Medicare Levy Surcharge: Do You Need Private Health Insurance?
The Medicare Levy Surcharge (MLS) is an additional tax imposed on high-income earners who don't have private hospital cover. It's designed to encourage people who can afford private health insurance to take it up, reducing pressure on the public Medicare system.
The critical question this guide answers: Do you legally need private health insurance in Australia?
The answer: No, private health insurance is never legally mandatory. BUT if you earn above certain thresholds and don't have hospital cover, you'll pay an extra 1-1.5% tax on top of the standard 2% Medicare Levy — and for many people, buying basic hospital cover is cheaper than paying that surcharge.
What is Medicare Levy Surcharge?
The Basics
Medicare Levy Surcharge (MLS) is an additional tax on top of the standard Medicare Levy.
Standard Medicare Levy: 2% of taxable income (everyone pays this, whether you have private insurance or not)
Medicare Levy SURCHARGE: Extra 1-1.5% if you:
- Earn above income thresholds, AND
- Don't have private hospital cover (or adequate hospital cover)
Important: The surcharge is in addition to the standard 2% levy, not instead of it.
Example:
- Income: $120,000
- Standard Medicare Levy: 2% = $2,400 (you pay this regardless)
- MLS (if no hospital cover): 1.25% = $1,500 extra
- Total Medicare payments without cover: $3,900/year
Why MLS Exists
The Australian government introduced MLS to:
- Encourage private health insurance uptake among higher earners
- Reduce pressure on public hospitals by incentivizing use of private hospitals
- Make it financially logical to get basic hospital cover instead of paying extra tax
The government's calculation: If you can afford to pay 1-1.5% extra tax, you can afford basic hospital cover. And if you're going to spend the money anyway, you might as well get some coverage out of it.
MLS vs Standard Medicare Levy
| Feature | Standard Medicare Levy | Medicare Levy Surcharge |
|---|---|---|
| Who pays | Everyone (with income above ~$27k) | High earners without hospital cover |
| Rate | 2% of taxable income | 1-1.5% (depends on income tier) |
| Can you avoid it? | No (unless low income exemption) | Yes (get hospital cover) |
| What it funds | Medicare system | Incentive mechanism (goes to general revenue) |
Income Thresholds and Surcharge Rates
2025-26 Financial Year Thresholds
⚠️ UPDATE REQUIRED ANNUALLY (Every July 1)
These thresholds are for the 2025-26 financial year (July 1, 2025 - June 30, 2026). They are indexed annually and typically increase slightly each year. Always verify current thresholds at ato.gov.au.
MLS Income Thresholds and Rates (2025-26 FY):
| Tier | Income (Single) | Income (Family*) | MLS Rate |
|---|---|---|---|
| Base | Less than $97,000 | Less than $194,000 | 0% (No MLS) |
| Tier 1 | $97,000 - $113,000 | $194,000 - $226,000 | 1.0% |
| Tier 2 | $113,000 - $151,000 | $226,000 - $302,000 | 1.25% |
| Tier 3 | $151,000 and above | $302,000 and above | 1.5% |
*Family threshold = 2 × single threshold + $1,500 for each child after the first
Source: Australian Taxation Office - 2025-26 Financial Year
How Family Thresholds Work
Family threshold calculation:
Base family threshold = $194,000 (2 × $97,000)
For each dependent child after the first child: Add $1,500
Examples:
| Family Composition | Threshold |
|---|---|
| Couple, no kids | $194,000 |
| Couple, 1 child | $194,000 |
| Couple, 2 children | $195,500 ($194k + $1,500) |
| Couple, 3 children | $197,000 ($194k + $3,000) |
| Couple, 4 children | $198,500 ($194k + $4,500) |
Important: "Dependent child" means:
- Under 21 years old, OR
- Under 25 and a full-time student
What Income Counts?
MLS is based on "income for MLS purposes" which includes:
- Taxable income
- Reportable fringe benefits
- Total net investment losses
- Reportable superannuation contributions
- Any other assessable income
This is often higher than just your salary. Check your tax return or consult a tax professional for your exact MLS income.
How to Avoid MLS
The Simple Answer
Get private hospital cover (or combined cover that includes hospital).
That's it. If you have hospital cover that meets the government's requirements, you don't pay MLS — regardless of how high your income is.
What Type of Cover Avoids MLS?
Avoids MLS:
- ✅ Hospital cover (any tier: Basic, Bronze, Silver, Gold)
- ✅ Combined cover (hospital + extras)
Does NOT avoid MLS:
- ❌ Extras-only cover
- ❌ Having no cover at all
- ❌ Overseas visitors cover (OVHC) or overseas student cover (OSHC)
Minimum requirement: Basic hospital tier is sufficient to avoid MLS. You don't need Gold cover — Basic is fine.
When Cover Must Be in Place
Hospital cover must be held for the full financial year (July 1 - June 30) to avoid MLS for that year.
Mid-year cover: If you get cover partway through the year, MLS is calculated proportionally:
Example:
- Income: $120,000 (Tier 2, 1.25% rate)
- Got hospital cover on January 1 (halfway through FY)
- MLS applies for: July 1 - Dec 31 (6 months)
- MLS charged: ($120,000 × 1.25%) × (6/12) = $750
Tax return calculation: Your insurer provides a statement showing which days you were covered. You enter this when filing your tax return.
Is Avoiding MLS Worth It?
The Critical Comparison
The question isn't "Should I avoid MLS?" — it's "Is basic hospital cover cheaper than paying the surcharge?"
For most people over the threshold: YES, hospital cover is cheaper.
When Basic Hospital Cover IS Cheaper
Almost always for people in MLS tiers.
Typical breakdown (Single, 2025-26 rates):
| Income | MLS Tier | MLS Cost | Basic Premium* | Net Difference |
|---|---|---|---|---|
| $100k | Tier 1 | $1,000 | ~ $1,200 | Cover costs $200 more |
| $110k | Tier 2 | $1,375 | ~ $1,250 | Save $125 |
| $120k | Tier 2 | $1,500 | ~ $1,400 | Save $100 |
| $140k | Tier 2 | $1,750 | ~ $1,500 | Save $250 |
| $160k | Tier 3 | $2,400 | ~ $1,600 | Save $800 |
*Premiums: Feb 2026 market averages for Basic hospital, single, age 30-35, after rebate
Key insight: The higher your income, the more you save by getting cover instead of paying MLS.
When Paying MLS Might Be Smarter
Rare cases where paying MLS could make sense:
- You're just barely over the threshold ($97k-100k) and Basic hospital cover costs more than the surcharge
- You're leaving Australia soon (not worth getting 12-month contract)
- You have strong philosophical opposition to private health insurance and are willing to pay extra
Example: Just Over Threshold
- Income: $98,000
- MLS: 1.0% = $980/year
- Basic hospital: $1,400/year (age 35, after rebate)
- Difference: Paying MLS saves $420/year
In this case, you'd need to decide: Is $420/year worth having NO hospital coverage at all?
Most people's answer: No, they'd rather spend the extra $420 and have basic emergency coverage.
Common Scenarios and Calculations
Scenario 1: Sarah - $105k Income, Single, Age 32
Situation:
- Income for MLS: $105,000
- MLS Tier: Tier 1 (1.0%)
- Currently no hospital cover
Without Hospital Cover:
- Medicare Levy: $2,100 (2%)
- MLS: $1,050 (1.0%)
- Total: $3,150/year
With Basic Hospital Cover (Feb 2026 estimates):
- Medicare Levy: $2,100 (2%)
- MLS: $0 (avoided)
- Basic hospital premium: ~$1,500/year
- Government rebate (16.405%): -$246
- Net premium: $1,254
- Total: $3,354/year
Cost difference: Hospital cover costs $204/year MORE than paying MLS.
Sarah's decision: Gets Basic hospital anyway because:
- Only $204/year extra ($17/month)
- She's 32 — needs cover by age 31 anyway to avoid Lifetime Health Cover loading
- Has basic emergency coverage instead of nothing
- Can upgrade later if health needs change
Scenario 2: Michael - $135k Income, Single, Age 29
Situation:
- Income for MLS: $135,000
- MLS Tier: Tier 2 (1.25%)
- No hospital cover
Without Hospital Cover:
- Medicare Levy: $2,700 (2%)
- MLS: $1,688 (1.25%)
- Total: $4,388/year
With Basic Hospital Cover:
- Medicare Levy: $2,700 (2%)
- MLS: $0
- Basic hospital premium: ~$1,350/year (age 29)
- Rebate (16.405%): -$221
- Net premium: $1,129
- Total: $3,829/year
Savings with cover: $559/year
Michael's decision: Gets Bronze hospital ($1,800/year) instead of Basic.
- Still saves $300/year vs. MLS
- Gets better coverage (accidents, basic procedures)
- Approaching 31 anyway (needs to avoid LHC loading)
Scenario 3: James & Lisa - $220k Combined, 2 Kids
Situation:
- Combined income: $220,000
- Family threshold: $197,000 (base $194k + $3k for 2nd child)
- Over threshold, MLS Tier 1 (1.0%)
- Two dependent children (ages 5 and 7)
Without Hospital Cover:
- Medicare Levy: $4,400 (2%)
- MLS: $2,200 (1.0%)
- Total: $6,600/year
With Family Hospital Cover (Basic tier, Feb 2026):
- Medicare Levy: $4,400 (2%)
- MLS: $0
- Family Basic hospital: ~$3,200/year
- Rebate (16.405%): -$525
- Net premium: $2,675
- Total: $7,075/year
Cost difference: Hospital cover costs $475/year MORE.
But consider:
- Kids covered for accidents (broken bones, etc.)
- Parents covered for emergencies
- Only ~$40/month extra for whole family
- Will likely upgrade when planning more kids anyway
James & Lisa's decision: Get Bronze family cover ($4,000/year):
- Costs similar to MLS alone (~$2,000 after rebate)
- Better coverage for active kids
- Peace of mind for family
Scenario 4: David - $165k Income, Age 40
Situation:
- Income: $165,000
- MLS Tier: Tier 3 (1.5%)
- Single, age 40
Without Hospital Cover:
- Medicare Levy: $3,300 (2%)
- MLS: $2,475 (1.5%)
- Total: $5,775/year
With Basic Hospital Cover:
- Medicare Levy: $3,300 (2%)
- MLS: $0
- Basic hospital premium: ~$2,200/year (age 40 = higher premiums)
- Rebate (8.202%): -$180
- Net premium: $2,020
- Total: $5,320/year
Savings with cover: $455/year
David's decision: Gets Silver hospital ($3,500/year):
- Still saves vs. MLS (after rebate, ~$2,900 net)
- Age 40 = higher injury/health risk
- Wants faster access if needs surgery
- Silver covers most common procedures he might need
Exemptions and Special Cases
Who is Exempt from MLS?
You don't pay MLS (even if over threshold without cover) if you are:
- High Income Threshold Holders:
- Certain government benefit recipients
- Members of the defence forces (specific criteria)
- Foreign Residents:
- Not Australian residents for tax purposes
- Note: If you ARE an Australian tax resident but temporarily overseas, MLS may still apply
- Specific Circumstances:
- Certain disability support pension recipients
- Certain Commonwealth seniors health card holders (income dependent)
Check with ATO: Exemptions are complex and specific. If you think you might qualify, consult the ATO MLS exemptions page or a tax professional.
What if You're Covered for Only Part of the Year?
MLS is calculated proportionally.
Formula: MLS = (Income × MLS Rate) × (Days without cover / 365)
Example:
- Income: $120,000 (Tier 2, 1.25%)
- Had cover July 1 - October 31 (123 days)
- No cover November 1 - June 30 (242 days)
- MLS = ($120,000 × 1.25%) × (242/365) = $995
Couple Where Only One Person Has Cover
If you're in a couple and only one of you has hospital cover:
- You BOTH need cover to avoid MLS
- One person covered, one not = you still pay MLS on the full family income
Solution: Get two separate singles policies, or one family/couples policy covering both.
Dependent Children
Children are automatically covered under a family hospital policy.
Age limits:
- Under 21: Always covered as dependents
- 21-24: Covered if full-time students
- 25+: Need their own policy
If your kids are covered but you (the parent) are not, MLS still applies to your income.
Next Steps
If You're Over the Threshold:
Calculate your exact MLS:
- MLS Calculator → (use widget above)
Compare cover costs:
- View cheapest Basic hospital policies →
- Get personalized hospital quotes →
Learn about cover options:
- What does hospital cover include? →
- Hospital tiers explained →
If You're Under the Threshold:
You don't need to worry about MLS — it doesn't apply to you.
But you might still consider health insurance for:
- Avoiding Lifetime Health Cover loading (if approaching age 31)
- Faster access to surgery
- Extras cover for dental/optical
Learn more:
- Do you actually need health insurance? →
- Lifetime Health Cover explained →
External Resources
- Australian Taxation Office - MLS Information — Official MLS thresholds, rates, exemptions
- PrivateHealth.gov.au — Government health insurance comparison
- Department of Health — Health insurance policy information
Frequently asked questions
What is the Medicare Levy Surcharge income threshold for 2025-26?
Singles: $97,000 Families: $194,000 (base) + $1,500 per dependent child after the first If your income is below these thresholds, you don't pay MLS regardless of whether you have hospital cover. If your income is above these thresholds and you don't have hospital cover, you pay:
- Tier 1 ($97k-113k single / $194k-226k family): 1.0%
- Tier 2 ($113k-151k single / $226k-302k family): 1.25%
- Tier 3 ($151k+ single / $302k+ family): 1.5%
Source: Australian Taxation Office - 2025-26 FY These thresholds are indexed annually. Always verify current year rates.
Do I need private health insurance if I earn over the threshold?
You don't legally need it, but financially it usually makes sense.
Two options if you earn over $97k (single) / $194k (family):
Option 1: Don't get hospital cover
- Pay Medicare Levy Surcharge (extra 1-1.5% tax)
- Example: $120k income = $1,500/year MLS
- Result: No coverage, money goes to tax
Option 2: Get basic hospital cover
- Avoid MLS ($0 surcharge)
- Pay hospital premium instead (~$1,200-1,800/year after rebate)
- Result: Usually similar or less cost, but you GET coverage
For most people: Option 2 is better — same or less money, but you get emergency hospital coverage.
What type of health insurance do I need to avoid MLS?
Hospital cover (any tier: Basic, Bronze, Silver, or Gold).
Avoids MLS:
- ✅ Hospital-only cover
- ✅ Combined cover (hospital + extras)
Does NOT avoid MLS:
- ❌ Extras-only cover
- ❌ No cover
Minimum: Basic tier hospital is sufficient. You don't need Gold cover to avoid MLS — Basic works fine.
Is the Medicare Levy Surcharge the same as the Medicare Levy?
No, they're different:
Medicare Levy (2%):
- Everyone pays (if income above ~$27k)
- Funds the Medicare system
- Can't avoid (except low income exemptions)
Medicare Levy SURCHARGE (1-1.5%):
- Only high earners without hospital cover pay
- Incentive to get private insurance
- Can avoid by getting hospital cover
Example at $120k income:
- Medicare Levy: $2,400 (can't avoid)
- Medicare Levy Surcharge: $1,500 (can avoid with hospital cover)
- Total if no cover: $3,900
How do I claim the MLS exemption on my tax return?
If you have hospital cover, your health insurer provides a statement showing days covered.
Steps:
- Get statement from insurer (usually available online, sent before tax time)
- When filing tax return, enter: "Do you have hospital cover? Yes"
- Enter number of days covered in the financial year
- ATO calculates MLS (if any) proportionally
If covered full year: MLS = $0 If covered part year: MLS calculated for uncovered days only
Don't need to "claim" anything — just accurately report coverage days.
Can I get the cheapest possible hospital cover just to avoid MLS?
Yes, and many people do this.
Strategy: Get "Basic" tier hospital cover — minimum required to avoid MLS.
Typical Basic tier:
- Covers very little (often just emergency basics)
- Cheapest hospital premium (~$80-140/month single, Feb 2026)
- Sufficient to avoid MLS
Downsides:
- You probably won't USE this cover (exclusions are extensive)
- It's essentially "MLS avoidance insurance"
Alternative: Consider Bronze tier (~$30/month more) for better accident/injury coverage you might actually use.
What if my income goes up mid-year and crosses the threshold?
MLS is based on your annual income, calculated at tax time.
Example:
- Promoted in January, income jumps from $85k → $125k
- Total annual income for FY: $105,000 (average across year)
- MLS Tier: Tier 1 (1.0%)
If you don't have hospital cover: You'll pay 1.0% MLS on the full $105k when filing taxes.
What to do:
- Get hospital cover immediately when you know income will exceed threshold
- MLS calculated proportionally for days without cover
- Better to have cover for whole year if you're close to threshold
Tip: If you expect income to rise, get cover earlier in FY.
I have hospital cover but my partner doesn't. Do we pay MLS?
Yes, if your combined income exceeds family threshold.
For MLS purposes, couples are assessed on their combined income.
Both must have hospital cover to avoid MLS.
Options:
- Get a couples/family policy covering both
- Get two separate singles policies
- One person pays MLS (not ideal - you're paying tax for no benefit)
Example:
- Partner A: $110k income, has hospital cover
- Partner B: $50k income, no cover
- Combined: $160k (Tier 2, 1.25%)
- Result: Still pay MLS ($2,000) unless Partner B also gets cover
Solution: Partner B gets Basic hospital (~$1,200/year) → Avoid $2,000 MLS.
Does the Medicare Levy Surcharge apply if I'm covered by my employer?
Depends on the type of coverage.
Employer-provided hospital cover:
- ✅ If it meets Australian government requirements (proper hospital insurance policy)
- ✅ Typically avoids MLS
"Corporate health plans" or "health benefits":
- ❌ If it's just discounted GP visits, dental, etc. (extras) = doesn't count
- ❌ If it's overseas travel insurance = doesn't count
Check with your employer: Ask specifically if the cover is "complying hospital cover for MLS purposes."
If uncertain: Get your own Basic hospital policy to be safe (~$100-120/month).
How much does basic hospital cover cost compared to MLS?
For most people over the threshold, Basic hospital costs less than or similar to MLS.
Quick comparison (Single, 2025-26 rates, Feb 2026 premiums):
| Income | MLS Annual | Basic Hospital* | Difference |
|---|---|---|---|
| $100k | $1,000 | ~ $1,200 | Cover costs $200 more |
| $110k | $1,100 | ~ $1,250 | Cover costs $150 more |
| $120k | $1,500 | ~ $1,400 | Save $100 with cover |
| $140k | $1,750 | ~ $1,500 | Save $250 |
| $160k | $2,400 | ~ $1,600 | Save $800 |
*After government rebate, age 30-35
Key insight: Higher your income, more you save with cover.
Even when cover costs slightly more ($100-200/year), you GET coverage vs. paying tax for nothing.
