September 30, 2022
  • September 30, 2022

Do you really need private health insurance? Here’s how to decide…

By on August 6, 2022 0

The Medicare Levy Surcharge applies to 1% of your taxable income for singles earning $90,001 or more and families earning more than $180,001.

A higher supplement of 1.25% starts for singles at $105,001 and $210,001 for families; and a surtax rate of 1.5% applies to singles earning $140,001 or more and families earning more than $280,001.

Take a single person who earns $110,000 in taxable income. If they don’t have qualifying private health insurance coverage, they would pay an MLS of $1,375 at tax time (1.25% of $110,000). This would increase their tax bill or decrease their tax refund by that amount.

Alternatively, it’s entirely possible to pay less than $1,000 per year for basic hospital coverage with a $750 deductible, depending on your level of reimbursement.

If our single earning $110,000 does this, not only do they actually get the insurance “for free,” but they also save a few hundred dollars in taxes – no brainer.

The trick is that you only need to take out “basic” level hospitalization cover – and not extras cover – to be exempt from the surcharge. You can just call the insurers and ask them, “what’s the cheapest policy you can offer me that means I’m exempt from the Medicare surcharge?”

Of course, coverage is important if you intend to claim on the policy. If you know for sure that you will want private coverage for an upcoming medical event, such as childbirth, you will need to carefully consider the level of hospital coverage you want. If you don’t have private coverage, of course, you will be treated in the public hospital system.

Anyway, most accidents and emergencies are handled in the public system. If, however, you particularly value choice of doctor, hospital, or the ability to bypass waiting lists for elective surgeries, you might consider private health insurance coverage for that.

As for extras, only pay for coverage of particular items if you can see that you will receive as much or more reimbursement in claims than you would pay in premiums. Keep track of your expenses for dental, optical, physio, etc. and do your math to see if you’re ahead.

Beware of introductory offers from insurers, which may require you to take out high-level hospitalization and extras bundled cover to be eligible. If you don’t actually need this higher coverage, the savings are illusory.

Also, pay attention to the hype around charging for “lifetime health coverage.” This comes into play with an additional 2% added to your premium for each year after 30 years that you wait to purchase cover.

The burden increases by 2% each year, reaching 20% ​​at age 40 and capping at 70% if you wait until age 65 or older.

If you end up buying coverage, you pay that charge for 10 years before it’s removed.

So consider an insurance policy with an annual premium of $1,000. If you buy it at age 30 to avoid the load and pay it until age 65 (so 35), you pay $35,000 in total premiums (not adjusted for inflation).

Consider instead that you don’t purchase insurance until age 65 and therefore pay the full 70% charge for 10 years. Instead of paying $10,000 over those 10 years, you pay $17,000. That’s still a lot less than if you paid $35,000 for coverage you didn’t want or need for those 35 years. If you instead invested your money during this period, the difference would be even greater.

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This is all academic, of course, for anyone earning above the MLS income thresholds — you’ll be better off with the cheapest hospital coverage. But it’s worth noting for anyone earning below those thresholds.

Of course, to further limit the cost of premiums, there are all the usual tricks: shop around, opt for a higher deductible (the highest possible is $750 for singles and $1,500 for families) and prepay. annual premiums at the old rates to avoid price increases (if you have the reserve money).

And moms, don’t forget to downgrade your coverage once you’re sure you no longer need maternity.

Small savings on big bills really add up.