FocusOn - Leaving private health insurance

There has been much discussion in the Australian media since the handing down of the Federal Budget about the impact of the changes to the Medicare thresholds. As announced by the Treasurer, the Medicare levy surcharge thresholds will be increased to $100,000 for individuals and to $150,000 for families, with effect from 1 July 2008.

Unless you are a low income earner ($17,309 for individuals and $29,207 for families) the standard 1.5% levy will be applied or 2.5% if you earn above the threshold and do not have a basic private health insurance plan. In most circumstances, the cost of basic health insurance is less than the Medicare surcharge.

Consider the ramifications

If you are considering dropping your private health insurance you should be aware of some of the ramifications. Self-funding might sound attractive but in an emergency, significant funds may be required and not be readily available. Additionally, the waiting lists for public hospitals should also be considered.

If you cease private health insurance but subsequently exceed the threshold, the 1% additional levy will apply for any days during that financial year that you were without cover. You should take into account unexpected income such as bonuses, capital gains and termination payments when reviewing whether you are below the threshold.

The changes take effect from 1 July 2008, and if you cease your insurance before then, you will pay the 2.5% levy for the period up to 30 June 2008.

Under existing legislation, health funds apply a loading on premiums for people who join over the age of 30. You pay a 2% loading on premiums for every additional year over that age of 30. So, if you re-join a health fund at the age of 45 you will pay an additional 28% on all premiums for 10 years. Whilst it is possible that the legislation might change, it is likely that health funds will retain the loading for commercial reasons.

Published : 28 May 2008