What you need to know about the private health insurance rebate

A hidden tax detail is set to catch many households unaware and drive up the cost of a common bill for millions of Australians.

For the lucky Aussies who get money back at tax time, it can be a very welcome time of year.

Especially this year, as many of us will get a tax bonus in our 2021 tax return. The money is about four to five months’ worth of tax cuts that were implemented by the Federal Government in October 2020 but backdated to July and paid as a lump sum in this year’s tax returns.

However, for many Australians there’s a hidden tax nasty coming that could leave them out for pocket.

While many will be aware of the private health insurance price increase due on April 1, which will raise premiums by an average of 2.47 per cent, fewer know that on that same day the health care tax rebate – the money the government gives you back to help cover that cost – will go down. The rebate can be paid to you as part of your tax return or used to reduce premiums across the year.

The Federal Government used to cover almost 30 per cent of the cost of private health cover under the health insurance tax rebate, which applies to families earning less than $180,000 and individuals earning less than $90,000, but this year it will be worth less than 25 per cent of the premium.

Unless there are policy changes, the rebate is on track to slide to just 16 per cent by 2030, forecasts industry representative body Private Health Australia.

The reason the tax rebate is falling is that it rises by the annual rate of inflation each year while health fund premiums have been increasing by two-to-three times the rate of inflation.

Private Healthcare Australia chief Dr Rachel David said the restoration of the private health insurance rebate to 30 per cent is necessary to protect the future of Australia’s world class health system.

“Almost half of the 13.8 million Australians with PHI have disposable incomes under $50,000. Restoring the means-tested rebate to 30 per cent for low and middle income earners is the cheapest, most effective way the Government can provide surgery and other hospital treatments to Australians.”

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A hidden tax detail is set to catch many households unaware and drive up the cost of a common bill for millions of Australians.

Dr David said recent figures released by the Australian Prudential Regulation Authority (APRA), which showed a spike in private health fund membership in December 2020 quarter, proved Aussies were finding value for money in their health cover. (This was despite a price increase in October).

“The data demonstrates consumers have positively assessed the value of private health in the wake of the COVID-19 pandemic. As public hospital waiting lists are blowing out, an additional 34,801 insured persons joined hospital treatment cover and 56,419 insured persons took out general treatment cover.”

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The October federal budget showed the government intended to slash a further $710 million from the rebate, said Dr David.

“What we’re arguing for at the moment is for them to basically put a floor under it so they are not reducing it by $710 million. Restoring it to 30 per cent for low-and middle-income Australians will make premiums more affordable for people who are paying for the cost of their own healthcare, as well as reducing pressure on our public hospitals,” said Dr David.

Dr David said maintaining the balance of Australia’s private/public healthcare system was critical in the current environment.

“Australians choose to have private health insurance for the choice and peace of mind it provides. This is especially true now as public hospital wait lists blow out to over 1.5 years for common elective procedures, with some media reports suggesting a staggering ‘10-year wait’ for some procedures in the public sector.

“Pressure on our health system is increasing as the needs of a large baby boom population grow, and demand for inpatient mental health services escalates. Private health cover must be more affordable for Australian consumers to maintain balance in our system.”

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