you get your head around it...

1. Medicare Levy: this is a compulsory 2% tax that's automatically deducted from your annual taxable income. To view the Medicare Levy Incomes, please visit the Australian Taxation Office webpage. 
2. Medicare Levy Surcharge (MLS): this is an additional tax which you'll pay if you earn over $93,000 a year and don't have private hospital insurance. [more details]
3. Lifetime Health Cover (LHC) age loading: this is not a tax but rather a financial loading applied via health funds for Australian citizens and permanent residents aged 31 and over who choose to purchase Hospital Cover later in life. [more details]

All three levies are enforced by the Federal Government in accordance with the Private Health Insurance Act 2007. Depending on your age, income, marital status and current health insurance cover, you may be at risk of incurring all three penalties at tax time. 

Still confused? 

Don't stress, we're here to explain it all in more detail...

1. Medicare Levy

First introduced in 1976, this is a compulsory tax paid by all Australian residents who earn over the Medicare Levy Income Threshold per year. The levy you’ll incur equates to 2% of your annual taxable income and the revenue is used to help fund Medicare. So if you earn $50,000 a year for example, the Medicare Levy you’ll be taxed is $1,000.

2. Medicare Levy Surcharge (MLS)

This is an additional tax incurred by Australian residents who earn over $93,000 a year (for singles) and $186,000 (for couples/families). It was introduced by the Federal Government in 1997 and aims to encourage individuals to take out private hospital insurance, thereby reducing the demand on the public health system. So if you’re currently earning over the MLS thresholds a year and you don’t have Hospital Cover, you may have to pay up to an additional 1.5% of your annual income in your next tax return.

Alternatively, you can avoid paying the MLS entirely by purchasing a basic level of private hospital insurance. By simply having that policy, you’re not only guaranteed to avoid the MLS (and saving thousands of dollars in some cases) but you can also rest easy knowing you’ll be covered for accidents plus a range of other medical services.

• Give our handy interactive MLS calculator a whirl and see how much you could save.

Please note: The thresholds may increase annually based on growth in Average Weekly Ordinary Time Earnings. Single parents & couples (including de facto couples) are subject to family tiers. For families with children, the thresholds are increased by $1,500 for each child after the first.

3. Lifetime Health Cover (LHC) age loading

LHC age loading is not a tax but rather a financial levy, enforced by the Federal Government from July 2000 onwards and applied via health funds for Australian citizens and permanent residents aged 31 and over who purchase private hospital insurance later in life. It was implemented to encourage Australians to take out Hospital Cover at a younger age, essentially recognising the length of time you’ve had Hospital Cover and rewarding that loyalty with offering lower premiums.

So how does it work? Well, if you take out Hospital Cover after you turn 31, all health insurers must apply the Government’s Lifetime Health Cover loading to the hospital component of your standard health insurance premium – starting at 2% of the cost and then increasing by 2% for each year that passes (all the way up to 70% - ouch!). To learn more, visit privatehealth.gov.au

Want to avoid MLS and LHC penalties in the future? We're here to help.

Find out more about our popular range of Hospital Cover options, get an instant online quote, call our friendly team on 1300 134 060, or email sales@hif.com.au for more information.