A new research in Australia has revealed that 24% of Australians risk 'junk cover' by choosing hospital insurance for tax savings over healthcare. The study found that nearly one in four Australians admit to buying hospital cover primarily to avoid paying the Medicare Levy Surcharge (MLS), rather than for healthcare reasons.
The study conducted by Money.com.au found that Millennials (29%) and Gen X (24%) are the most likely to cite avoiding the MLS as their main reason for having hospital insurance. In contrast, Boomers (16%) and Gen Z (21%) are the least likely to opt for hospital cover to save on tax.
The MLS is separate from the Medicare levy paid by most Australian taxpayers. It’s an additional tax that applies to higher-income taxpayers — singles earning more than AUD93,000 annually and couples or families earning more than AUD186,000 — who don't have a suitable level of private health cover.
Money.com.au general manager health insurance Chris Whitelaw said younger Australians in their career prime and earning higher incomes may take out hospital cover just to avoid the Medicare Levy Surcharge, but risk ending up with subpar coverage.
Mr Whitelaw said, “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.”
“We’ve seen cases where people on a basic policy unexpectedly needed surgery for a sports injury, only to discover their cover excluded certain procedures. As a result, they faced significant out-of-pocket costs for hospital stays or specialist care. This can turn a tax-saving plan into a financial pickle very quickly.”
Older Australians, many of whom are retired or on lower taxable incomes, are more likely to choose coverage based on their need for quality healthcare.
Money.com.au survey found that 18% of Boomers selected hospital cover to have the option of \being treated in a public or private hospital, compared to only 15% of Millennials.
Gold tier health insurance declines as younger Aussies embrace basic cover Basic hospital tier policies saw a 44.7% increase in sales in 2023-24, according to the Private Health Insurance Intermediaries Association (PHIIA). Meanwhile, sales of Gold tier products fell by 10% compared to the previous year.
More than half (58.2%) of Basic tier policies were sold to people under 40, with the highest sales among those aged 25-29 (25.3%) and 30-34 (26.1%). PHIIA data also shows that Gold tier policies are the least common among those under 30, indicating that younger Australians, particularly first-time health insurance buyers, are opting for bare-bones policies.