A new survey from financial comparison website Money.com.au has revealed that nearly one in four Australians (24%) purchase hospital insurance primarily to avoid the Medicare Levy Surcharge (MLS), a tax imposed on higher-income earners without private health coverage.
The MLS, separate from the general Medicare levy, applies to individuals earning over $93,000 per year and families earning above $186,000. The surcharge is intended to encourage the uptake of private health insurance, but experts warn that some individuals may be opting for low-cost, limited-coverage policies with significant exclusions.
Millennials (29%) were the most likely to cite avoiding the MLS as their primary motivation for purchasing hospital insurance, according to the survey. Gen X followed at 24%, while Boomers (16%) and Gen Z (21%) were less likely to purchase health cover for tax reasons.
Chris Whitelaw, general manager of health insurance at Money.com.au, cautioned that young Australians choosing basic policies purely for tax benefits could find themselves with inadequate coverage when faced with unexpected medical needs.
“Choosing a low-tier policy to dodge the Medicare Levy Surcharge when you’re young and healthy may sound like a good idea initially, until you realise it’s a junk cover that won’t provide adequate benefits if or when unexpected health issues arise,” he said.
He noted instances where individuals needed surgery for sports injuries and were left with significant out-of-pocket costs because their policies did not cover those procedures.
Older Australians, particularly retirees or those on lower incomes, were more likely to select hospital insurance based on healthcare needs.
Among Baby Boomers surveyed, 18% said they opted for private cover to ensure access to public or private hospitals, compared to just 15% of Millennials.
Industry data from the Private Health Insurance Intermediaries Association (PHIIA) indicated a growing preference for basic-tier hospital insurance. In the 2023-24 period, sales of basic-tier policies increased by 44.7%, while Gold-tier policies, which offer more comprehensive coverage, saw a 10% decline in sales.
The majority of basic-tier policies were purchased by people under 40, with 25.3% of sales going to those aged 25 to 29 and 26.1% to those aged 30 to 34. Gold-tier policies remained the least popular among Australians under 30, further highlighting the preference for cost-effective but limited coverage among younger consumers.
Amid the trend toward less comprehensive health insurance, the Members Health Fund Alliance, which represents not-for-profit insurers, has called for policy reforms to allow private health funds to cover general practitioner (GP) visits.
Currently, health funds can cover ancillary services like dental, optical, and physiotherapy but are prohibited from covering GP consultations.
Matthew Koce, CEO of Members Health, argued that lifting this restriction could make healthcare more accessible and reduce financial pressures.
