21 OCTOBER 2013
This article was created for the 2013/14 financial year. To view 2014/15 information on the medicare surcharge click here.
One of the most common questions that 457 visa compared receives is about dropping 457 visa health insurance cover for Medicare. To tackle this area this article is going to provide a comprehensive analysis of Medicare, tax and health insurance.
What is Medicare?
Medicare is Australia’s universal health care that is run by the government in Australia. It is similar to the NHS in the UK (although less comprehensive) focusing on making essential health care treatments affordable for Australians. Those with a Medicare care receive subsidies treatment from doctors, nurses and other health professionals. Medicare also provides free public hospital treatments although waiting periods and some out-of-pocket expenses may apply depending on circumstances.
Medicare Logo
Who can receive Medicare?
All permanent Australian residents are eligible for Medicare as are those who come from a reciprocal health care agreement country such as the UK, Sweden, Italy and New Zealand. For an overseas visitor to apply for Medicare they must be located in Australia at the time. Therefore, applicants for a 457 visa who are offshore will need to wait until they arrive in Australia before applying for Medicare.
Medicare Card
I have received my Medicare Card. Why should I drop my 457 visa health insurance?
Once you receive your Medicare card you have met the ‘adequate health insurance’ rules for a 457 visa holder and are free to drop your 457 visa health insurance. Before doing this its important to understand that down-side of having no health insurance in Australia and why the majority of Australians have health cover even though they have Medicare.
1) Medicare Surcharge
The Australia government introduced a tax penalty for those that earn above a certain threshold but don’t have private health insurance called the Medicare surcharge. This surcharge starts when you earn more then $84,000 and rises as you increase your taxable income. Below are a few example Australian taxable income levels, the surcharge rate the total surcharge amount.
$85,000 Taxable Income = 1% surcharge rate = $850
$100,000 Taxable Income = 1.25% surcharge rate = $1,250
$135,000 Taxable Income = 1.5% surcharge rate = $2,025
This Medicare surcharge only applies if you don’t have health insurance (which for a 457 visa holder is 457 visa health insurance). Now consider that the lowest priced 457 health insurance is $959.88 from IMAN. Based on this amount the gap between the surcharge and the policy is:
$85,000 Taxable Income = -$109.88 p.a.
$100,000 Taxable Income = $209.12 p.a. (i.e. you’re ahead by over $290 each year)
$135,000 Taxable Income = $1,065.12 (i.e. you’re ahead by over $1,000 each year)
So based on the three scenarios having 457 visa health insurance will either mean you either have a small amount of money out-of-pocket or instead end up ahead while still knowing your covered.
2) Waiting Lists
Most UK citizens come to Australia expecting Medicare to be like NHS….IT IS NOT! The Australian health system has lower funding relative to the population which has led to a system that is often under strain from over-demand. While often those with critical emergencies receive immediate cover those that require less urgent procedures (such as a hip replacement) may wait months to years for the procedure.
Having 457 visa health insurance can mean getting treatment in a shorter time-frame for these procedures. Treatment will also be done as a private patient which can mean elements such as a private room and a choice of doctor that does the operation.
3) Private Hospitals
Live most developed countries, private hospitals in Australia can be very expensive. This is a real incentive of private heath insurance with the option of been seen at a private hospital which may have improve facilities. In Australia, many public hospitals also have private wards which have additional capacity.
4) Other Expenses
There are some other elements that private health insurance covers that Medicare doesn’t. This includes ambulance cover and medical repatriation. These elements can lead to significant out-of-pocket expenses in the case of injuries.
Overall, all the factors above should be considered before retiring your 457 visa health insurance. It should be noted that all the authors of this website hold private health insurance due a variety of reasons above. One of authors took out private health insurance after requiring medical attention and viewing the facilities and seeing the waiting lists at his local public hospital.