If you don’t hold private hospital cover – or are thinking about dropping it – make sure you understand the financial consequences. You could be hit with an extra tax surcharge of up to 1.5% or cost yourself extra premiums in future.

Medicare Levy Surcharge

The Medicare Levy Surcharge (MLS) is a tax penalty you must pay if you earn above a certain amount and don’t take out a sufficient level of private hospital cover for you and all your dependants. It’s designed to give you a financial incentive to insure privately. The MLS is applied by the ATO at tax time and included in your assessment.

If you’re a high income earner, holding private hospital cover to avoid the MLS makes sense.

If your income is lower but still above the relevant singles or families threshold, you may want to shop around more carefully for a policy that suits your budget. Bear in mind that it’s hospital cover that’s required to avoid the MLS, not extras. Of course, you also need to factor in other non-tax benefits of holding private health insurance

Lifetime Health Cover Loading and the Rebate

Lifetime Health Cover (LHC) loading encourages Australians to maintain private health cover from an early age. If you don’t take out private hospital cover by the year you turn 31, you’ll be penalised with LHC loading if and when you eventually take out cover in the future. You’ll pay an extra 2% of your premium for every year that you’re aged over 30, and that is charged annually until you’ve had 10 years of continuous cover.

So if you’re over 30 and don’t have private hospital cover, it’s time to consider how much each year that you remain uninsured may end up costing you in the future.