Medicare Levy Surcharge a silent ATO hit for thousands of people

Many people without hospital cover pay an average $1300 of extra tax through the Medicare Levy Surcharge, but don’t have to.

More than half a million Australians are paying the Medicare Levy Surcharge through their tax returns when many could be buying private hospital insurance for about the same cost.

Ahead of an average 3.03 per cent rise in health fund premiums from April 1, an analysis of Australian Taxation Office data shows the number of people paying the surcharge jumped dramatically in recent years.

Experts say some people refuse health cover even if being hit by the annual surcharge, while others may not have realised that pay rises or job changes have pushed them into surcharge territory.

People without private hospital cover who are earning more than $97,000 pay at least 1 per cent extra annual tax via the surcharge, while those earning more than $151,000 pay 1.5 per cent more. Extras cover does not affect the surcharge.

The latest ATO figures show in 2020-21 the Medicare Levy Surcharge was paid by 508,535 people, up sharply from 411,624 in 2019-20. The average surcharge paid was $1310.

Medibank chief customer officer Milosh Milisavljevic said people should check their finances and insurance.

“A lot of Australians have changed jobs since the pandemic which may have come with a change in income, while others have had a promotion, some are returning from parental leave and some people are retiring,” he said.

“These are all key times to be reviewing your health cover.”

Money coach Karen Eley said it was worthwhile calculating the amount of surcharge you would pay versus the cost of private health insurance.

“I believe that many people aren’t actually aware they pay a surcharge if they earn over a certain amount,” she said.

“It’s added to their tax, so individuals don’t essentially attribute it to being uninsured.”

Ms Eley said Australians were underinsured in all areas – car, home, life and health.

“Some may be of the view having private health is an unnecessary expense and prefer to rely on the public system, not realising they’re paying a similar level in the surcharge anyway,” she said.

A person earning $100,000 a year will pay $1000 extra tax through the surcharge, while some health policies charge little more than $1050 annually.

Comparison website iSelect’s spokeswoman, Sophie Ryan, said next month’s insurance premium rises could see singles paying an extra $71 annually and families $147 more.

She said the 3.03 per cent rise was an average only and many policies would go up by more.

“Taking out even a basic level of hospital cover can be a cost-effective way to avoid the Medicare Levy Surcharge,” Ms Ryan said.

People worried about rising premiums should “consider switching, not ditching” cover, Ms Ryan said.

Pregnancy can be removed from some policies to save money. Picture: iStock

Compare Club head of research Kate Browne said switching could take as little as 20 minutes via telephone.

“With cost-of-living pressures, this is one of the easiest ways Australian families can save money,” she said.

Ms Browne said there was often no need to serve waiting periods again, and many funds were offering shorter waiting periods or waiving them.

Other funds offered up to 12 weeks of cover for free, and some policies allowed adult children to stay on a family’s health cover policy until age 31, she said.

Ms Eley said it was worth getting quotes with alternative health insurance providers.

“Review your medical needs,” she said. “For example, women who are not considering any more children can remove the pregnancy benefit and reduce their premium substantially.”

Originally published as Medicare Levy Surcharge a silent ATO hit for thousands of people