The 457 health insurance trap

We refer to visas and the current rules for temporary migrants, but we emphasise that we are not government officials or migration agents, and you should confirm the details of this article with the relevant authority before cancelling or changing insurance. The author owns shares in a health insurer.

Health insurance rules for 457 visa holders

Every year, people come from all over the world to work in Australia on a Temporary Business Visa (457). There are a lot of issues to grasp when living in a new country. One of the most confusing rules in Australia is the requirement for health insurance.

It is a common belief that all 457 visa holders need to have insurance as a condition of their visa. Certainly that’s the impression you get from some of the health insurance salesman. Look at this extract from a health insurer’s website.

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“Compulsory…”? “Breach of a mandatory visa requirement.”? Compare that to the government website which says this:

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The government website states that you don’t need health insurance if you are entitled to medicare benefits. I probably shouldn’t say that the insurance website is being deliberately misleading, but it certainly isn’t telling the full story.

Several countries have agreements with Australia that give their citizens medicare rights. If you are one of them, you need to be aware of how the rules work.

Health insurance and tax

Australia also has a special tax called the medicare levy. The levy is calculated as 2% of your total income. If you are a temporary visitor and are not entitled to medicare, you do not have to pay the levy.

If you are entitled to medicare, you have to pay the 2% medicare levy.

If you are entitled to medicare AND you don’t have the right kind of health insurance AND you earn above the income threshold you have to pay the 2% medicare levy plus a medicare levy surcharge of up to 1.5% more.

It’s confusing, so let me set it out in a table.

Not entitled to medicare Medicare entitled – income below threshold Medicare entitled – income above threshold
No medicare levy or MLS (regardless of income or insurance cover) Pay 2% medicare levy
but not MLS
Pay 2% medicare levy
and pay up to 1.5% MLS unless you have complying health insurance.

The income threshold for 2014-15 is $90,000 for singles and $180,000 for couples/families, and includes more than just taxable income. See the ATO website for more details.

What is the right type of insurance on a 457 visa?

The right type of insurance depends on your medicare status and your income.

If you are not entitled to medicare then you need to make sure your insurance suits your visa. But you don’t need the policy to be complying for MLS.

If you are medicare entitled and below the income threshold, insurance is completely optional.

If you are medicare entitled and above the income threshold, you need insurance that meets MLS requirements.

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Tax trap for British migrants

Migrants for the United Kingdom were the third largest group of migrants to Australia in 2014 (12% of migrants) and are the largest group of skilled migrants we see in our business.

UK migrants are entitled to medicare, and sadly I’ve seen too many occasions where they have an insurance policy that:

  1. Is designed for 457 visa requirements, but is not actual a visa requirement.
  2. Is not complying for medicare levy surcharge (MLS) purposes

The unfair result is that they end up paying thousands for health insurance AND paying thousands in a tax designed to penalise uninsured people.

UK migrants and are the most common example of the situation above: 457 visa holders who are entitled to medicare. But it applies to other countries, too.

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So here is a quick summary.

  • You are entitled to medicare, and should apply for a medicare card.
  • You don’t need a health insurance policy to comply with your visa
  • If your income is below the income threshold, you can have any insurance policy you like, and even no insurance at all.
  • If your income is above the income threshold, you must have a medicare-levy-surcharge-complying policy to avoid extra tax.

If you are in the last category, you need to really spell this out to the call centre employee you speak to at the health insurer. Ask the direct question: “Will this policy ensure I avoid medicare levy surcharge?”. Make sure they say yes, not “I think so”. I have had many clients receive bad advice. Sometimes the insurer has accepted the fault and rectified it, other times they have said “bad luck”.

For more information or to book an appointment, visit our 457 visa home page. To book an appointment, click on the “Book Now” button in the side bar or call 1300 823 011