How Does the Rebate Work in Health Insurance in Australia?

Private health insurance is not cheap, and the Australian Government knows it. It offers a financial incentive known as the private health insurance rebate to encourage more people to take out cover and ease pressure on the public system.

The rebate is a refund (or upfront discount) that helps cover the cost of your private health insurance premiums. While the concept sounds straightforward, its rules can be a little murky, especially regarding income thresholds, tier changes, and how to claim it.

Our guide breaks it down so you can understand how the rebate works, how much you’re entitled to, and how to ensure you’re not accidentally over- or under-claiming. Here’s what we cover:

✅ Who Is Eligible for the Rebate?
✅ How Is the Rebate Calculated?
✅ How Can You Claim the Rebate?
✅ What Are the Current Rebate Tiers and Rates?
✅ Does the Rebate Change Over Time?
✅ What If You Claim the Wrong Rebate Tier?
✅ Is the Rebate Still Worth It?

and much, MUCH more!

Who Is Eligible for the Private Health Insurance Rebate?

Not everyone qualifies for the rebate, and even if you do, how much you get depends on a few factors. Here is a quick breakdown of who is eligible.

You Must Hold an Eligible Policy

Only Australian Government-approved private health insurance policies qualify for the rebate. This includes most hospital and extras cover offered by registered health funds, but always check the fine print. Overseas visitor or student policies are not eligible.

You Must Be an Australian Resident for Tax Purposes

You must be registered with Medicare and classified as an Australian resident for tax purposes. You won’t receive the rebate if you’re not eligible for Medicare (like some visa holders).

Your Income Matters

The rebate is means-tested. This means that it reduces as your income increases.

Certain thresholds are set each year, which we’ll cover shortly, but if you earn above a certain amount, you get a reduced rebate or none. If you’re part of a couple or family, your combined income assesses eligibility.

How Is the Rebate from private health insurance calculated by Australian Government?

The rebate is calculated based on three core factors:

Your age
Your income
Your relationship status (single or family)

Income Tiers: The Higher You Earn, the Lower the Rebate

There are four “tiers” used to calculate how much rebate you receive:

Base Tier (lowest income, highest rebate)
Tier 1
Tier 2
Tier 3 (highest income, no rebate)

The thresholds change slightly each year. For reference, singles earning under $93,000 (and families under $186,000) fall into the base tier and receive the maximum rebate available. The more you earn above that, the lower your rebate percentage.

Age-Based Adjustments

There’s a small age adjustment: those aged 65 and over are entitled to a slightly higher rebate than those under 65. This eases the cost burden for older Australians, who are more likely to need private healthcare.

How Can You Claim the Rebate?

You don’t need to jump through hoops to claim the private health insurance rebate. Most Australians already receive it automatically, often without realising it.

There are two main ways to claim, and each suits a different kind of policyholder.

As a Reduced Premium (Upfront Rebate)

This is the most common method. When you apply for private health insurance, your fund will ask for your estimated income for the financial year. Based on this, they apply the rebate directly to your monthly premium, reducing how much you pay out-of-pocket.

It simplifies things because your costs are lower from day one, and you don’t need to worry about waiting until tax time.

However, there’s a catch: if your income is higher than you estimated, you might have claimed too much. The ATO will calculate everything when you lodge your tax return, and you might need to repay the excess.

As a Tax Offset, When You Lodge Your Return

If you prefer not to estimate your income, or if you’d rather get a lump sum benefit later, you can pay full price for your premiums during the year and then claim the rebate as a tax offset when you lodge your return.

This method is useful if:

Your income fluctuates throughout the year.
You do not want to risk over-claiming and repaying later.
You prefer managing everything in one place at tax time.

Remember, you can change your rebate claiming method by contacting your health fund anytime.

Current private health insurance rebate tiers and rates?

Let’s get into the numbers. The rebate is calculated on a sliding scale based on your income and family status, and the tiers are adjusted slightly each year. As of the 2023–24 financial year, here are the current thresholds and rebate percentages:

Income Tiers for Singles and Families

🔎 Provider	💊 Chronic Illness Coverage	⏰ Waiting Period	🩺 Out-of-Pocket Costs	⭐ Unique Features
🥇 GU Health	Diabetes, osteoarthritis, cancer support	12 months for pre-existing conditions	No Gap Option, flexible excess options	Tailored corporate health plans, First Choice providers
🥈 Queensland Country Health Fund	Health management programs for chronic conditions	12 months for pre-existing conditions	Access Gap Cover available, cost-sharing for treatments	Regional support, emergency travel benefits
🥉 AIA Health Insurance	Osteoarthritis, spinal care	12 months for pre-existing conditions	Standard cost-sharing, Access Gap Cover available	AIA Vitality Program, wellness support
🏅 CBHS Corporate Health	Better Living program for chronic disease support	12 months for pre-existing conditions	Access Gap Cover available, varies by provider	Overseas cover options, Better Living program
🎖️ Phoenix Health Fund	Diabetes, osteoarthritis, cancer support	Varies, up to 12 months	Access Gap Cover available, varies by provider	No provider restrictions, unlimited ambulance cover

Note: Income thresholds are indexed annually on 1 July. Family thresholds include dependents and increase by $1,500 for each child after the first.

How Family Status Affects Your Tier

Your rebate tier depends on your combined family income if you’re:

Married or in a de facto relationship
A single parent
Claiming dependents on your health policy

Single individuals are assessed on their income only.

What Counts as Income for Rebate Purposes?

This is where things might be slightly tricky. For rebate eligibility, the ATO uses your income for Medicare Levy Surcharge purposes, which include:

Taxable income
Reportable fringe benefits
Super contributions
Net investment losses

The “adjusted” income figure can be higher than your taxable income; be careful when you estimate it.

Does the Rebate Change Over Time?

Yes—and this is something many policyholders overlook.

The private health insurance rebate is not fixed. It is adjusted each year, and the changes can affect how much you receive and your premiums. If you don’t pay attention closely, it’s easy to assume your discount stays the same while your costs (quietly) increase.

Let’s unpack what causes rebate changes in the sections below.

Indexation: The Annual Adjustment

The Australian Government reviews the rebate and adjusts it yearly using indexation. This is based on the difference between the growth in:

Average health insurance premiums
The Consumer Price Index (CPI)

In theory, if premiums increase faster than CPI, the rebate decreases. This has been the trend in recent years—premiums keep increasing while the rebate has slowly declined as a percentage of the total cost.

The maximum rebate used to be over 30% for under-65s. As of 2024, base-tier earners are down to around 24.6%. It shows a significant drop over time, especially when premiums are going in the opposite direction.

Income Threshold Adjustments

The income tiers used to calculate your rebate are also indexed each year. However, controversially, they were frozen for several years previously. This meant more people slipped into higher tiers due to inflation, which reduced their rebate even if their actual income didn’t change much.

Currently, thresholds are again being adjusted annually, but you must check where you sit each July.

Fund-Specific Premium Increases

Even if the government rebate rate stays the same, your dollar discount can drop if your insurer increases premiums because you get a percentage off a higher base. Some funds increase prices more aggressively than others, so you must compare options.

What If You Claim the Wrong Rebate Tier?

Mistakes happen more than you might think, especially if income changes throughout the year. Maybe you received a bonus. Maybe your side hustle took off. Maybe you underestimated or overestimated your income when you signed up for cover.

Regardless of the reason, claiming the wrong rebate tier isn’t the end of the world, but it can lead to surprises at tax time.

You Might Owe the ATO

If you claim a higher rebate than your actual income entitles you to, the Australian Tax Office (ATO) will request that difference back when you submit your return. It usually comes from your refund, or, if the numbers are high enough, you might have to pay the ATO directly.

You don’t pay penalties; it’s a discreet correction and won’t be a fun (or rewarding) surprise.

You Might Get a Top-Up

If you were cautious and claimed a lower rebate than you were entitled to, the ATO will adjust it in your favour when you submit your return. You will receive a rebate top-up through your return. You can see this as a delayed bonus.

How to Avoid Issues

If your income is unpredictable, you can claim the rebate at tax time instead of as a reduced premium. Here’s how:

Review your income estimate with your fund mid-year if your financial situation changes.
Use the ATO’s rebate calculator to confirm your tier before you make changes.

Changing Your Tier with Your Health Fund

If you notice that you selected the wrong tier or your income changes, you can contact your health fund and update your estimate. The fund will adjust your premium accordingly, and the change takes effect immediately (not retroactively). Don’t wait until tax time to correct this mistake!

Is the Rebate Still Worth It?

It’s a fair question, especially when premiums increase yearly and the rebate decreases (quietly) in the background. On paper, the private health insurance rebate still gives you meaningful savings.

However, whether it is “worth it” depends on who you are, what you earn, and how you use your cover.

Let’s break that down by situation.

If You’re on a Lower or Middle Income

For singles earning under $93,000 (or families under $186,000), the rebate can knock over a quarter off your premiums—this is considerable. It is a straightforward financial help if you plan to keep private cover.

Even if you don’t claim on your policy yearly, the rebate makes holding onto health insurance a more affordable long-term option. The rebate can also help prevent future out-of-pocket costs when unexpected health issues arise.

Bottom line: the rebate still gives real value if you’re under the base tier.

If You’re in a Higher Income Bracket

Once you cross into Tier 2 or 3, the value of the rebate drops off significantly or disappears altogether. The rebate is more about tax strategy than genuine savings for high-income earners.

The rebate alone won’t justify the cost of cover in these brackets, but avoiding the Medicare Levy Surcharge might. Some Australians in Tier 3 only keep a “bare bones” hospital policy for tax reasons. The rebate is just a small bonus. Is it worth it? Probably, but not only for the rebate.

If You’re Approaching Retirement

This is where things are more nuanced. The rebate percentage for Australians aged 65 and over is slightly higher. It helps offset the fact that premiums tend to increase with age.

At the same time, health needs increase during retirement years. Thus, while the rebate is lower than it once was, the overall value of private cover (and being rewarded through the rebate) increases.

If you have a fixed income, every bit can help, and the rebate is one of the few health-related cost offsets available in this bracket.

If You Rarely Claim on Your Policy

The rebate may feel pointless if you pay hundreds a month and barely use your cover. However, remember that private health insurance is not a cashback scheme but protection.

The rebate reduces the cost of staying insured during those low-claim years. It’s also why some keep their policy active long enough to avoid re-serving waiting periods later.

That said, if your policy is poor value (i.e., full of benefits you never use), it might be time to downgrade. You’ll still get the rebate, just at a cheaper premium.

If You’re Keeping Cover to Avoid Tax Penalties

The rebate can often feel like a consolation prize in this case, but it still counts. If you only have hospital cover to dodge the Medicare Levy Surcharge, the rebate helps reduce the sting. It softens the cost of a policy you might not otherwise want, even if you never claim.

Despite this, you should always shop around. If you only want cover for tax purposes, you shouldn’t overpay. A basic eligible policy + rebate + tax saving = a decent win overall.

How the Rebate Compares to Other Healthcare Incentives

Private health insurance is not the only lever the Australian Government uses to influence healthcare behaviour. The rebate is only one of a few other key incentives (and sometimes penalties) that can encourage or discourage private cover.

Understanding how the rebate compares gives you context for the system overall. Let’s dive in!

Rebate vs Medicare Levy Surcharge (MLS)

In short:

MLS applies to higher-income earners without private hospital cover.
The rebate reduces the cost of premiums for people with coverage.

Many higher-income Australians apply for hospital cover to avoid the surcharge, so they don’t value the rebate directly. But both achieve the same outcome: encourage private health participation to ease the public health system’s load.

If you are just above the MLS threshold, the combined benefit of avoiding the surcharge and receiving the rebate can make holding private insurance more than worthwhile.

Rebate vs Lifetime Health Cover (LHC) Loading

While the rebate rewards you for having private cover, the LHC loading punishes you for not having it.

LHC loading adds a permanent penalty to your hospital premium (up to 70% extra) if you don’t have health coverage by July 1 after turning 31.

If you are under 31, the rebate is a cost-saving incentive. If you are over 31 and uninsured, the rebate can help if you decide to join later and start paying the loading.

Together, the rebate and LHC loading nudge Australians toward long-term participation in the private system—ideally before they reach their thirties.

Rebate vs Employer Health Benefits

Some employers offer private health insurance subsidies as part of their benefits package. If you’re lucky enough to have this, it can either reduce your premium directly or come as a reimbursement.

In this case, you can still receive the rebate, depending on how the policy is structured and who holds it (you vs. your employer).

However, you must check whether your employer contribution affects your fringe benefits tax calculation because it can impact your “income for surcharge purposes.”

Thus, while the rebate and employer perks can work together, they can affect each other in the eyes of the ATO.

In Conclusion

Overall, in our experience, the private health insurance rebate flies under the radar until it suddenly appears on your premium breakdown or tax return. By then, it might be too late to adjust how you use it.

It’s a meaningful discount for most Australians, making private cover more accessible. For others, it’s a nice but minor perk on a policy they keep for tax reasons. Either way, you must understand what you’re entitled to and how to claim it correctly. Overall, if you want to make the most of the rebate, you should:

Keep your income estimates current.
Choose a claiming method according to your lifestyle and financial planning style.
Review your eligibility yearly because thresholds and rebate rates change.

Above all, don’t just “set and forget” your coverage because the rebate only helps if the rest of your policy is working for you, too.

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Frequently Asked Questions

Can I get the rebate if I only have extras on my health insurance policy?

Yes – but only if your extras policy is from a registered health insurer and meets government requirements.

Does the rebate apply to policies covering dependents or children?

Yes. If you have a family policy that includes children or adult dependents, the entire policy is eligible for the rebate. However, remember that the rebate is adjusted to reflect your family size.

Can I choose not to claim the rebate at all?

Yes. If you would rather avoid estimating your income or risk over-claiming, you can opt out of receiving the rebate upfront and claim it later via your tax return, or skip it entirely.

Do I need to keep receipts or evidence to claim the rebate?

Not usually. If your insurer is registered with the Australian Taxation Office (ATO), they will report your premiums and rebate to the tax office directly. However, you should keep a copy of your annual policy statement in case of a mismatch.

Can self-employed people claim the rebate?

Yes. The rebate is available to anyone with an eligible private health insurance policy that meets the income requirements, regardless of employment type.

What is private health insurance rebate?

It is the Australian government assisting its citizens to afford private health insurance. It reduces the monthly premium amount the Aussie needs to pay. The rebates are income tested and age based.

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