Cap your bills

You still have time to save on healthcare costs.

You still have time to save on healthcare costs.

If the kids need braces on their teeth, you need new glasses and your partner has been putting off minor surgery, it's time to get a wriggle on.

And you might want to pre-pay next year's health insurance premiums while you're at it.

The introduction of means testing for both the private health insurance rebate and the medical expenses tax offset on July 1 this year means that timely attention to your family's health could also ease future pain in your hip pocket.

"Get things done now if you can and keep track of your spending. Of course, [all bills] must be paid this financial year," Laura Menschik, WLM financial planner, says.


The surprise introduction of income thresholds for the net medical expenses rebate and a lower rate of reimbursement were tucked away in this month's federal budget.

The new measures will make it more difficult for many families to claw back some of their out-of-pocket medical expenses. "Out-of-pocket" means after deducting refunds from Medicare or your private health insurer.

The new rules apply to people with adjusted taxable income above the Medicare levy surcharge thresholds of $84,000 for singles and $168,000 for couples or families in 2012-13. (Your adjusted taxable income includes salary sacrifice, personal superannuation contributions, fringe benefits, net investment losses and child support.)

If your income falls below the Medicare surcharge thresholds you can continue to claim under the old rules, that is, 20 per cent of all your out-of-pocket medical expenses above $2000.

If you earn more than the Medicare surcharge thresholds you can only claim a tax refund equal to 10 per cent of all your net medical expenses over $5000. The $5000 threshold will be indexed annually.

You can claim for expenses relating to an illness or operation paid to a doctor, nurse or hospital. You can also claim for some aged-care payments, dental treatment, glasses and contact lenses, medical aids and chemist bills related to a medical condition. (For a guide to what you can and can't claim, go to the ATO website at and search under "medical expenses".)

Say your family has a bad year and notches up out-of-pocket medical bills of $10,000. Under the old rules everyone could claim a tax rebate of $1600 (deduct $2000 from $10,000 and multiply the difference by 20 per cent). Under the new rules, higher earners will get back just $500 ($10,000 less $5000 multiplied by 10 per cent).


Higher income families also have a once-only opportunity to save even more money by pre-paying next year's private health insurance premiums.

At present, singles get a rebate of 30 per cent if they are aged under 65, 35 per cent if they are 65-69 and 40 per cent if they are 70 or over.

Under the new rules, these rebates will reduce by 10 per cent for singles earning more than $84,000 and couples earnings more than $168,000.

It will be removed entirely for singles earning more than $130,000 and families on more than $260,000.

These thresholds increase by $1500 for every child after the first and will be indexed annually. Health funds have different rules covering pre-payment so you need to check with your insurer, but most will allow you to pre-pay up to 12 months' premiums prior to June 30 and receive your current level of rebate. Some funds will go even further.

"In order to assist members in coping with changes to the health insurance rebate, Medibank will allow members to pay their cover up until December 31, 2013," Deidre Anderson, public affairs manager at Medibank Private, says.

In other words, pay by June 30 and you can receive a rebate of at least 30 per cent on the next 18 months' contributions.

"It is good end-of-year tax planning to pre-pay and pre-do what you can," Menschik says. From July 1, this narrow window of opportunity closes for good.

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