Changes to the Private Health Cover Rebate

In this month’s wealth pipeline we look at the upcoming changes to the Private Health cover rebate and a potential strategy to reduce premiums post June 2012.

Changes to the Private Health Cover Rebate

Singles earning more than $130,001 and families earning more than $260,001 will lose access to their private health insurance rebate from the 2012-13 financial year onwards, under a means test that recently received Royal Assent and will become effective on July 1, 2012.

The measures also mean the Medicare surcharge for the groups above will increase from 1% to 1.5% if they do not take out private health insurance. That translates to $1,950 p.a. for high earning singles and $3,900 p.a. for high earning families.

At present, almost anyone aged less than 65 years old, regardless of how much they earn, can get a 30% refund from the federal government for the cost of their private health insurance. Those aged between 65 and 69 years can receive a 35% refund and those aged over 80 years old can get 40% back.

The income test is based on the total sum of the taxable income, reportable fringe benefits, reportable super contributions and total net investment losses, less other taxed elements depending on a person’s age and circumstances.

The below table shows the breakdown of the private health insurance tiers for 2012-13 onwards:

Our Suggested Strategy

It is our understanding that the current rebate will apply to any premiums paid prior to 30 June 2012, this is inclusive of premiums paid in advance.  We suggest you prepay as much of your private health cover in advance prior to 30 June 2012, we can confirm that Bupa (previously MBF) accepts prepayments up to 14 months in advance and Medibank Private up to 12 months.

Example: The Smith family currently pays $2,500 in premiums per year net of the 30% rebate (a saving of $1,071).  Premiums are currently paid monthly.  On the 30 June premiums are paid 14 months in advance resulting in savings of approximately $1,250.