Opting Out? Don't Forget The Tax Man
Sydney Morning Herald
Wednesday June 3, 1998
AS the financial year winds to a close, it brings a range of last-minute ploys to cut back on the dreaded tax bill. One option for higher-income earners is health insurance. It's been almost a year since the Government's drive to boost private health fund membership started, but many taxpayers will not be aware of the full effects of the initiative until this year's assessment arrives.
On top of paying a standard 1.5 per cent Medicare levy on income, another 1 per cent will be added to the bill of higher earning taxpayers without private health insurance hospital cover.
This extra bite won't affect just single urbanites gadding about town in search of the best wine bar - families with a combined income of more than $100,000 will also pay a price for ignoring the Government's urgings.
In real terms, a single person on a $60,000 wage will pay a $900 Medicare levy (1.5 per cent of income). Add the 1 per cent surcharge for those without health cover - another $600 - and the total escalates to $1,500. For a family with one child, on a combined household income of $100,000, the total payout will be $1,500 for the Medicare levy and $1,000 for the surcharge.
Only about a third of adults have health cover and, according to the Private Health Insurance Administration Council, membership is still declining. In the first three months of this year, more than 70,000 members dropped out of health funds. While industry observers forecast that the war of attrition may continue for a few months yet, the high-income surcharge combined with the low-income health-fund tax rebate may turn around the way we view health insurance.
Russell Schneider, chief executive of the Australian Health Insurance Association, says these initiatives should eventually see more people take up insurance. "At the moment it's working in terms of slowing down the decline in membership and that's all we expected," he says.
After this year's tax assessments deliver a tiny surprise for some, however, it will be another story. "The surcharge will influence those high-income earners who aren't aware of it to choose insurance," Schneider says.
The surcharge applies to singles on salaries of $50,000 or more and couples or families bringing in more than $100,000. While the surcharge came into effect last July, taking up health insurance at any time before the end of this month will reduce the total levy for the financial year.
There are enticements for lower-income earners to stampede towards health insurers. Provided taxpayers sign on a health fund's dotted line, households earning less than $70,000 or singles on incomes below $35,000 will receive either a tax rebate or reduced insurance premiums.
A single person with full hospital and medical extras cover (a combined policy that covers hospital costs and other treatments such as dental and optical) will have $125 offset from their tax bill. Couples can claim a rebate up to $250 while families can offset up to $450.
If all those facts and figures make calculating tax liabilities a nightmare, there's another option for low-income earners. Instead of claiming a tax offset, they can apply directly to health funds for reduced premiums up to the value of the incentive.
But it's the high-income earners who will be particularly interested in how the Great Health Fund Push influences the hip-pocket. Weighing up both sides of the argument - higher levies versus taking out health cover - should be as simple as comparing the cost difference between the increased tax liability and the cost of health fund membership. As with all choices in life, however, coming up with a neat dollar cost takes a lot more work.
While there are some basic similarities among health funds' products, each fund has a range of options. There's the option to take out cover for hospital stays only, take out cover only for other medical costs such as dental and physiotherapy work or take out a policy covering both. There are different premiums, depending on the level of excess on the policy.
If fund members are happy to pay the first $500 of costs on a hospital stay, for example, premiums will be lower than for policies covering all costs. Some insurers have increased premiums. And an industry source warns funds have not finished revamping their fee structures, making comparison even more difficult.
A full-cover hospital policy for a single person with no excess can cost more than $1,000 a year. MBF charges $918 for its Select Hospital Cover with a maximum $250 excess, but the same cover with a $1,000 excess costs around $430. With an excess of $250, HCF offers a more basic value cover for singles at $55.70 a month - or $668 - while NIB offers a public hospital policy, with a $600 excess, for $312.
Families can pay more than $2,000 a year for full hospital cover, but if they cut back on some options, costs fall dramatically. Medibank Private's Blue Ribbon Saver cover with a $500 excess costs $952.80. An Extras policy only (no hospital cover) will cost a family $500 plus. Most funds have a range of cover and excess options which means prices can vary dramatically.
For those in a higher tax bracket without any health insurance, an extras-only style of policy may be a cheaper insurance choice. Bear in mind, though, that high earners will only escape the surcharge by taking out full hospital cover. While any hospital charges will have to be worn either by the patient or the public health system, the multitude of ailments that are treated through dentists, chiropractors and sometimes even alternative health practitioners are covered under extras policies.
The umbrella of Super Extras covers a full spectrum of services including podiatry and orthodontic work, with Medibank Private charging about $360 a year for singles. Scaled-back extras options, such as Medibank Private's First Choice Extras cover, sit at about $190 a year.
There's still a fair bit of tweaking left to be done by funds before policy holders receive the best deal possible, however. "There are some product defects; medical gaps are the main one," Schneider says.
While a fund will cover the scheduled fee for medical treatment, a doctor can name the price for treatment - meaning the patient is left to pick up the gap between the scheduled fee and the actual charge.
Schneider says some funds have set up arrangements to stop this practice, allowing patients to know the true cost of treatment before entering the hospital.
For taxpayers ready to pay out the surcharge rather than attempt a cost comparison, there are some insurance brokers who will search out the best fund deal. For a fee, groups like Health Insurance Advisors Australia take clients' details and match them with fund policies.
* Online readers: For more information on surcharges and rebates, check out the tax office's Web site at www.ato.gov.au. Some insurers also carry information on the Internet, including Medibank Private at www.medibank.com.au and NIB Health Insurers at www.nib.com.au - Health Insurance Advisors Australia can be found at www.hiaa.com.au.
MEDICARE SURCHARGE: An extra 1 per cent levy on the income of higher earners without health insurance
HOW MUCH EXTRA YOU'LL PAY UNDER THE NEW SURCHARGE
INCOME OLD LEVY(1.5%) NEW LEVY(2.5%) EXTRA
$50,000 $750 $1,250
$500
$60,000 $900 $1,500
$600
$70,000 $1,050 $1,750
$700
$80,000 $1,200 $2,000
$800
INCOME OLD LEVY(1.5%) NEW LEVY(2.5%) EXTRA
$100,000 $1,500 $2,500
$1,000
$110,000 $1,650 $2,750
$1,100
$120,000 $1,800 $3,000
$1,200
$130,000 $1,950 $3,250
$1,300
SOURCE: MEDIBANK PRIVATE
© 1998 Sydney Morning Herald