What’s the Medicare Levy Surcharge and how can health insurance help me avoid it?

The good news? Even a basic hospital health insurance policy can help you avoid it.

In this guide, Alfie breaks down what the surcharge is, who it applies to, and how private health insurance can save you money (even if you never step foot in a hospital).

he Medicare Levy Surcharge is an extra tax applied to higher-income earners who don’t have private hospital cover. It’s designed to encourage more people to take up private health insurance and ease pressure on the public system.

It’s separate from the standard Medicare Levy, which most taxpayers already pay (usually 2% of your income).

• The surcharge only applies if:

• You earn above a certain income threshold, and

• You don’t hold an eligible hospital insurance policy

The MLS is income-tested, which means the more you earn, the higher the rate. Here’s what it looks like for the 2024-25 financial year:

Family thresholds increase by $1,500 for each dependent child after the first.

💡 For example, if you're a single individual earning $120,000 without private hospital cover, you'd fall into Tier 2 and be liable for an MLS of 1.25%, amounting to $1,500.

To avoid the surcharge, you just need to hold a hospital policy that meets the government’s minimum requirements.

It doesn’t have to be top-tier or expensive, even a Basic Hospital policy will do the job, as long as:

• It covers hospital treatment

• It has an excess of $750 or less (for singles) or $1,500 or less (for couples/families)

The policy must be in place for the full financial year to avoid the surcharge completely. If you’re only covered for part of the year, the surcharge may still apply pro rata for the months you weren’t covered.

Tip from Alfie: Some people take out low-cost hospital cover only to avoid the surcharge, even if they don’t plan to use it.

For many Australians, especially those earning above the Medicare Levy Surcharge (MLS) thresholds, taking out private hospital cover can be more cost-effective than paying the surcharge.

Example 1: Single, earning $120,000

• MLS Tier: Tier 2 (1.25%)

• MLS Payable: $120,000 × 1.25% = $1,500

• Estimated Basic Hospital Cover Cost: ~$1,200/year

• Potential Savings: $300/year

Example 2: Couple, combined income of $200,000

• MLS Tier: Tier 1 (1.0%)

• MLS Payable: $200,000 × 1.0% = $2,000

• Estimated Basic Hospital Cover Cost for Couple: ~$2,000/year

• Potential Savings: Break-even, plus added hospital cover benefits

Example 3: Family, combined income of $310,000

• MLS Tier: Tier 3 (1.5%)

• MLS Payable: $310,000 × 1.5% = $4,650

• Estimated Basic Hospital Cover Cost for Family: ~$3,000/year

• Potential Savings: $1,650/year

In many cases, taking out a low-cost policy is either cheaper or cost-neutral — and comes with the added benefit of faster access to treatment if needed.

Not every health policy will help you avoid the surcharge. Here’s what doesn’t count:

• Extras-only cover (e.g. dental, optical, physio)

• Ambulance-only policies

• Overseas visitor cover

• Hospital policies with an excess above $750/$1,500

To be MLS-exempt, your policy must include private hospital treatment and have an acceptable excess.

🧾 Tip from Alfie: When in doubt, check your policy or ask your insurer if it meets MLS exemption requirements.

he surcharge is calculated based on your income for Medicare Levy Surcharge purposes, which includes:

• Your taxable income

• Reportable fringe benefits

• Super contributions

• Net investment losses

If you're near the income threshold, it’s worth checking if bonuses or salary packaging might push you over the line.

The MLS is assessed as part of your annual tax return, so it’s not something you’ll see deducted from your payslip, but it can show up as a nasty surprise if you weren’t expecting it.

If you’re only just above the income threshold and don’t think you’ll need private hospital treatment anytime soon, it might feel like a waste. But even a basic hospital policy can:

• Help you avoid the tax

• Give you access to private treatment if you need it unexpectedly

• Avoid long waitlists for elective surgeries

• Get you into a private room (where available)

Plus, if you’re aged 31 or over, having hospital cover also helps you avoid Lifetime Health Cover loading, which adds extra cost if you delay taking out insurance.

Bonus tip: Some insurers offer basic hospital cover starting from around $100/month, less than the MLS for many earners.