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Private health insurance & EOFY – what has tax got to do with it?

Sponsored by iSelect

By iSelect spokesperson, Laura Crowden

How on earth is 2023 almost half over already?  One minute it’s January and you’re starting the year off with the best of (financial) intentions, and before you know it’s June and you still haven’t got around to half the things you set out to achieve this year!

Luckily, the end of financial year (EOFY) provides you with another opportunity to take a fresh look at your budget and find ways to save.  And things are certainly a little grimmer than they were back in January thanks to seemingly never-ending interest rate rises, not to mention increased grocery and petrol prices.

And if you’re one of the 14 million Aussies with private health insurance,[1] there’s a good chance you could be weighing up whether or not you can afford to keep your private cover. In fact, recent research commissioned by comparison service iSelect found that a third (37%) of Aussies surveyed with private health insurance have considered downgrading or cancelling their cover due to recent cost of living pressures.[2]

Does private health really have anything to do with tax time? 

Well yes, and no. Traditionally, EOFY has been one of the busiest times of year for private health due to government incentives and penalties designed to encourage Aussies to take out private cover and reduce the burden on the public health system.  One of them is a tax and one of them isn’t but both relate to June 30.  Confused yet?  Let me break it down for you.

1. Medicare Levy Surcharge (MLS)

The first is the Medicare Levy Surcharge or MLS.  The MLS is an additional tax (on top of the standard 2% Medicare Levy paid by all taxpayers) paid by higher income earners who do not have an appropriate level of private hospital cover.  The MLS thresholds have just increased for the first time since 2014, and from 1 July 2023 if you earn over $93,000 as a single (or $186,000 as a couple) and don’t have an appropriate level of private hospital cover then you’ll pay at least $930 in extra tax.[3]

Given basic hospital cover is available for only a little more than the cost of the extra tax, for higher income earners taking out private health insurance could make a lot of financial sense!  If you fall into this category, then taking out an appropriate level of hospital cover before June 30 means you could avoid paying the MLS next financial year.

2. Lifetime Health Cover (LHC) loading

Like MLS, Lifetime Health Cover (LHC) loading is also designed to encourage Australians to take out private cover but unlike the MLS, LHC is not a tax.  LHC is specifically aimed at getting Aussies to take out private hospital cover earlier in life.

Basically, the way LHC works is that if you don’t have private hospital cover by July 1st following your 31st birthday, then you will have to pay an additional loading if you do decide to take it out down the track.  If you take out hospital cover after the age of 31, you’ll pay an extra 2% for every year you were without cover (up to a maximum loading of 70%) and you’ll have to pay the loading for 10 years. For example, if you take out hospital cover for the first time aged 40, then you could pay around 20% more a year than someone on exactly the same policy who took it out in their late 20s.[4]  And given the current cost of living crunch, that’s gonna hurt!

So if you’re about to turn 31, then taking out private hospital cover before June 30 means you’ll avoid being stung by LHC down the track.

3. Switch & save at EOFY

If you already have private cover, do you need to do anything before June 30?  Well no, unless you want to see if you can save some money.  While it’s always a good idea to compare your current policy to see if you could save, EOFY is the perfect time to switch as you could also take advantage of one of the many deals currently on offer by health funds to attract new customers, such as waiving waiting periods, weeks free and cashback.

And if you’re like many Aussies struggling with rising prices, then now could be a good time to compare private health insurance.  And at least you’ll have crossed one thing off your to-do list!


*iSelect does not compare all products in the market. The availability of products iSelect compare may change from time to time. Not all products made available from iSelect’s providers are compared by iSelect and due to commercial arrangements, area or availability, not all products compared by iSelect will be available to all customers. Some products and special offers may only be available from iSelect’s call centre or website. Click here to view iSelect’s range of Providers.

[1] Source: https://www.health.gov.au/ministers/the-hon-mark-butler-mp/media/annual-private-health-insurance-premium-rise#:~:text=Around%2014.4%20million%20Australians%20have%20private%20health%20insurance%20and%20access%20more%20than%20%2422%20billion%20in%20health%20and%20medical%20benefits%20each%20year.

[2]  Source: iSelect commissioned i-Link Research to conduct a national online survey between 28 April and 3 May 2023. The sample is n=1,000 Australians 18+ years, with data weighted to represent the population by age, state and gender, and is representative of all Australian adults 18+

[3]Source: Medicare levy surcharge income, thresholds and rates | Australian Taxation Office (ato.gov.au)

[4] Source: Lifetime health cover | Australian Taxation Office (ato.gov.au)


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