Private Health Insurance Rebate Explained

The rebate was part of the private health insurance incentive scheme and was designed to encourage more people to take out private health insurance and by doing so, partially relieve the burden on the public health system, which is immense considering Australia’s ageing population.

Or to quote the then federal Minister for Health and Aged Care, Michael Woolridge,cin August 1999:

“The private health insurance incentive scheme…is the centrepiece of the Government’s strategy to assist Medicare from collapsing under the weight of demand for publicly funded hospital and medical services…”

“The private health insurance incentive scheme, and the addition to the Medicare levy…are essential measures designed to arrest the catastrophic decline in the level of participation in private health insurance.”

Private health insurance is expensive, and the Howard government of the time realised they needed a rebate that would entice people into taking out and keeping health insurance rather than rely on the public health system.

Eligibility for the rebate depends on your taxable income. The maximum amount a family can earn and be eligible for a partial rebate is $280,000 and for a single it is $140,000.

While your eligibility for the rebate does not depend on your age, if you take out health cover after you turn 30 you will be required to pay an extra 2% loading on your premium for every year you wait. If you wait until 40, for example, that’s an extra 20%. Why does this matter?  The government will not pay the private health insurance rebate on the LHC loading component of a policy

There are a number of tiers for the private health rebate depending on your family status and income. Single parents and couples (including de facto couples) are subject to family tiers. For families with children, the income thresholds are increased by $1,500 for each child after the first.

The income thresholds are outlined in the below table. They are indexed and will remain the same until 31 March 2024.

You can choose for your insurer to automatically take out the rebate amount from your premiums so you pay less each month. You usually tell the insurer this when you apply for the health cover.  You can also claim the rebate when you lodge your tax return—as a refundable tax offset.

Funding a healthcare system can be complicated, which is why we end up with a variety of levies, surcharges and rebates. Australia is unique in that it offers a dual private and public healthcare system, with a carrot-and-stick approach of incentives and levies to encourage those on higher incomes to take out private health. Here’s a quick explainer each:

• The Medicare Levy is the amount we all have to pay to fund the universal medicare system and it is currently 2% of your taxable income. It is calculated when you lodge your tax return.
• The Medicare levy surcharge is the extra amount you may have to pay if you earn income over a certain level and you don’t have appropriate private patient health insurance. It ranges from an additional 1% to 1.5% depending on whether your income exceeds Tier 1, Tier 2 or Tier 3 in the above table.
• The medicare rebate is the amount you receive back from medicare for certain health services and medical procedures. To receive a rebate the service needs to be on the Medicare Benefits Schedule and the government sets a Medicare Schedule Fee to base the percentage rebate on.
• The private health insurance rebate, as outlined above, is the rebate you can receive on private health insurance premiums as a reward for taking out private health.
• Lifetime health cover loading is the extra amount you need to pay for your health insurance if you take it out after you turn 30. This is to encourage younger Australians to join the private health care system.