Medicare Levy Surcharge: Do You Need Private Health Insurance?

What is the Medicare Levy Surcharge?

The Medicare Levy Surcharge (MLS) is an additional tax that higher-income Australians pay if they don't have private hospital insurance. It's separate from the standard 2% Medicare Levy that most residents already pay.

The government introduced the MLS to encourage people who can afford it to use the private hospital system, which takes pressure off public hospitals. The logic is straightforward: if you earn above the threshold and don't hold private hospital cover, you pay a surcharge of 1% to 1.5% of your income. In most cases, basic hospital cover costs less than the surcharge itself.

MLS vs Medicare Levy — They're Not the Same Thing

This is one of the most common points of confusion. The Medicare Levy is a flat 2% of taxable income that almost every Australian resident pays. It funds the public Medicare system. You pay it regardless of whether you have private health insurance.

The Medicare Levy Surcharge is an additional 1% to 1.5% that only applies if your income is above the threshold and you don't have eligible private hospital cover. Getting private hospital insurance removes the MLS but does not affect your standard Medicare Levy.

MLS Income Thresholds and Rates for 2025-26

The MLS has three tiers. The higher your income, the higher the surcharge rate. These thresholds were frozen from 2014-15 through 2024-25, meaning more people were caught by the MLS each year as wages grew. From 2025-26, the thresholds were increased for the first time in over a decade.

Singles

Families

Family thresholds increase by $1,500 for each dependent child after the first. For example, a family with 3 children has a Tier 1 threshold of $205,000.

How “Income for MLS Purposes” Is Calculated

The MLS doesn't use your regular taxable income. It uses a broader measure called “income for MLS purposes” that captures income you might otherwise shelter from tax. This is one of the reasons people are sometimes surprised to find themselves above the threshold.

Your income for MLS purposes is:

Reportable fringe benefits include things like a company car, car parking, or entertainment benefits above the minor threshold. Your employer reports these on your payment summary.

Reportable super contributions are salary sacrifice amounts into super above the standard employer rate. If your employer contributes 12% under the Super Guarantee and you salary sacrifice an additional $10,000, that $10,000 is a reportable super contribution.

Net investment losses are most commonly from negatively geared investment properties, where the rental expenses exceed rental income. These losses reduce your taxable income for income tax, but they get added back for MLS purposes.

How Much Does the MLS Actually Cost?

The surcharge is applied to your entire taxable income (not just the amount above the threshold). This means crossing the threshold by even $1 triggers the full surcharge on your whole income.

Worked examples (singles, 2025-26)

When Does Private Health Insurance Save You Money?

For most people above the MLS threshold, basic private hospital cover costs less than the surcharge. The crossover point depends on your income, age (which affects the government rebate), and family status.

The break-even calculation

The cheapest hospital policies that satisfy the MLS exemption typically cost around $1,100 to $1,400 per year for singles (before the government rebate). The private health insurance rebate further reduces this cost depending on your age and income tier.

* Indicative cost for basic hospital cover (single, under 65) after the government rebate. Actual premiums vary by insurer, state, and policy.

What Counts as Eligible Private Hospital Cover?

Not all private health insurance policies exempt you from the MLS. Your policy must meet all three of these requirements:

1. Registered Australian health insurer — the policy must be with a fund registered under the Private Health Insurance Act 2007. Overseas or travel insurance does not count.
2. Includes hospital cover — the policy must cover hospital treatment. Extras-only policies (dental, optical, physio) and ambulance-only policies do not satisfy the MLS requirement.
3. Excess no greater than $750 (singles) or $1,500 (couples/families) — your annual excess (the amount you pay before the insurer covers hospital costs) cannot exceed these limits.

The Private Health Insurance Rebate

The government provides a rebate that reduces the cost of your private health insurance premiums. The rebate percentage depends on your age and income. You can receive the rebate as a premium reduction (your insurer charges you less) or claim it as a tax offset when you lodge your return.

Rebate percentages for 2025-26 (under 65)

Older Australians receive higher rebate percentages: 65-69 year olds get an additional ~4 percentage points, and those 70+ get ~8 percentage points above the base rate. The rebate reduces to 0% at the highest income tier regardless of age.

Family Thresholds and Dependent Children

If you're married or in a de facto relationship, the MLS uses your combined family income. The family threshold for 2025-26 is $202,000. If your combined income is below this, neither partner pays the MLS regardless of individual income.

For families with dependent children, the threshold increases by $1,500 for each child after the first. A “dependent child” for MLS purposes includes children under 21 who are in your care.

Family threshold examples

2025-26 Threshold Changes: What's Different?

The MLS thresholds were unchanged for over a decade. Because wages grew while the thresholds stayed the same, an increasing number of Australians were caught by the surcharge each year — a form of “bracket creep” for health insurance.

From 2025-26, the thresholds increased significantly:

Who Is Exempt from the MLS?

You don't pay the MLS if any of these apply:

• Your income for MLS purposes is at or below $101,000 (singles) or $202,000 (families)
• You hold eligible private hospital cover for the full financial year
• You're a non-resident for tax purposes (non-residents don't pay Medicare Levy or MLS)
• You have a Medicare Levy exemption (for example, you're a foreign resident for the entire year)

If you hold private hospital cover for only part of the year, you pay the MLS proportionally for the days you weren't covered.

Strategies Around the MLS Threshold

If your income is close to the MLS threshold, here are some practical considerations:

Just above the threshold

If your MLS income is just above $101,000 (say, $105,000), basic hospital cover almost certainly costs less than the $1,050 MLS you'd pay. Getting basic cover is the straightforward option.

Well above the threshold

At higher incomes ($150,000+), the MLS is $1,875 or more per year. At this level, many people opt for more comprehensive hospital cover since they're paying for insurance anyway, and the gap between basic and mid-level cover is relatively small.

Just below the threshold

If your taxable income is just below $101,000, remember that salary sacrifice, reportable fringe benefits, and negatively geared investment losses can push your MLS income above the threshold. Check your full MLS income, not just your taxable income.

Lifetime Health Cover loading

If you're taking out hospital cover for the first time after turning 31, be aware of Lifetime Health Cover (LHC) loading. You pay a 2% premium loading for each year you're over 30 when you first take out cover. For example, if you first take out hospital cover at age 40, you'll pay a 20% loading on top of the base premium for 10 years. Even with the loading, basic cover may still cost less than the MLS, but it narrows the saving.

How the MLS Appears on Your Tax Return

The MLS is calculated when you lodge your tax return. If you don't have private hospital cover and your income is above the threshold, the ATO calculates the surcharge and adds it to your tax assessment. It appears as a separate line item from your income tax and Medicare Levy.

Your health insurer sends a Private Health Insurance statement to you and the ATO each year. This statement shows the days you were covered, your policy details, and the government rebate you received. If you file through myTax, this information is usually pre-filled.

If you expect to owe the MLS, you can request your employer to withhold additional tax during the year by completing a Medicare levy variation declaration. This avoids a lump-sum MLS bill at tax time.