Net Medical Expenses Tax Offset Phaseout (NMETO)

The Net Medical Expenses Tax Offset (NMETO) is a non-refundable tax offset designed to help taxpayers and dependents offset the cost of some medical expenses they incur throughout the year.

Net Medical Expenses Tax Offset

Eligibility begins when the cost of these expenses exceeds the eligibility threshold of allotted Medicare or Private Health insurance. This figure is indexed annually, and up to 20 percent of expenses can be claimed.

The Australian government will begin phasing out the net medical expenses tax starting with the 2013-2014 Federal Budget. The phase out amendment was announced on May 14, 2014 and received royal assent on May 18, 2014. Recipients of the offset for 2012-2013 are still eligible to receive it in 2013-2014 if they have out-of-pocket medical expenses that exceed the relevant claim threshold.

Those who receive it in 2013-2014 will remain eligible for the offset in 2014-2015. This will be the final year that people can claim the offset. This does not apply to all taxpayers. Those with medical expenses related to aged care, disability aids and attendant care are still eligible to receive the offset. Eligibility will be restricted to these recipients until 30 June 2019. On this date, the net medical expenses offset ceases completely for all taxpayers.

The term “medical expenses” is broadly defined. It includes payments to health providers such as doctors, dentists, optometrists, and surgeons for services including but not limited to the administration of medical aids and appliances, training of guide dogs, surgery, in-vitro fertilisation, and residential aged care.

Costs that are not covered by the NMETO include cosmetic surgery, cosmetic dentistry, non-prescription vitamins, healthcare-related travel expenses, medical examinations performed for the purpose of qualifying for health or life insurance, funeral expenses, ambulance charges or innoculations.

This is the final act in what has been a gradual, drawn-out effort to eliminate the NMETO. The phase out is expected to earn significant revenues for the government up to or exceeding $963.5 million. Part of the effort to phase out the net medical expenses offset in the last few years was making the offset means tested.

The means tested offset structure meant that the claimable percentage of medical expenses was determined by your family status and adjusted taxable income (ATI).

Net Medical Expenses Tax Offset

For example, a person who was single as of 30 June 2013 with no dependent children who earned $84,000 or less annually would be eligible to claim 20 percent of all net medical costs exceeding $2,120. If the single person earned $84,001 or more annually, they would be eligible to claim 10 percent of net medical expenses exceeding $5,000.

A person who had a spouse, dependent children or both as of 30 June 2013 would be eligible to claim 20 percent of all net medical expenses exceeding $2,120 if they earned $168,000 or less per year. If they earned or $168,001 or more per year, they would be eligible to claim 10% of net medical expenses in excess of $5,000.

For taxpayers with children, an extra $1,500 is added for each depended child after the first.

In effect, making the NMETO means tested, would force high income earners to be responsible for an extra $2880 of their own medical expenses for which they would not have been responsible should the $2,120 have continued to be universally applicable.

When the 14 May 2013 announcement of the offset phaseout was made, the government explained their decision on the premise that “the NMETO predates universal health care and it is appropriate to phase it out as DisabilityCare Australia is implemented and once aged care reforms have been in place for several years.”

In 2011, NMETO claims reached about $567 million, the result of approximately 802,000 claims by taxpayers. The NMETO phaseout is one of several government efforts to save money on healthcare. Others include delaying the indexing of Medicare costs and removing the expenditure threshold for the Extended Medicare Safety Net (EMSN).

Recent studies have shown that Australia’s out-of-pocket health care costs are among the highest in the world. On average, Australians pay almost $100 more per year in out-of-pocket medical costs than taxpayers in other developed countries. The NMETO phaseout may exacerbate existing affordability issues.

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