Higher rate taxpayers prepare for extra tax bill from lower health insurance rebate

Many customers of health insurance funds have forgotten to contact their funds since 1 July 2012 to reduce the level of private health insurance rebate claimed upfront through a lower premium so should expect a higher tax bill at tax time.

Individuals who earn over $84,000 a year, or couples earning over $168,000 a year will face a bill from the tax office when doing their 2013 tax returns to pay back the difference between their entitlement and what they claim through lower premiums.

Taxpayers without appropriate hospital cover from a private health insurance pay a Medicare Levy Surcharge at a rate based on taxable income as shown in the table below.  To encourage take up of private health insurance the government also offers a rebate in addition to waiving the Medicare Levy Surcharge. 

From 1 July 2012 the federal government removed the blanket 30% rebate on health insurance premiums for those under 65 and replaced it with a means-tested and age-related rebate based on three income levels. 

The 2012-13 income thresholds are provided in the table below.



Tier 1

Tier 2

Tier 3


$84,000 or less



$130,001 or more


$168,000 or less



$260,001 or more


Aged under 65





Aged 65-69





Aged 70 or over





Medicare levy surcharge







For those falling into one of the three reduced rebate tiers above you have three options:
- Continue to receive the full rebate and pay lower premiums through the year, and then refund the excess rebate claimed to the tax office when you submit your tax return;
- Contact your fund to claim a lower premium through the year, to reduce what you pay back in your tax return, or possible receive a refund if you claim too little; or
- Claim nothing from your fund, paying the full premium through the year, and claim your entire rebate entitlement, if any, through your tax return.

We also recommend you take the time to review your cover and your level of excess to ensure your fund continues to provide you value for money, especially for those now entitled to a lower rebate on their premium.

If you need more information please contact your health fund or your usual accountant at Lockwood & Ward on 02 9299 7044.

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