Medicare Levy Surcharge — Rates, Thresholds and How to Avoid It

The Medicare Levy Surcharge (MLS) is an additional tax applied to higher-income Australians who do not hold adequate private hospital cover. It was introduced to encourage higher earners to take out private health insurance and reduce pressure on the public hospital system.

How the Medicare Levy Surcharge Works

If your income exceeds the MLS threshold and you do not hold an eligible private hospital policy, you pay the MLS on top of your regular 2% Medicare levy.

The MLS applies to your entire taxable income — not just the income above the threshold.

MLS Rates (FY2025–26)

Family thresholds

Family threshold increases by $1,500 for each dependent child after the first.

Example Calculation

A single person earning $100,000 without private hospital cover:

• Medicare levy: $100,000 × 2% = $2,000
• MLS rate: 1.0% (income between $93,001 and $108,000)
• MLS: $100,000 × 1.0% = $1,000
• Total Medicare levy + MLS = $3,000

How to Avoid the Medicare Levy Surcharge

Hold an eligible private hospital cover policy with an excess no greater than:

• $750 for singles
• $1,500 for couples and families

Important: extras-only cover (dental, optical, physio) does not exempt you from the MLS. You need hospital cover.

If you already pay for private health insurance, check that:

1. Your policy includes hospital cover (not extras only)
2. Your policy’s excess is within the MLS threshold ($750 for singles)
3. The policy is from an Australian-registered health fund (registered with APRA)

The Lifetime Health Cover Loading

Related to but separate from the MLS, the Lifetime Health Cover (LHC) loading adds 2% to your hospital insurance premium for every year you are over 30 when you first take out private hospital cover.

Example: If you take out hospital cover at age 40, you pay 20% loading on your premiums (10 years × 2%). The loading is applied for 10 years then removed.

This is a strong incentive to take out hospital cover before or by age 30.

Private Health Insurance Rebate

To help offset the cost of private health insurance, the government offers the Private Health Insurance Rebate — a rebate on premiums that reduces in value as income rises.

The rebate can be claimed as a reduction to your premiums (fund pays on your behalf) or as a tax offset when you lodge your return.

Is It Worth Paying for Private Health to Avoid MLS?

Whether private hospital cover is worth buying purely to avoid MLS depends on the cost of cover relative to the MLS amount.

Example comparison (single, income $100,000):

• MLS payable without cover: ~$1,000/year
• Basic private hospital cover: approximately $900–$1,500/year depending on the policy, provider, and excess

For many people on the lowest MLS rate, paying for private hospital cover and avoiding the MLS may be cost-neutral or slightly better — with the added benefit of actual private hospital access.

At higher income levels (1.25% or 1.5% MLS), private hospital cover is almost always financially better than paying the surcharge.

FAQ

Does extras-only cover avoid the MLS? No — you must hold hospital cover with an excess of $750 or less (singles) to avoid the MLS. Extras-only policies (dental, optical, physio) do not count.

Does the MLS apply if I am a low income earner? No — the MLS only applies once your income exceeds $93,000 (singles) or $186,000 (families). If you are below the threshold, you pay the standard 2% Medicare levy only.

If I earn just over $93,000, is the MLS applied to everything or just the amount over the threshold? The MLS rate applies to your entire income — not just the amount above the threshold. This can create a situation where earning slightly over $93,000 leaves you worse off unless you have hospital cover.

See also: Medicare Explained | Private Health vs Medicare | Centrelink Payments Guide