Healthy homework tips

It’s a big-ticket item for most households and with premiums rising by double the inflation rate this year, health insurance is rapidly pricing itself out of reach of some families.

The good news is that competition between the many players and the vast array of options means cover can be adjusted to get the best value for money.

And the Government’s private health insurance rebate, which can cover more than a quarter of your premium, is another factor that should be considered in any calculation of whether you can afford private cover.

Taxpayers should be aware that as income increases, the pressure to take out cover comes via the Medicare levy surcharge.

While you are probably doomed to have to pay the surcharge if you did not have private health cover in 2014-15 and are over the income thresholds, right now is the time you should be signing up for private health cover so you have it in place for the new financial year.

If you sign on by July 1 and keep it through the year, you should be able to avoid the Medicare levy surcharge shock when it comes to doing next financial year’s tax return.

The levy can be a nasty tax-time surprise. It can spring up when that last pay rise or the extra overtime tips you over the edge, and can become a serious factor if you sell an investment that gives rise to capital gains.

For taxpayers under 65, the threshold is $90,000 for singles and a combined $180,000 of adjusted taxable income for couples. This figure is different to normal taxable income used to calculate your tax liability.

You need to include a range of figures, including reportable fringe benefits, salary-sacrificed contributions to super and investment losses from rental properties. In simple terms, the tax deductions that you claim through negative gearing.

It operates on a pro rata basis so if you didn’t have appropriate cover in place for the whole year and you go over the threshold, you’ll be up for the Medicare levy surcharge for the period where you didn’t have cover.

The surcharge operates in bands. For a single with income under $105,000 but more than $90,000, the surcharge is an additional one per cent added to the usual 2 per cent Medicare levy.

This means that for a single earning $92,000 a year, the total Medicare levy will be $2760, including the $920 surcharge, making private health cover all the more attractive.

While the levy surcharge is the stick, the private health insurance rebate is the carrot.

There’s also the complicated issue surrounding private health insurance rebates to consider.

The standard rebate for someone under 65 is 27.82 per cent of the premium for hospital, ancillary and ambulance policies. But it reduces through two higher income tiers before becoming zero for singles earning more than $140,000 and families pulling more than $280,000.

Retirees using an account-based pension can also take comfort in the knowledge that none of the income from this source counts towards the taxable income figure.

According to comparison and research sites such as iselect.com.au and canstar.com.au, there are steps you can take to ensure you get the best bang for your buck.

It is worth checking whether your employer has a group arrangement with a private insurer to provide discounted premiums to staff.

These can provide discounts of up to 12 per cent.

Make sure it covers the things you actually need. There’s probably no need for IVF or obstetrics if you’re in your 50s but you might be paying for it. Equally, coverage for running shoes and naturopathy might appeal, but you could be paying for it through higher premiums.

Most policies charge extra if you pay by instalments. Paying annually will probably save you about 9 per cent. Similarly, some funds offer reasonable premium discounts if the health insurance is paid through your payroll.

Use the internet to shop around at renewal time. Different insurers often come up with different deals and last year’s most expensive might be this year’s cheapest. Comparison sites are useful but they won’t show all the products on offer and often make their money through commissions or referral fees.

Finally, you might be prepared to tweak the excess or look for policies where you share the financial burden through a co-payment.

A co-payment is a form of excess for each service provided, such as you possibly paying $50 for each day you are in hospital. These can make a big difference to the annual premium.

HEALTH THRESHOLDS

Single $90,000 $90,001 to $105,001 to $140,001

Income or less $105,000 $140,000 or more

Families $180,000 $180,001 to $210,001 to $280,001

Income or less $210,000 $280,000 or more

MEDICARE LEVY SURCHARGE*

All ages nil 1% 1.25% 1.50%

PRIVATE HEALTH REBATE**

65 or less 27.82% 18.55% 9.27% nil

65-69 32.46% 23.18% 13.91% nil

70+ 37.09% 27.82% 18.55% nil

* Surcharge is a percentage of taxable income ** Rebate is a percentage of premium paid