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Medicare and Centrelink refunds from your compensation: what comes out of a settlement

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Two Commonwealth agencies have a claim on part of most injury settlements. Medicare recovers the benefits it paid for accident-related treatment, and Centrelink recovers payments made while you were injured and can impose a preclusion period. Here is how both work.

3 September 2026 · 4 min read

Health card resting on documents on a meeting table

Settlement figures in injury claims are gross figures, and before money reaches the injured person several deductions are made. Legal costs are the one people expect. The two people often do not expect are Medicare and Centrelink, both of which have a statutory right to be repaid from compensation. The amounts are frequently significant, and in Centrelink's case the consequence can extend for years after the settlement.

Key points

  • Where compensation exceeds $5,000 including costs, Medicare must be told, and the Medicare benefits paid for accident-related treatment are repaid from the settlement before the balance is released.
  • Centrelink recovers income support paid during the period the compensation covers, and a lump sum that includes an economic loss component triggers a preclusion period during which no income support can be paid.
  • Both are calculated and cleared as part of the settlement process; the insurer will not release funds until they are.

Medicare compensation recovery

The Health and Other Services (Compensation) Act 1995 requires the person paying compensation to notify Services Australia of any judgment or settlement over $5,000 within 28 days. Medicare then identifies the benefits it paid for services related to the injury, together with any nursing home or residential care subsidies, and issues a notice of the amount to be repaid. The insurer withholds that amount from the settlement, pays it to Medicare, and releases the rest.

Before settlement, a claimant can request a notice of past benefits, which sets out what Medicare has paid to date. A notice is valid for six months, and settling within that window gives certainty about the deduction. The alternative is the advance payment option: the insurer pays 10% of the settlement to Medicare as an advance, the balance is released promptly, and Medicare later refunds any excess or the claimant pays any shortfall. The claimant is given a statement of the services included and can dispute items that were unrelated to the injury; unrelated treatment should not be recovered, and the list is worth checking.

Centrelink: recovery and preclusion

Part 3.14 of the Social Security Act 1991 treats compensation as affecting income support. Two things happen. First, any compensation-affected payment, such as JobSeeker or Disability Support Pension, that was received during the period covered by the compensation must be repaid, and Centrelink issues a recovery notice to the insurer, which deducts and pays it from the settlement. Second, where a lump sum contains a component for lost earnings or lost capacity to earn, a preclusion period is calculated: the compensation part of the lump sum is divided by an income cut-out figure to produce a number of weeks during which the person cannot receive income support. Where a settlement is by consent and does not specify the components, the Act deems 50% of the lump sum to be the compensation part. The preclusion period runs from the date of the injury or the date the person stopped work, so part of it has often already elapsed by settlement.

A preclusion period can be long, and the point of it is that the settlement is meant to replace income support for that time. Centrelink can treat a person as not having received compensation in special circumstances, which is a discretionary decision that can be sought where the outcome is harsh.

WorkCover and CTP claims

Both regimes apply to statutory and common law claims alike, including WorkCover weekly benefits and CTP settlements. Insurers are familiar with the process and build the clearances into settlement paperwork. What the claimant should do is keep records of any Centrelink payments received since the injury, provide a Medicare number and history statement when asked, and raise with their lawyer any treatment in the Medicare history that had nothing to do with the accident.

NDIS and private health

The National Disability Insurance Scheme can also recover supports it has funded where compensation is received for the same needs, and participants must inform the NDIA of a compensation claim. Private health funds usually have contractual rights to be repaid benefits they paid for accident-related treatment, and their letters should be given to your lawyer.

Frequently asked questions

Does Medicare take money out of my compensation? Yes, where the settlement exceeds $5,000. It recovers the benefits it paid for treatment related to the injury, deducted by the insurer before the balance is released.

What is a Centrelink preclusion period? A period after a lump sum settlement during which you cannot receive income support, calculated from the part of the settlement that represents lost earnings.

Can I avoid the preclusion period by settling for treatment only? Not by labelling. Where a consent settlement does not specify components, half is deemed to be for economic loss. Get advice on how a settlement is structured before agreeing.

Sources

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