How Does the Health Insurance Rebate Work in Australia?
In this guide, we'll explain more about how private health insurance rebate is just one of the government’s incentives to encourage Australians to use the private health system.
by Gary Andrews
Last update 15 Apr 2021
The private health insurance rebate is offered by the government for eligible Australians who hold a hospital or extras policy (or both).
If can make private health insurance more affordable for you and your family.
Some of the benefits of having hospital cover include greater flexibility in choosing your own doctor or surgeon, higher quality of care including access to private hospital rooms post-surgery, and avoiding lengthy waiting lists.
The benefits extend further with extras cover, where you'll receive rebates on routine check-ups, consultations and treatments (such as optical and dental) among several other services that can make for a healthier you.
Certain treatments, services and medications are excluded from the Medicare benefits schedule (MBS), making health insurance a necessity for some Australians who want to save money.
The private health insurance rebate is just one of the government's incentives to encourage Australians to use the private health system.
The Australian government offers eligible individuals and families a rebate, or in other words, a percentage off their premium, for having hospital and/ore extras cover.
Your eligibility is determined by how much money you earn as a household/individual and the type of health insurance you have.
There are two options when it comes to payment.
The PHI rebate can be paid directly to your insurer in order to reduce your premium.
Alternatively, it can be paid through your tax return.
Regardless of the option you choose, the PHI rebate may cover a significant portion of your costs depending upon how much you and your family earn.
The rebate amount you receive depends on your household income, along with the amount you're paying for your premiums.
Individuals and families are grouped into different tiers depending upon their household income.
People who are married or who are in a de facto relationship will use their combined household income to calculate the rebate.
The rebate pays a percentage of insurance premiums.
For an individual who makes less than $90,000 per year or a family with a combined income of less than $180,000 per year, the PHI is equal to 25.415% of premium costs as of April 1st 2018.
This rebate for singles and families within this income threshold increases to 29.651% of premiums when between the ages of 65 and 69, or to 33.887% of premiums at age 70 or older.
As your individual or family income climbs, the amount you get back declines.
For example, a single person under age 65 who makes between $90,001 and $105,000 would only get a 16.943% rebate and would get a 8.471% rebate once his or her income was between $105,001 and $140,000.
No rebate is available for singles with an income of $140,001 or higher, or for families with an income above $280,001.
Single parents and couples are subject to the family tier, rather than the singles tier.
However, if families have multiple children, the threshold increases $1,500 per child for the second and subsequent children.
The PHI rebate applies to Australians who are eligible for Medicare coverage but who opt to purchase private insurance.
Any Australian resident who buys a qualifying health insurance policy and whose income does not exceed the rebate threshold should be eligible to receive the rebate.
If you did not purchase health insurance prior to the age of 30, you are charged an additional cost for your insurance that is referred to as Lifetime Health Cover (LHC) loading.
The rebate does not apply to the LHC component of health insurance premiums.
You will only receive a rebate for the standard base amount of premiums.
PHI rebates do not apply to overseas or visitors cover.
However, overseas visitors who are covered under a reciprocal health agreement (RHCA) and who are eligible for Medicare may be able to obtain a rebate for the purchase of either hospital or extras cover.
You have two primary options for claiming the PHI rebate.
One option is to claim it by having the money paid out directly to your insurer.
This will lower your ongoing premiums.
You will need to inform the insurer of the tier that you fall into so your rebate is calculated correctly.
You may complete Form MS006, which is called an "Application to Receive or Change the Australian Government Rebate on Private Health Insurance as a reduced premium form."
This form is available at the Australian Government Department of Human Services.
You may also ask your insurer about how to obtain and complete a form so your rebate can be paid directly to your insurer.
Your other option is to claim the rebate through your tax return filed with the Australian Taxation Office.
The rebate is considered a refundable tax offset.
You must lodge a tax return to claim the money back.
The Australian Taxation Office has detailed information on lodging a tax return on its website.
You can lodge a tax return yourself using either myTax or e-tax.
A registered tax agent can also assist with lodging your return and claiming your rebate.COMPARE & SAVE
When you lodge your tax return, you should know your income and be able to select the correct tier when claiming your rebate.
However, if you claim the rebate as a premium reduction, there is a risk that you may provide incorrect information on your income.
If you estimate your income too high and you receive less of a rebate than you should, this can be corrected when you lodge your tax return as you can claim the additional funds.
However, if you estimate too low and your income is higher than expected, you will need to pay back the additional rebate you received.
The tax debt must be paid at the end of the financial year, but there are no penalties for estimating incorrectly.
Not all health insurance policies qualify.
You should ask your health fund if the policy you are considering is eligible for the PHI rebate.
The policy must be a complying health insurance product (CHIP) that provides hospital treatment, general treatment (ancillary or extras cover) or both.
Both the PHI rebate and the medicare levy surcharge (MLS) are affected by your household income.
While the private health insurance rebate encourages you to buy coverage by subsidising it, the medicare levy surcharge encourages the purchase of coverage by imposing a fine if you choose not to purchase hospital cover.
The medicare levy surcharge is only assessed if your income exceeds a certain amount.
The levy kicks in once a single person has an income above $90,000 or a family has an income above $180,000.
It begins at one percent and rises up to 1.5 percent for singles with an income exceeding $140,000 or families with an income exceeding $280,000.
The Medicare Levy surcharge is an additional fee paid on top of the 2% Medicare Levy Surcharge that most Australian taxpayers pay.
You can avoid the surcharge if you have Private Health Insurance (Hospital Cover).
The exact surcharge level you'll need to pay depends on your income level and relationship/family status.
Having to pay the levy may seem inconvenient. What's worse? Inadequate health cover for you and your family.
Being on a waiting list for surgery when you're in significant pain is far from ideal, and paying expensive bills out-of-pocket for services you need is not in your interests.
Take advantage of the incentive the PHI rebate provides and buy the cover you require to take care of yourself and your family's medical needs.COMPARE & SAVE
This guide is opinion only and should not be taken as medical or financial advice. Check with a financial professional before making any decisions.