Health funds want to hit you with a $450 tax hike to force you to buy their product
AVERAGE earners are facing a tax hike of $450 due to soaring health fund premiums.
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EXCLUSIVE
Average earners are facing a tax hike of $450 because health fund premiums have risen so fast they have counteracted a tax penalty that forces people to buy health insurance.
Instead of working to get their premiums under control to keep insurance attractive health funds are asking the government to increase the base rate of the penalty from $900 to over $1350 in the May budget to force people to buy their product.
To encourage people to buy private health insurance the government applies 1 -1.5 per cent Medicare levy surcharge on individuals earning over $90,000 and families earning over $180,000 if they don’t take out private cover.
The penalty, introduced by John Howard, was originally designed to hit the rich but it’s now affecting average earners, the average male wage is now $90,000 a year.
Health fund premiums rises have been rising by more than twice the inflation rate for years and Finder.com says the cheapest health insurance policy now available in NSW, Victoria, South Australia, Queensland and Tasmania costs $962 a year.
This means it’s cheaper for many people hit by the government tax penalty to pay the $900 a year than buy a health fund policy to avoid it.
To fix the problem health funds want the penalty raised by 0.5 per cent or at least $450 a year
“Bracket creep in combination with premium increases for some people, has resulted in the premium being paid now being less than the additional tax with the result that, over time, individuals and families may choose to pay the surcharge rather than hold PHI,” health fund lobby group Private Healthcare Australia says.
“The value of the MLS should be recalculated … an increase of 50 basis points across the income thresholds is recommended,” the health fund lobby group says.
More than one in three people with private health insurance (37%) report that minimising their exposure to the tax penalty is an important reason they buy health insurance.
Private Healthcare Australia chief Dr Rachel David said the cost of healthcare was rising and “has to be paid for”.
Raising the tax penalty was not a stand-alone measure but part of a series of reforms, including discounted premiums for the young and cuts to medical device prices designed to deal with declining membership of health funds, she said.
Research had shown some of the people paying the tax penalty were high income earners who had an ideological belief in the public system, others were tradesmen who waited until they got married to join a fund.
Earlier this month Health Minister Greg Hunt announced he had approved another annual health fund premium rise of 3.95 per cent, more than twice the inflation rate, to take effect in April.
CEO of the Consumer’s Health Forum Leanne said the situation “highlights the flawed nature of the health insurance rules”.
“It’s another illustration of why we keep calling for a Productivity Commission inquiry into the perks and penalties of PHI. Tinkering with the tax would just be sticking another band aid on an ailing system,” she said.
A spokesman for Health Minister Greg Hunt said the minister did not comment on the many pre-budget submissions from private groups.
“This is not a Government proposal,” he said.
It is understood the government has no plans to raise the surcharge.
Opposition health spokeswoman Catherine King said Labor had committed to a Productivity Commission inquiry and has a policy to cap future premium rises at two per cent.
“We know that there is a private health insurance crisis under Turnbull – Australians are struggling with soaring premiums and declining value under this Government and that’s why Labor has announced a plan to shift the balance back to consumers,” she said.
Originally published as Health funds want to hit you with a $450 tax hike to force you to buy their product