Cheapest Basic health insurance policies to save on tax

With the high cost of living, you might be thinking about downgrading your health insurance. If you decide you don’t need cover but want to avoid the government’s Medicare Levy Surcharge (MLS) due to earning over the income threshold, a Basic health insurance policy may be an option for you.

Finding cheap health insurance isn’t as easy as it used to be. In some cases, you may now be better off paying the MLS. If your income is only just enough to pay the MLS, then in most states, only one hospital policy will save you money on tax.

CHOICE experts have crunched the numbers state-by-state to find out whether it’s cheaper to buy a basic hospital policy, or just cop the MLS at tax time.

On this page:

• How does the Medicare Levy Surcharge work?
• Should you buy cheap health insurance cover?
• The cheapest Basic policies revealed
• What does Basic hospital insurance cover?

How does the Medicare Levy Surcharge work?

One of the incentives the government provides to encourage the uptake of health insurance is the waiving of the MLS. The MLS is a 1–1.5% tax (it varies based on income), but you don’t need to pay it if you have hospital cover. 

If your salary is $101,001 or more as a single person, or $105,001 from 1 July, you’ll need to pay the MLS if you don’t have a hospital insurance policy. For hospital insurance to be worthwhile as a tax saving, you need to find a policy that costs less than the MLS that you would have to pay. 

For example, if you earn over $101,000 per year, you’ll need to pay a MLS of 1% of your salary, unless you have hospital insurance. If you earn exactly $101,000, then buying a hospital policy for less than $1010 (1% of $101,000) per year will save you money – regardless of how useful it is (or isn’t) for health cover.

To decide if you’re financially better off buying hospital insurance, work out your MLS, and then check our table below for the cheapest hospital policy in your state, and see which policy costs less than the MLS you’ll have to pay.

If you are eligible for any applicable discounts or lifetime Health Cover (LHC) loading, you’ll need to factor that in too.

Should you buy cheap health insurance cover?

Cheap health insurance cover may be worth buying to save you money on tax, but not for actually covering your health needs. 

To save money on tax, you only need to buy cheap hospital insurance. You don’t need extras insurance.

Health insurance pricing differs by state, so we’ve compiled annual premiums for the cheapest policies in each state. 

If you’re earning $101,000 or less as a single person, you don’t need to pay the MLS so health insurance won’t save you money on tax. 

A salary between $101,001 and $118,000 per year as a single person puts you in Tier 1.  (This is changing to between $105,000 and $123,000 on July 1.)You’ll need to pay a MLS of 1% of your salary, and you’ll get a rebate on your hospital insurance premium of 16% (or more if you’re a senior). 

If you’re at the lower end of that bracket, it won’t make that much difference whether you pay the MLS, or buy the cheapest hospital policy. But as your salary gets higher there are some savings to be had. 

For example, if you’re earning exactly $101,001 in NSW, you’ll be better off paying the MLS by 71c per year, where as in Tasmania, you’ll be 8c better off buying the cheapest hospital policy. For savings that small, you probably want to also factor in whether you actually get any benefits out of the hospital policy. 

In New South Wales, Victoria, Queensland, South Australia and Tasmania you need to be on a higher income before the real savings of buying a hospital policy kick in. 

With the cost of cheap health insurance cover and the MLS being similar, you might think some cover is better than just paying the MLS and getting none, but it’s not that simple.

Keep in mind, policies usually come with a $750 excess if you want to actually use it. And if you’re in an accident, you’ll enter the emergency department in a public hospital and usually be treated there, so won’t even have the chance to claim and pay the excess.

However, there are some advantages of cheap cover. Many policies cover ambulance expenses where Medicare doesn’t.

When should you buy a health insurance policy to save on tax?

The amount of MLS you pay will be prorated depending on when you buy a health insurance policy to save on tax. So if you buy the policy on July 1 (and hold it all year), you won’t pay any MLS. But if you buy a policy on January 1, then you’ll pay MLS for the first six months of the financial year.

The cheapest Basic policies revealed

These are basic hospital policies that we do not recommend relying on for health cover. Read about the limitations of these policies below.

Depending on which state you’re in, the cheapest policy is AHM Ambulance Hospital (Basic), See-u by HBF Starter Hospital with Daily Co-Pay (Basic) or HBF Hospital Accident only. All with a $750 excess.

AHM Ambulance Hospital (Basic) This policy drawcard of this policy is emergency ambulance cover. It also covers rehab, psychiatric in-hospital treatment and palliative care in a public hospital only and it’s currently the cheapest policy in ACT, NSW, Northern Territory and Victoria.

See-u by HBF’s Starter Hospital with Daily Co-Pay (Basic) has a copayment as well as the $750 excess. If you actually want to use this policy, you’ll need to pay a one-off fee of $750 plus $50 per day that you’re in hospital – capped at $250, but we’re recommending this policy more as a financial tool rather than for the health cover it provides. This is currently the cheapest policy in Queensland, South Australia and Western Australia and provides private hospital cover for treatment within 90 days after an accident only. You need to visit your doctor or go to emergency within 48 hours of the accident for it to be covered. It includes rehab, psychiatric in-hospital treatment and palliative care in a public hospital, as well as up to 2 emergency ambulance trips in South and Western Australia. Ambulance services in Queensland are provided by the Queensland state government. 

HBF Basic Hospital Accident Only with a $750 excess is the cheapest policy is Tasmania. This policy provides private hospital cover only for treatment within 90 days after an accident. You need to visit your doctor or go to emergency within seven days of the accident. It covers rehab, psychiatric in-hospital treatment and palliative care in a public hospital. Ambulance services in Tasmania are provided by the Tasmanian state government.

What does Basic hospital insurance cover?

Basic hospital insurance policies offer the lowest tier of health cover at the lowest price point. All Basic policies must cover treatment in a public hospital for palliative care, rehabilitation and psychiatric care. 

These policies are good for avoiding tax and loadings once you reach a certain income, but they provide very little cover, so we don’t recommend them for health cover.

There are two types of Basic policies: accident policies and public hospital policies.

Accident policies

These cover ambulance services and accident care in a private hospital. As a government requirement, they also must cover rehab, palliative care and psychiatric care in a public hospital.

The only difference between this cover and what you get under Medicare is that you can choose your own doctor. And regardless of your cover, it’s very hard to get a place in a public hospital for these services. All other services and illnesses are excluded.

Accident policies can also have restrictions. For example, HCF’s Accident Only policy covers you for the initial treatment if you go to emergency within 24 hours after the accident, but you’re not covered for any follow-up treatment.

Public hospital policies

These provide cover in a public hospital only. Again, the only difference between this cover and what you get under Medicare is that you can choose your own doctor. You’ll still have to join public hospital waiting lists, and generally, you get the same treatment as public patients.

If you want a higher level of hospital cover, look for Bronze, Silver or Gold hospital insurance.

What if I need a higher level of cover?

The policies we list above are good for saving money on tax, but no good if you rely on them for cover. If you want health cover and you’re looking for the best policy, you can use our tool to compare thousands of policies from 49 insurers.

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Jane Bardell

Jane Bardell is a Content producer in the Insurance and utilities team. She writes about home, car, pet and health insurance. Previously at CHOICE, she checked facts, figures and statistics as a Verifier with the Editorial and investigations team. Jane has a Bachelor of Science from the University of New South Wales.  LinkedIn

Jane Bardell is a Content producer in the Insurance and utilities team. She writes about home, car, pet and health insurance. Previously at CHOICE, she checked facts, figures and statistics as a Verifier with the Editorial and investigations team. Jane has a Bachelor of Science from the University of New South Wales.  LinkedIn