Bills Digest no. 154 2008–09
Fairer Private Health Insurance Incentives (Medicare
Levy Surcharge) Bill 2009
This Digest was prepared for debate. It reflects the legislation as
introduced and does not canvass subsequent amendments. This Digest
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introduced: 27 May
House: House of Representatives
Sections 1 3 on Royal
Assent; Schedule 1 immediately after the commencement of Schedule 1
to the Fairer Private Health Insurance Incentives Act
relevant links to the Bill, Explanatory Memorandum and second
reading speech can be accessed via BillsNet, which is at http://www.aph.gov.au/bills/.
When Bills have been passed they can be found at ComLaw, which is
This Bill is one of three Bills
which propose changes to various Acts in order to implement a 2009
10 Budget initiative changing private health insurance incentives
and penalties. The
other two Bills are Fairer Private Health Insurance Incentives Bill
2009 and Fairer Private Health Insurance Incentives (Medicare Levy
Surcharge Fringe Benefits) Bill 2009. The Bills propose the introduction of
three new Private Health Insurance Incentive Tiers, so that those
on higher incomes receive a lower private health insurance rebate
when they purchase a complying health insurance policy, and face a
higher Medicare levy surcharge if they opt out of private health
This Bill proposes amendments to the Medicare Levy Act
1986 (MLA 1986). The MLA 1986 determines whether an
individual is liable to pay the Medicare levy surcharge on their
taxable income. The Medicare levy surcharge is an additional
surcharge on taxable income imposed on high-income earners who do
not have appropriate private hospital insurance. This Bill
proposes, from July 2010 new income thresholds tiers 1, 2 and 3 for
singles and families so they are consistent with the proposed
changes to the Income Tax Assessment Act 1997 contained in
the Fairer Private Health Insurance Incentives Bill 2009.
It also proposes to increase the Medicare levy surcharge for those
assessed as high income earners in tiers 2 and 3, to 1.25 per cent
and 1.5 per cent respectively.
When Medicare was introduced in 1984 the scheme was part-funded
by the imposition of a Medicare levy, originally set at 1 per cent
of taxable income, with low income exemptions. In 1995 the Medicare
levy was increased to its current level of 1.5 per cent of taxable
income. Other than for those on low incomes, all taxpayers are
liable for the Medicare levy, regardless of their private health
The Medicare levy surcharge (MLS) is an additional surcharge on
taxable income imposed on high-income earners who do not have
appropriate private health insurance. Currently the income thresholds above
which the taxpayer is liable for the MLS are set at $70 000
for singles and $140 000 for couples. The MLS has applied
since 1997 and was introduced by the former Howard government as
the first of a package of reforms that were subsequently introduced
to address declining private health insurance membership. When the MLS was first
introduced, private health insurance membership covered around 30.4
per cent of the population; currently around 44.6 per cent of the
population is covered by private health insurance.
The Government has now announced it intends to rebalance support
for private health insurance, so that from July 2010 those on
higher incomes receive less carrot and more stick to take out
private cover. The
proposed measures contained in these Bills are expected to generate
$1.9 billion in savings over four years.
This Bill proposes amendments to allow for the Medicare levy
surcharge to be increased incrementally from 1 per cent of taxable
income up to 1.5 per cent for those in the highest income brackets
(proposed tiers 2 and 3) when they decline to take out private
The measures proposed in this and the other two Bills were
announced in a joint media release from the Treasurer, Wayne Swan,
and the Minister for Health and Ageing, Nicola Roxon on 12 May
2009, as part of the 2009 10 Budget.
The Bill has been referred to the Senate Economics Legislation
Committee, to report by 16 June 2009.
Much of the commentary about the measures proposed here and in
the accompanying Bills has been on the combined effect of the
proposed measures. For details of commentary on the combined effect
of these measures refer to the Bills Digest for the Fairer Private
Health Insurance Incentives Bill 2009.
Changes to the income thresholds for the MLS that were
introduced in 2008, generated considerable public debate. At the
time much of the discussion focused on arguments over whether or
not large numbers of people would abandon their private health
insurance, as a result of the higher income thresholds, and the
possible effect on private health insurance premiums and the public
It is notable that many of these arguments have again been raised
in the context of the current proposals.
Refer to the Bills Digest for the Fairer Private Health
Insurance Incentives Bill 2009.
The Government estimates that the combined effect of the
measures proposed in this and the two accompanying Bills will
result in net savings of $1.9 billion over four years. The financial
implications of this measure are dealt with in the Bills Digest for
the Fairer Private Health Insurance Incentives Bill 2009.
Items 1, 3, 4 and 5 propose new definitions
under subsection 3(1) for singles and family tier 1 threshold, as
well as definitions for tiers 2 and 3 earners, so that they have
the same meaning as in the Income Tax Assessment Act 1997
(ITAA 1997). No definition for tier 1 earner is required as this
category is already covered by existing provisions.
Item 6 proposes to replace sections 3AA and 3A
with new meanings for tier 2 earner and tier 3 earner so they are
consistent with the meanings given to them in the ITAA 1997. This
item also proposes to replace references to the way a dependant
child is defined. Instead of referring to the meaning of a
dependant child as given in the ITAA 1997, the meaning of dependant
is broadened to that which is defined in the A New Tax System
(Medicare Levy Surcharge Fringe Benefits) Act 1999 (ANTS (MLS)
Act 1999), in order to make the definition consistent with other
Items 2 and 6 propose to repeal definitions at
subsections 3(1), 3AA and 3A of singles surcharge threshold and
family surcharge threshold .
Items 7 and 15 proposes to replace singles
surcharge threshold at subsection 8B(2) and 8E(2) with the new
singles tier 1 threshold .
Items 9, 11 13, 17, 19 21 propose to replace
all references to family surcharge threshold at subsections 8C(3),
8D(3)(b), 8D(4)(a)(i), 8D(4)(b), 8F(2), 8G(2)(b), 8G(3)(a)(i),
8G(3)(b) with family tier 1 threshold .
Items 8, 10, 14, 16, 18 and 22 propose new
provisions at sections 8B, 8C, 8D(4), 8E, 8F, and 8G(3), that will
increase the Medicare levy surcharge by 0.25 per cent for those
assessed as being in tier 2 for the year of income, and 0.5 per
cent for those assessed as being in tier 3 for the year of
Item 23 proposes that the amendments made to
the Schedule apply to the 2010 11 year of income and later years of
This Bill is one of three seeking to give effect to a 2009 10
Budget announcement intended to rebalance private health insurance
arrangements. This specific Bill proposes amendments to the
Medicare Levy Act 1986 that will establish 3 new tiers of
income for the purposes of assessing liability for the Medicare
levy surcharge. Those in the two higher tiers tiers 2 and 3 who do
not take out appropriate private health insurance will be liable
for a higher Medicare levy surcharge of 1.25 per cent and 1.5 per
cent respectively. As the Opposition has indicated it opposes the
measure, it will require the support of the Greens and the
Independents to pass the Senate.
Members, Senators and Parliamentary staff can obtain further
information from the Parliamentary Library on (02) 6277
5 June 2009
Bills Digest Service
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