What is the difference between the Medicare Levy, the Medicare Levy Surcharge and Lifetime Health Cover age loading?

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If you've ever wondered what all the different government rules 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 if you earn over $21,980. If you currently earn less than $21,980 per year (or less than $34,758 for those entitled to the seniors and pensioners tax offset), you won’t incur  the Medicare Levy. Or if your annual taxable income is currently between $21,980 and $27,475 (or $34,758 to $43,447 for those entitled to the seniors and pensioners tax offset), you’ll only pay a partial levy rather than the full 2%. [more details]
  2. Medicare Levy Surcharge (MLS): this is an additional tax which you'll pay if you earn over $90,000 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 penalty 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 penalties 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. 

Here's a quick video to help you get your head around it. 

Still confused? 

Don't stress, HIF Sales Manager Dawn Nicholls is 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 $21,980 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 $90,000 a year. 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 $90,000 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, such as our Basic Plus Hospital policy which costs $672.95 a year for singles* (so your minimum tax saving would be $162.05!). 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.

Please note: The thresholds 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 penalty, 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!).

For example, a single 37 year old would pay 14% LHC loading on top of their standard premium - so it really pays to take out Hospital Cover now, even if it’s just a basic level of cover which you can upgrade as your health needs change. 

For couples and families however, your loading is initially calculated based on your respective dates of birth and then halved; so a couple aged 33 and 36 (for example) would generated a combined loading of 18% (6% + 12%), meaning their final loading would be 9%

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 13 40 60, or email sales@hif.com.au for more information.