The Short Version
- Hospital cover can reduce your tax by helping you avoid the Medicare Levy Surcharge.
- You’re charged for every day you go without cover over the income threshold.
- You can dodge the surcharge for the rest of the financial year by getting covered today.
Why you need to get eligible hospital cover today
If you’ve ever been stung with a surprising tax bill – or heard warnings about the Medicare Levy Surcharge (MLS) – you might be wondering whether hospital cover could help you save money.
The short answer is yes: if you’re a high-income earner without hospital cover, you’re likely to be charged an extra tax called the Medicare Levy Surcharge. And the longer you go without cover, the more you end up paying.
But what lots of people don’t realise is that this surcharge is calculated on a daily, pro-rata basis throughout the financial year. That means the sooner you take out eligible hospital cover, the sooner you can stop the surcharge from building.
What is the Medicare Levy Surcharge?
It’s a tax that’s applied to high-income earners who don’t have eligible private hospital cover. It’s a way to encourage people who can afford to pay for their own care to take pressure off the public health system – which is constantly dealing with long wait times for patients.
It’s separate to the standard Medicare Levy, which applies to most taxpayers and helps fund the public healthcare system. The Medicare Levy is generally 2% of your taxable income, while the Medicare Levy Surcharge is up to 1.5% extra – on top of that 2% – if you don’t have the right cover.
The short version? It can add up to thousands of dollars in extra tax for you every year.
Who has to pay the Medicare Levy Surcharge?
You’ll be charged if you:
- Are single and earn more than $101,000 per year.
- Are a couple or family earning more than $202,000 combined per year.
- Don’t have eligible private hospital insurance.
Note: These thresholds are current as of the 2025–26 financial year and are indexed annually.
If you’re in a couple or family, the $202,000 threshold increases by $1,500 for every dependent child after the first. So if you have two kids, the threshold becomes $205,000.
How much will I pay?
| Income tier | Singles | Families | MLS rate |
|---|---|---|---|
| Tier 1 | $101001 – $118000 | $202001 – $236000 | 1% |
| Tier 2 | $118001 – $158000 | $236001 – $316000 | 1.25% |
| Tier 3 | $158001+ | $316001+ | 1.5% |
The surcharge applies to your taxable income, reportable fringe benefits and some super contributions.
If your income increases during the year (e.g. via bonuses or salary packaging), you could unexpectedly be pushed into a higher tier – and hit with the surcharge at tax time.
Portability
Don’t re-serve waiting periods when you switch to a new health fund or policy
“John was immediately covered for a hip replacement in private hospital because he had already served his waiting periods for joint replacements on his old policy”
How hospital cover helps you steer clear of the surcharge
The good news is, you can stop the Medicare Levy Surcharge immediately by taking out an eligible hospital insurance policy today. But here’s where far too many people get confused: not every type of private health insurance counts. To avoid the surcharge, your policy must:
- Be hospital cover (not just extras cover like dental or optical).
- Have an excess of $750 or less for singles, or $1,500 or less for couples and families.
Extras-only policies, ambulance-only policies and some restricted hospital cover won’t qualify you for an MLS exemption.
How pro-rata daily calculations work
The surcharge isn’t based on whether you had cover for the majority of the year – it’s based on whether you had hospital cover on each day of the financial year. That means:
- If you go 100 days without hospital cover, you’ll be charged the surcharge for those 100 days.
- If you get covered today, you’ll stop the surcharge from accruing from tomorrow onwards.
Let’s say you’re a single person earning $120,000 a year, and you go without hospital cover for half the year. That’s 182 days.
If you fall into MLS Tier 2 (1.25%), here’s how the maths looks:
- Annual surcharge: $120,000 × 1.25% = $1,500
- Pro-rata charge: ($1,500 ÷ 365 days) × 182 days = $747.95 in extra tax
So while getting covered now won’t cancel what you already owe, it can seriously lower your bill for the remainder of the financial year.
Why you should act now, not later
There’s no reason to put off getting private health insurance because you’re healthy and don’t expect to need it. The Medicare Levy Surcharge isn’t about usage – it’s a tax penalty for not having cover at all.
The longer you wait to take out hospital insurance, the more surcharge you’ll be hit with come tax time. Because the surcharge is calculated daily, every day without cover adds to your bill.
If you’re above the income threshold and don’t yet have eligible hospital cover, there’s a clear financial incentive to act today. Getting covered even for the final months of the financial year can lower your surcharge considerably. And if you keep the policy active for 12 months, you’ll continue to avoid the surcharge next year.
What if I’m unsure whether I need cover?
Most people aren’t even aware they’re over the MLS income threshold until tax time rolls around – and by then it’s too late to avoid the charge for the previous year.
If you earn bonuses or your income fluctuates throughout the year, it’s especially important to be proactive. Even a short-term salary increase or a one-off fringe benefit can push you into a higher tier.
The ATO calculates the surcharge using your total income for MLS purposes, which includes:
- Your taxable income.
- Reportable fringe benefits.
- Reportable super contributions.
- Total net investment losses.
So even if your base salary is under the threshold, your total MLS income could tip you into surcharge territory.
Get covered, reduce your tax
The Medicare Levy Surcharge can sneak up on you – especially if your income changes throughout the year. But the pro-rata, daily calculation also means you can take back control at any time.
And if you choose your policy wisely, you could end up paying less for hospital cover than you would in tax – while also getting peace of mind and faster private healthcare.
If you’re ready to avoid the surcharge, you can start comparing policies with Fair Health Care Alliance today. We’ll help you find the right hospital cover and make sure you’re not paying more tax than you need to.
FAQ's
You need a hospital policy with an excess of $750 or less (singles) or $1,500 or less (couples/families).
Cover is counted on a daily basis, so you stop accruing the surcharge from the day your hospital policy starts.
No. You can only avoid the surcharge for the days you were actually covered. It’s unfortunately not retroactive.
No. Only eligible hospital cover qualifies you for a Medicare Levy Surcharge exemption – not extras, ambulance-only or overseas visitor policies.
