Private health insurance – to prepay or not prepay? This seems to be the question of the week, and although it appears more of a personal finance issue, your decision could impact the funds you have available for re-investing into your business.
The health insurance companies are wildly suggesting you pay your health insurance before 1 July until the end of December 2013, as this is when the next election is due to be held and if the coalition is elected they have promised to dump the new means test, which will see some members receive little or no rebate at all.
There are a couple of problems with this. Firstly, you can never fully believe a government will come through on pre-election promises, and secondly, there is no certainty Labor won’t get re-elected. After all, they were expected to be voted out in the last election. So, are the health insurers trying to increase their revenues or do they really have our best interest at heart?
To make matters worse if you were thinking of cancelling your health insurance the government has now increased the limit of the Medicare Levy Surcharge. This now means that if you are single and earn over $130,001 and don’t have private health then you will have to now pay a surcharge of 1.5 percent, which is $1,950.02 a year. This equates to $37.50 per week. If you’re a family, your joint income needs to be under $260,001 for you not to pay the 1.5 percent extra surcharge. This extra cost equals $3,900.02 or $75 per week.
If you look at the cost of private health insurance you will see that the cost of singles and families is very close to the cost of the extra surcharge. Is this the governments way of pushing high income earners into private health to take the burden off Medicare? Oh yes, and you still pay the normal 1.5 percent Medicare levy. You can’t help but feel that you are your being hit twice. Well that’s because you are. And wait there’s more… The government is going to now means test the 30 percent rebate. Which means from 1 July, singles earning more than $84,000 and families with joint income of $168,000 or more will lose 10 percent of the 30 percent rebate.
The rebate will be phased out for singles earning more than $130,000 and families with more than $260,000 as below:
Single
- For income of $84,001-$97,000: Medicare levy surcharge of 1 percent and private health insurance offset to be reduced by 10 percent.
- For income of $97,001-$130,000: Medicare levy surcharge of 1.25 percent and private health insurance offset to be reduced by 20 percent.
- For income of Over $130,000: Medicare levy surcharge of 1.5 percent and no private health offset given.
Couple
- Combined income of $168,001-$194,000: Medicare levy surcharge of 1 percent and private health insurance offset to be reduced by 10 percent.
- Combined income of $194,001-$260,000: Medicare levy surcharge of 1.25 percent and private health insurance offset to be reduced by 20 percent.
- Over $260,000: Medicare levy surcharge of 1.5 percent and no private health offset given.
Given this and the above you would say that the government would have it all wrapped up with medium to high income earners. Ooh and we didn’t mention the life time loading for individuals over 31! So do we prepay insurance? The idea is that if you prepay before 30 June you can claim the offset as a lower premium, that will lock in at the lower premium rate and you will receive the full offset for another year.
The simple answer is, if you fall within those brackets you will save money by prepaying. This saving is somewhere between $500 for tier 1 to $1,500 for tier 3.