Turning 31 and Medicare Levy Surcharge questions

Situation: Currently don’t have private health insurance as didn’t have taxable income over 90k FY 19/20, 30 years old and turning 31 in May 2021

Predicted income:
2020/21 gross income of 105k,
- 5k of workplace deductions
-1k of property deductions
= taxable income of 99k

Questions:
1) Accountant has said the property deductions above don’t count when calculating medicare levy surcharge- is that the case? Thats not my understanding based on this: Medicare levy surcharge
2) Would one in this situation (31 at FY and >90k taxable income) need to have it by 1st July 2021 (LHC base day) or have pay the medicare levy surcharge and avoid the lifetime health cover loading?
3) I have been told you need basic hospital cover needed the whole financial year prior to turning 31 or you won’t get the government subsidized rate advertised by insurers? I'm confused by this, is this the case?

 

Hello @Jamesaurus,

Re question 1) It’s listed halfway down the page on the link you posted, net rental losses are included/added back to your taxable income, your accountant is correct. Even if it wasn’t included looks like your income would be over the MLS 90k threshold anyways.

Q2) I think you are asking two different questions.
a) To avoid the MLS you just need to have adequate hospital cover in the financial year of your tax return, I think there is a minimum number of days you must have it but I couldn’t find the exact number. I.e you can’t buy it on 29 June and avoid the MLS.
b) Paying the MLS has no impact on your LHC. You incur the LHC by not having hospital insurance by the 1st of July after your 31st Bday and then getting PHI at a later stage. Even then, it’s only 2% per year, so even if you decide at 32 it’s not that big a deal. If you decide at 40 though, it’s an extra 20% for 10 years. After paying the loading for 10 years it gets wiped.

However, you only ever pay the LHC if you take out PHI at a later stage after 31. If you never end up taking up PHI, you never have to pay it. Most people however that are over the MLS income threshold take out PHI as it can be cheaper than the extra MLS.

3) I don’t think that is correct, the government rebate doesn’t have anything to do with turning 31, it’s based on your income level. Higher rebates apply if you are 65+. When you apply for PHI you set the rebate amount by telling the insurer your estimated income for the year, or you can claim it at tax time instead of in your monthly or annual premium.

Nab: I’m turning 31 this month and haven’t yet decided what to do regarding PHI. I don’t need to pay the MLS as we manage our family taxable income through our companies and are under the MLS threshold so really I’m just considering the LHC loading and whether I think I will get enough value from PHI compared to self insuring. Will I want PHI at a later stage in life? I’ve had it before when I was a PAYG employee because I was over the threshold but wasn’t over impressed. Hate dealing with insurers when they won’t cover certain things.

 

1. Incorrect. Income for MLS purposes adds back a NET LOSS eg Rental income less all deductions. Eg if your taxable income was $102K and the return includes a $3K net property loss then income for MLS purposes is $105K. If a net profit occurs this isnt a concern.
3. Yes. Each day is the test. So if you commenced cover today you would have approx 300 days of exemption from surchare
2. LHC loading info is here Lifetime health cover

Be aware of the basis for how MLS is calculated. It considers more than just "income" such as reportable fringe benefits, reportable (extra) super etc and can include CGT profits, payout of accrued leave etc but often wont include redundancy (as that is often tax free). These are matters which can catch out some who plan a lower income and have a higher income suddenly imposed on them.
Medicare levy surcharge
Also be aware of the spouse rules. I have seen several instances in the past year where the ATO has identified a spouse where a taxpayer was indicating they are single. Their higher paid partner had a policy but they didnt. They were the assessed two years of MLS as they were not covered by a policy. Several of these were in same sex relationships or were unmarried but living together and didnt report a spouse

 

Have a read of this

Private Health..Yay or Nay

I probably saved around $200,000, its significant

We have one of the best health systems in the world

 

Thanks for the responses ,

I believe I have now found the Q3) reference:

M2 Medicare levy surcharge (MLS) 2020:
"What if you were covered by an appropriate level of private patient hospital cover for only part of the year?
If you were single and took out private patient hospital cover during the year, use the following example to help you work out how many days you are liable to pay MLS.

Example: Part-year private patient hospital cover

In 2019–20, Jacinta was single and had no dependants. She had income for MLS purposes of $95,000. She was not in a Medicare levy exemption category at any time during the year.

Jacinta took out private patient hospital cover on 15 January 2020. Because Jacinta's income for MLS purposes was above the single surcharge threshold of $90,000 and she did not have private patient hospital cover for the full year, she will have to pay MLS for the part of the year that she did not have private patient hospital cover.

Jacinta will not have to pay MLS for the time she had private patient hospital cover, that is, 15 January 2020 to 30 June 2020 (168 days).

Jacinta will write the number of days in 2019–20 that she is not liable for MLS (168) at A item M2 on her tax return and complete Private health insurance policy details on page 7 of her tax return"


So overall consensus is: if predicted income is > 90k for MLS purposes, best off getting PHI and having it for that whole financial year.

But if <90k have to work out if worth the potential pros and cons with the LHC

Punishment for having a greater than average income, being young and healthy!

 

Ironic - Health insurance doesnt cover health. It covers injury, illness and concerns which arent presently known. These can be unknown and occur at any time including a accident. eg bike riding, motor bike, car accident. Uninsured people then have one option. Private hospitals require pre-payment for uninsured persons and if you are injured you may be unable to facilitate that

PHI benefits:
- Avoids MLS and loadings which can be higher than the cover itself. These can occur with unexpected salary increase, bonus, job change, CGT sale, employee share scheme and many other cases etc
- Usually 100% cover for private hospital bed and most or all theatre fees - Think $838 a day plus
- Covers 15% of the gap between schedule fee and Medicare (which pays 85%) for medical costs which will amount to bugger all (usually a huge gap of course)
- Skipping a wait list. People forced to take free options are on wait lists for most procedures. Pain is not a life threatening condition.
- Procedure quality. Medicare funds the basic procedure.
- Accessing a procedure not available in public hospitals. My wife had this with a kidney issue (cancer). The public hospital would remove the kidney after several months using a cut from top of chest under armpit down to middle of lower back. The private hospital option was laproscopic robotic surgery to remove part of the kidney with no loss of kidney. Recovery for public hospital is 5 weeks+ Private hospital was 14+ days.
- You can also have elective surgery in a public hospital. You jump the queue. And have $0 out of pocket. They dont even insist you pay the excess. They are happy to take the bed fees from the insurer. As a consequence they like private patients and push them ahead. Electing to use a public hosiptal is wise for some procedures where specialist equipmnet such as radiation therapy may be bbetter in SOME public hospitals. Unfortunately you must use your local one and it can be a lucky dip.
- Choice of practitioner. Medicare doesnt (usually) allow a choice. Your public hosiptal procedure could be by a top specialist or by a trainee under supervision. Or a lesser experienced person.
- Ambulance cover is often included in premiums for hospital. Do you have this ? Costs of road and air ambulances can be horrendus. Air ambulance from a car crash isnt free either and isnt a voluntary option. The onsite emerency team will call in the air ambulance. $6000 plus ? Canberra residents can face a NSW air ambulance cost that is uncapped. NSW : Accounts & Fees - NSW Ambulance

 

Hi Paul,
Some good points but with PHI (to avoid MLS) have found that when used there are not insignificant ‘gaps’ still payable as the cost is higher than what the PHI schedule pays.

This is in addition to the excess nominated.
Hence we tend not to use it (so far) where possible.

Do others find this extra ‘gap’ too?

Thankfully health is generally good so haven’t needed to use either PHI or public a lot.

Cheers

 

Yes, these gaps can be significant. In my case my wifes kidney op. The surgeon charged $17K. His offsider charged $4K+. The Medicare scheduled fee was $700 and the health fund paid us $105. Anethetist also had gap. The health fund paid for theatre which I recall was $1800 ish. And the bed. 8 days x $750 each day.

Many funds have lists of specialists who do deals including gap free. Some services.