Medicare Levy Surcharge vs basic hospital cover

The cost of private health cover is set to rise by an average of 4.41% from 1 April.

It's the biggest premium hike since 2017, and plenty of fund members could face even higher increases.

GMBA Health will lift premiums by just 1.98%, the lowest average increase approved. At the other end of the scale, AIA Health Insurance will jack up premiums by 5.98%, the highest average rise. And these are just averages. Some gold policies may go up by double digits.

For the one in two Australians who don't have hospital cover, it can be easy to assume rising premiums don't affect you.

But that may not always be the case.

Could you be hit by the Medicare Levy Surcharge?

Most of us are familiar with the Medicare Levy, the 2% impost on taxable income that Australian residents pay to fund the public health system.

However, high-income earners who don't have private hospital cover can be hit with an additional cost - the Medicare Levy Surcharge (MLS).

You may be asked to pay the MLS if you earn more than $101,000 annually as a single or $202,000 as a family. 

The MLS can add an extra 1.0%-1.5% onto your annual tax bill. That's on top of the basic 2% Medicare Levy. 

A single person, for instance, with no hospital cover and taxable income of, say, $117,000, could pay a Medicare Levy of $2,340 in 2025-26 plus the MLS of $1,170 (1% of $117,000).

Medicare Levy Surcharge income thresholds and rates for 2025-26

Source: Australian Taxation Office. Note: The family income threshold is increased by $1,500 for each MLS dependent child after the first child.

It can be surprisingly easy to get caught by the MLS. 

Think of it this way. The Australian Bureau of Statistics says average weekly earnings are currently about $2,051.10 for full-time workers. That amounts to more than $106,000 annually, which is well above the MLS threshold (of $101,001) for a single person.  

So you don't have to be on a particularly high income to be caught. That helps explain why 768,537 Australians paid the surcharge in 2022-23 (the Tax Office's most recent figures).

Why it can be worth sidestepping the MLS

Paying the MLS won't give you any additional perks in the public health system. And the only way to avoid it is to take out private hospital cover.  'Extras' cover (for optical, dental, and physio) doesn't count.

Strict conditions also apply. For singles, an appropriate level of hospital cover must have an excess of $750 or less. Couples or families must have an excess of $1,500 or less.

Basic cover could cost less than the MLS - with caveats

It is possible for basic hospital cover to be cheaper than the MLS.

As a guide, in late February BUPA offered Basic Accident Only Hospital cover for singles for $18.78 weekly or about $977 annually. That's around $33 cheaper than the $1,010 MLS applicable to a single with income of $101,001. Bear in mind, BUPA has flagged an average premium increase of 4.80% from 1 April.

That said, there is a major catch to be aware of. 

If you are aged over 31, and you're buying private hospital cover for the first time, you'll likely cop the Lifetime Health Cover (LHC) loading.

The LHC adds an extra 2% to premiums for every year you are aged over 30 (capped at 70%) before joining a health fund. 

If you take out private hospital cover at age 40, you could pay an extra 20% on the cost of cover each year for 10 years. If you wait until you are 50, you could pay 40% more per year for 10 years.

What it means is that if you've never had private hospital cover, paying the MLS may be cheaper in some cases once you factor in premiums and any LHC loading. But if basic cover is only a couple of hundred dollars dearer, you're not just avoiding a tax, you're also getting at least some hospital protection in return.

What matters is that you speak to a tax professional before 30 June to discuss how you could be impacted by the MLS. 

Is basic hospital cover worth the cost?

There are two other points to note about taking out hospital cover solely to avoid the MLS.

The first is that unless you've had basic hospital cover for the entire 2025-26 financial year, you may be slugged with a pro-rata MLS up to the date you took out cover. This can make it worth acting fast if you look like sailing close to the MLS income thresholds.

The second issue is that basic cover may see you avoid the MLS, but maybe don't rely on it for all your health needs.  You'll get a bare-bones level of cover, and face an excess of as much as $750 if you need to make a claim. 

If you want health cover that offers real value - and which will either help you avoid the MLS, or minimise premium hikes on existing cover, the key is to shop around. Skip inclusions you are unlikely to need, read the fine print to know exactly what you're buying, and understand the excess you'll pay at claim time.