Medicare Guides — How Medicare Works in Australia

Medicare is Australia’s universal public health insurance scheme. Funded jointly by the 2% Medicare levy on taxable income and general Commonwealth taxation, it provides all eligible Australians with access to subsidised medical services — from bulk-billed GP visits to public hospital treatment at no cost.

Australia introduced Medicare in 1984, replacing the previous Medibank system. It is administered by Services Australia and funded centrally, meaning all eligible Australians have access to the same core scheme regardless of income, employment status or where they live.

Understanding what Medicare covers, what it doesn’t cover, how the Medicare levy and surcharge work, and how private health insurance fits alongside Medicare is important for both financial planning and healthcare decision-making.

Who Is Eligible for Medicare

Medicare is available to:

• Australian citizens
• Permanent residents of Australia
• New Zealand citizens living in Australia
• People from countries with Reciprocal Health Care Agreements (RHCA) — including the UK, Ireland, Italy, Sweden, Netherlands, Belgium, Finland, Norway, Slovenia and Malta. RHCA coverage is limited and does not include all Medicare services.

Temporary visa holders (including international students and temporary workers) are generally not eligible for Medicare, though some exceptions exist depending on visa type and country of origin.

What Medicare Covers

GP visits

Medicare covers GP consultations listed on the Medicare Benefits Schedule (MBS). For bulk-billed consultations, Medicare pays 100% of the MBS fee and you pay nothing. For non-bulk-billed consultations, Medicare pays 85% of the MBS scheduled fee and you pay the gap (the difference between the scheduled fee and what your doctor charges).

As of 2025–26, bulk-billing rates have declined in many parts of Australia — particularly in major cities — as GPs have moved to gap billing to manage rising costs. The federal government introduced incentive payments to encourage bulk-billing of concession card holders and children under 16.

Specialist consultations

For out-of-hospital specialist services (seeing a specialist in their private rooms), Medicare pays 85% of the MBS scheduled fee. Specialists frequently charge above the MBS fee, meaning you pay the gap. There is no annual cap on out-of-pocket gap costs for specialist services.

For hospital-based specialist services when you are admitted as a public patient, Medicare covers the full cost.

Diagnostic imaging and pathology

X-rays, CT scans, MRIs, ultrasounds, blood tests and other pathology services listed on the MBS are covered. Many diagnostic services are bulk-billed, particularly pathology. Some imaging services (especially MRI) may have a gap depending on the provider.

Mental health services

Medicare provides a rebate for psychology sessions under a Mental Health Treatment Plan (referred by a GP). Patients are entitled to up to 10 individual sessions per calendar year at the Medicare rebate rate. Psychologists who charge above the Medicare rebate rate will have a gap fee.

The rebate for a standard psychology session is approximately $93–$136 depending on provider type and session length. Many psychologists charge $180–$250+ per session, meaning out-of-pocket costs can be significant.

Public hospital treatment

As a public patient in a public hospital, you receive treatment at no cost. You’re treated by the public hospital’s medical team, may wait longer than private patients for elective procedures, and have no choice of treating doctor.

If you’re admitted to a public hospital as a private patient, you can choose your own doctor but will incur hospital accommodation costs not covered by Medicare — these are the domain of private health insurance.

What Medicare does not cover

Medicare does not cover:

• Dental — with limited exceptions (public dental services, some hospital dental procedures). Routine dental, fillings, orthodontics and dental surgery are not covered.
• Optical — glasses and contact lenses are not covered, though the Spectacles Subsidy Scheme and some state programs provide limited assistance.
• Physiotherapy, chiropractic, osteopathy — not covered in a standard consultation. Some allied health rebates are available under chronic disease management plans.
• Ambulance — ambulance costs vary by state. Some states (Queensland, Tasmania) have government-funded ambulance services free to residents. Others require private ambulance cover or payment per call-out.
• Private hospital accommodation — choosing to be treated as a private patient incurs accommodation fees.
• Cosmetic procedures — procedures primarily for cosmetic reasons are not covered.
• Overseas treatment — Medicare generally does not cover treatment received outside Australia, except through RHCA arrangements.

The Medicare Levy

The Medicare levy is 2% of taxable income, paid by most Australian taxpayers as part of their annual tax liability. It is collected through the PAYG withholding system and/or via your tax return.

Medicare levy exemptions and reductions

Low-income earners may be exempt from the levy or entitled to a reduction:

• Full exemption: Taxable income at or below $26,000 (2025–26 threshold, subject to change)
• Reduction: Taxable income between approximately $26,000 and $32,500 — the levy phases in from zero to the full 2%

Certain other categories may also be exempt — including some temporary visa holders and people covered by specific programs. Check with the ATO or your tax agent.

The Medicare Levy Surcharge

The Medicare Levy Surcharge (MLS) is an additional tax charged on higher-income Australians who do not hold private hospital cover. Its purpose is to encourage higher earners to take out private cover, thereby reducing pressure on the public hospital system.

MLS income thresholds and rates (FY2025–26)

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

Is it cheaper to get private cover or pay the MLS?

For many higher earners, the annual cost of basic private hospital cover is less than the MLS. For example:

• A single earning $100,000 faces an MLS of 1.0% = $1,000/year
• Basic hospital cover (silver tier or below, with a high excess) may cost $800–$1,200/year

In this scenario, taking out cover is roughly cost-neutral, and you gain the benefit of private hospital access. The value of private cover increases significantly if you use it — elective surgery waiting times in public hospitals can be very long.

Private Health Insurance vs Medicare

Private health insurance in Australia supplements Medicare — it does not replace it. There are two main types:

Hospital cover: Provides access to treatment in a private hospital as a private patient. You can choose your own doctor, typically access a private room, and may avoid public system waiting times. Premiums are regulated by the federal government, and insurers must provide a minimum set of services (based on the gold/silver/bronze/basic tier framework).

Extras cover: Covers services not covered by Medicare — dental, optical, physiotherapy, podiatry, and a range of other allied health services. Each fund offers different levels of extras cover at different premium levels, with annual limits per category.

The Lifetime Health Cover (LHC) loading

Australians who delay taking out private hospital cover beyond age 31 face a 2% loading added to their premium for every year of age they were over 30 without cover. The loading is capped at 70% and is removed after 10 consecutive years of holding cover.

For example, a person who first takes out hospital cover at age 40 would face a 20% LHC loading. The loading is applied on top of the base premium and remains regardless of how infrequently they use the cover.

This creates a financial incentive to take out cover before age 31, or at least to understand the long-term cost of delaying.

The Private Health Insurance Rebate

The federal government provides a rebate on private health insurance premiums for eligible policyholders. The rebate percentage decreases as income rises:

The rebate can be claimed as a reduced premium (paid directly to the insurer) or as a tax offset in your tax return.

Safety Net Provisions

Medicare Safety Net

Once your annual out-of-pocket costs for Medicare-eligible services exceed the Safety Net threshold, Medicare pays 80% of any further out-of-pocket costs for the rest of the calendar year. There are two safety nets:

• Original Medicare Safety Net — lower threshold (approximately $560 for most people in 2025–26)
• Extended Medicare Safety Net — higher threshold (approximately $2,249 for most people in 2025–26); applies to out-of-hospital services

The Safety Net is calculated on an individual basis (or family basis for registered families).

Pharmaceutical Benefits Scheme Safety Net

The PBS Safety Net operates similarly for prescription medications. Once a family’s or individual’s PBS co-payments exceed the annual threshold, further prescriptions are provided free (concession card holders) or at a significantly reduced rate (general patients) for the rest of the calendar year.

Frequently Asked Questions

Do I need private health insurance if I have Medicare? Not legally — Medicare is sufficient for many people’s healthcare needs. However, private cover provides access to elective surgery in a private hospital (avoiding public waiting lists), choice of specialist, and extras cover for dental and optical. The MLS creates a financial incentive for higher earners to hold cover.

What is bulk billing and is it still common? Bulk billing means the doctor accepts the Medicare rebate as full payment — no gap charge. Bulk-billing rates have declined in recent years in major cities, though they remain higher in some regions and for concession card holders and children following government incentive payments.

Can I use Medicare if I’m between jobs? Yes. Medicare eligibility is based on citizenship or residency status, not employment. Losing your job does not affect your Medicare entitlements.

Does Medicare cover ambulance? Only in Queensland and Tasmania, where ambulance services are government-funded at no cost to residents. In other states and territories, ambulance costs are not covered by Medicare. Private health extras cover or state ambulance subscriptions are required to avoid out-of-pocket ambulance costs.

Guides in This Section

• Medicare Explained — How Australia’s Universal Health System Works
• Medicare Levy Surcharge — Rates, Thresholds and How to Avoid It
• Private Health Insurance vs Medicare — Do You Need Both?

For advice tailored to your health insurance situation, speak with a licensed insurance adviser or use the Private Health Insurance Ombudsman comparison tool.

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