The Australian Government private health insurance (PHI) rebate is a subsidy that reduces the cost of private health insurance for most eligible Australians. For people earning below certain income thresholds, it is a meaningful reduction in annual premium cost — but a significant number of people either do not claim it, claim the wrong amount, or do not know their eligibility has changed as their income moved.
Here is how the rebate works in practical terms for 2025-26.
The PHI rebate is a government contribution towards the cost of your private health insurance premium. It is income-tested, meaning the percentage you receive reduces as your income rises and phases out completely above the top income threshold. It applies to hospital cover, extras cover, and ambulance cover held with a registered Australian health insurer.
The rebate is calculated as a percentage of your premium. If your annual premium is $3,000 and your rebate percentage is 24.608%, the government effectively contributes $738 and your net cost is $2,262.
The rebate tiers are based on your income for Medicare Levy Surcharge (MLS) purposes, which includes taxable income, reportable fringe benefits, and reportable employer super contributions. The thresholds are adjusted annually by the ATO.
| Income tier (singles) | Rebate (under 65) | Rebate (65-69) | Rebate (70+) |
|---|---|---|---|
| Base tier: $0 to $97,000 | 24.608% | 28.710% | 32.812% |
| Tier 1: $97,001 to $113,000 | 16.405% | 20.507% | 24.608% |
| Tier 2: $113,001 to $151,000 | 8.202% | 12.303% | 16.405% |
| Tier 3: $151,001 and above | 0% | 0% | 0% |
For families, the thresholds are double the singles thresholds (with adjustments for each dependent child). Check privatehealth.gov.au or ato.gov.au for the current confirmed thresholds for the relevant income year, as they are indexed and may differ slightly from the figures above.
If you earned over $97,000 as a single person and are still claiming the base tier rebate (24.608%), you are overclaiming and will owe money at tax time. Insurers use your nominated tier — they do not automatically adjust it when your income changes.
As a premium reduction (most common): You nominate your income tier with your insurer. The insurer applies the rebate percentage to your premium, reducing what you pay each month. If your income stays in the same tier, nothing else is required. If your income changes tiers, you need to notify your insurer to update your nominated tier.
As a tax offset at year end: You pay the full premium throughout the year and claim the rebate as a tax offset when you lodge your tax return. This is simpler administratively if your income is variable or crosses tiers mid-year, because the ATO reconciles the correct amount at tax time based on your actual income.
Because the premium reduction method requires you to nominate your tier upfront, there is a reconciliation risk. If you nominate the base tier rebate but your actual income for the year falls in Tier 1, you have overclaimed. The ATO recaptures the difference as a reduced tax refund or additional tax liability when you lodge your return.
This frequently happens when income increases mid-year (promotion, second income, investment income) without a corresponding update to the insurer. Reviewing your nominated tier annually when premiums renew is straightforward and avoids a tax-time surprise.
The PHI rebate and the Medicare Levy Surcharge (MLS) are linked but separate. The MLS is an additional 1% to 1.5% levy applied to high-income earners who do not hold qualifying private hospital cover. If you earn above the MLS threshold ($97,000 for singles in 2025-26) and do not have hospital cover, you pay the surcharge.
For many singles earning $97,000 to $120,000, holding a basic hospital cover policy costs less than the MLS, making the financial case for holding at least minimal hospital cover straightforward arithmetic. The calculation is: (your income × MLS rate) versus (annual basic hospital premium minus your rebate). If the surcharge exceeds the net premium cost, holding cover makes sense purely on tax grounds, regardless of your views on private health.
The rebate does not apply to ambulance cover sold as a standalone product (as opposed to ambulance included in a health insurance policy), funeral insurance, income protection insurance, or travel insurance. It applies only to private health insurance premiums with registered Australian insurers for hospital, extras, and combined policies.
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