How to Save on Health Insurance in Australia: PHI Rebate, MLS, Extras and More

The Australian government subsidises private health insurance through the PHI rebate - a percentage of your premium paid back to you (either as a reduced premium at the time of payment, or as a tax offset in your tax return). The rebate is means-tested and varies by income and age.

For 2024–25, the rebate tiers are based on your income for surcharge purposes (taxable income plus reportable fringe benefits and reportable employer super contributions). The income thresholds for 2024–25: Base Tier (under $93,000 single / $186,000 family) - rebate of approximately 24.6% for those under 65; Tier 1 ($93,001–$108,000 single / $186,001–$216,000 family) - rebate of approximately 16.4% under 65; Tier 2 ($108,001–$144,000 single / $216,001–$288,000 family) - rebate of approximately 8.2% under 65; Tier 3 (above $144,000 single / $288,000 family) - no rebate (0%).

Rebate percentages increase for older age brackets (65–69 and 70+). The rebate is applied to both hospital and extras cover premiums. If you claim the rebate as a reduced premium but your actual income is in a higher tier than you nominated, you will repay the excess rebate through your tax return.

The Medicare Levy Surcharge (MLS) is an additional tax charged to higher-income Australians who do not hold private hospital cover. The MLS is 1% of income for Tier 1 earners ($93,001–$108,000 single), 1.25% for Tier 2 ($108,001–$144,000), and 1.5% for Tier 3 (above $144,000).

For a single person earning $100,000, the MLS is $1,000 per year. A basic hospital-only private health insurance policy can cost $900–$1,500 per year - meaning at this income level, the cost of the cheapest complying hospital cover is broadly comparable to or less than the MLS. Once income rises above about $105,000–$110,000 (depending on premium), holding even a basic hospital policy is financially better than paying the MLS.

The MLS is charged on top of the standard 2% Medicare Levy - it does not replace the levy. To avoid the MLS, you must hold a complying hospital policy (not extras-only cover) with a maximum excess of $750 per person ($1,500 per family) for singles or $1,500 for families.

Hospital cover pays for treatment as a private patient in a private or public hospital - including the hospital accommodation, theatre fees, and (for policies that include it) your choice of surgeon. It does not cover the gap between what your surgeon charges and what Medicare and the insurer pay - the gap fee is out-of-pocket unless your surgeon participates in a no-gap or known-gap arrangement.

Extras cover (also called ancillary or general treatment cover) pays for services not covered by Medicare - dental, optical, physiotherapy, chiropractic, podiatry, psychology, speech therapy, and more. Extras limits reset each calendar year and are subject to annual maximums per service category.

Whether extras cover pays for itself depends entirely on how much you use it. If you spend $800–$1,200 per year on dental, optical, and physio, a mid-range extras policy at $600–$900 per year may break even or save money. If you rarely use ancillary services, extras cover is likely a net cost. Calculate your actual annual spend on claimable services before buying or keeping extras cover.

Hospital-only cover is almost always the priority - the financial protection against large hospital bills is the core insurance purpose. Extras is discretionary and should be reviewed annually against your actual usage.

The excess is the amount you pay when you are admitted to hospital before your insurer pays the rest. Higher excess = lower premium. Most health insurers offer excess options from $0 to $750 per person per year (the maximum permitted for the MLS exemption to apply for singles is $750).

Choosing a higher excess is rational if: you are young and healthy (low probability of hospitalisation in any given year); you have savings to cover the excess if needed; and the premium saving from a higher excess exceeds the actuarial expected cost of the excess over time.

For a single person under 40 in good health, choosing the maximum $750 excess can reduce premiums by $300–$600 per year compared to a $0 excess policy. Over 5 years without a hospital admission, the premium saving ($1,500–$3,000) significantly exceeds the maximum excess exposure ($750 per admission). The maths favours higher excess for low-risk individuals.

Lifetime Health Cover (LHC) loading is a 2% premium surcharge for every year you delay taking out private hospital cover past your 31st birthday - up to a maximum of 70% loading. If you take out hospital cover after age 41, you pay 20% more than a comparable 30-year-old with continuous cover.

LHC loading stays with you for 10 continuous years of hospital cover - after 10 years of continuous cover, the loading is removed. This creates a strong incentive to take out hospital cover before age 31 and maintain it continuously, even at a basic level.

LHC loading also resets if you spend more than 1,094 days (approximately 3 years) outside Australia - the clock restarts when you return and take out cover again.

Waiting periods restrict when you can claim for certain services after joining a fund or upgrading your cover. Standard waiting periods: 2 months for most hospital services; 12 months for pre-existing conditions (conditions you had before joining, as assessed by the insurer); 12 months for obstetrics; 2 months for most extras services; 12 months for major dental, orthodontics, and optical.

When switching funds, you do not serve waiting periods again for equivalent cover - your served waiting periods transfer. You can switch to equivalent or lower cover and keep your waiting period credit. If you upgrade to higher cover (e.g., adding obstetrics), a new 12-month waiting period applies for the new benefit.

The best time to switch is in January - most funds reset extras annual limits on 1 January. Switching in January gives you maximum claims capacity from the start of the year. Switching in mid-year means you start fresh on your annual extras limits at the new fund.

Compare annually using comparison sites - health insurance premiums increase by 2–5% most years, and your current fund is not always the best value. Switching to a fund offering similar cover at a lower premium is straightforward and waiting periods transfer for equivalent cover.

Pay annually upfront - most funds offer a 4–6 week premium-free period if you pay a full year before the annual premium increase (typically effective 1 April each year). Paying the prior year's rate for 12+ months effectively reduces your effective premium by a small percentage.

Review your extras cover utilisation - if you are not claiming regularly, downgrade or remove extras. A $600/year extras premium for $300 in annual claims is a net $300 loss.

Ask your fund for a retention discount - insurers can offer loyalty discounts or match competitor prices to retain members. Call and ask before switching.

Check whether your employer offers a corporate health plan - group purchasing discounts of 5–10% are common through large employer agreements.

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Work through this checklist to reduce your health insurance costs:

• Check which PHI rebate tier applies to your income - if Tier 3 ($144k+ single), you receive no rebate and should factor the full premium cost into your comparison
• Calculate whether your income triggers the MLS - if over $93,000 and uninsured, compare the MLS cost to the cheapest complying hospital premium
• Choose the highest excess your financial position supports - $750 excess can save $300–$600/year vs $0 excess for under-40s
• Compare extras fund utilisation annually - if annual extras claims are less than half your extras premium, consider downgrading
• Check your LHC loading - if you are under 31 and uninsured, take out hospital cover before your 31st birthday to avoid loading
• Pay annually before 1 April to lock in the prior year's rate for 12+ months
• Call your fund and ask for a retention discount before switching
• Use a health insurance comparison tool annually - premiums change and better value options appear regularly
• Check your employer's corporate health plan - group discounts may be available
• Review waiting period status before upgrading - obstetrics and major dental carry 12-month waits on new benefits

Health insurance is one of the most frequently over-paid household expenses - a 30-minute annual review can save $300–$1,000 with no change in actual coverage.