Medicare Levy Surcharge and hospital cover
Could private health insurance hospital cover help minimise tax?
If you earn $101,001 or more as a single ($202,001 or above for couples/families) per year, then you might be on the hook to pay between an additional 1-1.5% of your annual income to the government at tax time as the Medicare Levy Surcharge (MLS). The rate you pay depends on your income level.
If this is you – there’s two options:
- Pay the additional levy in your tax return, or
- Take out a private health insurance hospital policy to avoid the tax altogether
What is the Medicare Levy Surcharge (MLS)?
The Medicare Levy Surcharge (MLS) is an additional levy applied to higher earners’ taxable income. It’s an Australian Government initiative designed to encourage the use of the private hospital system. In turn, this reduces the load on the public system. The higher your annual income, the more you’ll pay in MLS. The Medicare Levy Surcharge rates and income thresholds are set by the Australian Government.
Income thresholds | Single
Medicare Levy Surcharge rates and income thresholds | Effective from 1 July 2025
| Income threshold |
$101,000 or less | $101,001 - $118,000 | $118,001 - $158,000 | $158,001 or more |
|---|---|---|---|---|
| Tier | No charge | Tier 1 | Tier 2 | Tier 3 |
| % of income you may pay | 0.0% | 1.0% | 1.25% | 1.5% |
| MLS you may have to pay | $0 | $1010 - $1180 | $1475 - $1975 | $2370 or more |
How it works:
You’re single and earn $106,000 per year. Your income places you in Tier 1, meaning you would have to pay 1% of your income as MLS. That’s $1,060 per year. To avoid this, you could take out a hospital policy with a total premium that’s less than what you would have to pay in MLS.*
*Depending on your circumstances and where your income is placed in the relevant income tier, it’s possible that your health insurance premium could be higher than what you would be required to pay for the MLS and you might not see any tax savings if you have purchased a hospital policy for that purpose.
Income thresholds | Couples, Families & Single parents
Medicare Levy Surcharge rates and income thresholds | Effective from 1 July 2025
| Income threshold (increases by $1,500 per child after your first) |
$202,000 or less | $202,001 - $236,000 | $236,001 - $316,000 | $316,001 or more |
|---|---|---|---|---|
| Tier | No charge | Tier 1 | Tier 2 | Tier 3 |
| % of income you may pay | 0.0% | 1.0% | 1.25% | 1.5% |
| MLS you may have to pay | $0 | $2020 - $2360 | $2950 - $3950 | $4740 or more |
How it works:
You and your partner have a combined household income of $240,000 per year. Your income places you in Tier 2 family income threshold, meaning you would have to pay 1.25% of your combined income as MLS. That’s $3,000 per year. To avoid this, you could take out a couples hospital insurance policy with a total premium less than what you would have to pay in MLS*.
*Depending on your circumstances and where your income is placed in the relevant income tier, it’s possible that your health insurance premium could be higher than what you would be required to pay for the MLS and you might not see any tax savings if you have purchased a hospital policy for that purpose.
We all know that anything tax related can become complicated at the speed of light. If you’re still unsure, chat to a tax agent about your personal situation and any changes that have happened throughout the financial year.
How to avoid paying the Medicare Levy Surcharge
To avoid paying the Medicare Levy Surcharge, you’ll need an appropriate level of private health insurance hospital cover for the full financial year. It can help you to keep more money in your pocket.
Basic hospital (the lowest product tier available) can be the most affordable way to benefit on tax savings if you’re a higher income earner.
If you take out hospital cover for only part of the financial year, you still may need to pay MLS.
For example:
Bill gets a pay rise to $103k per year. Good stuff Bill! Bill is a savvy sort and doesn’t want to pay additional tax, so he gets a private health insurance hospital policy sorted around 30 days into the new financial year. This means that Bill will be exempt from having to pay MLS for the remaining 335 days of the financial year. Bill would still be liable for the 30 days he spent without private health insurance hospital cover in that financial year.
For all things health insurance and tax time, read through this handy tax time information.
Choose your ideal level of hospital cover
If you’re looking for more clinical categories to be included in your policy than what a Basic cover offers, it’s worth looking at a Bronze, Silver or Gold tier product.
What's a product tier, you ask? The 2019 Australian Government private health insurance reforms required funds to categorise their hospital products based on four product tiers. This was to make choosing suitable policies easier to understand. If a policy has inclusions above the minimum required for that tier, the hospital policy may have a name with a Plus (+) in it.
If you’re looking to level up your private health insurance hospital policy, take a look at the differences in product tiers and clinical category inclusions below.
Hospital product tiers:
Basic: Minimum of 3 restricted clinical categories
Bronze: Minimum of 18 clinical categories of unrestricted services and 3 restricted services
Silver: Minimum of 26 clinical categories of unrestricted services and 3 restricted services
Gold: Minimum of 38 clinical categories of unrestricted services
What is the minimum health cover required to avoid the MLS?
If MLS applies to you, only hospital policies will exempt you from paying – extras policies on their own won’t help you avoid the additional tax. If you want the best of both worlds, you can combine hospital and extras to both avoid the surcharge and have the extras cover you want at the same time. A+ for multi-tasking.
How much tax could you save with private health insurance?
So you've done the math and it looks like you're going to have to pony up for MLS? (Enter Frank). Let's talk about how much you could save by joining one of Frank’s hospital covers.
Here’s how to go about it:
- Get a quote for hospital cover. The cheaper the policy, the more you could save (but take note that there's less services included). Keep in mind that extras or ambulance cover on its own doesn’t count as an appropriate level of private health insurance hospital cover
- Calculate your annual income for MLS purposes with the Medicare Levy Surcharge income calculator
- Subtract your hospital premium from your MLS amount
- That amount staring you in the face right now is your tax savings, if you were to take out a hospital policy
- Spend the rest of the day thinking about what you’ll do with your extra money. Whether you’ve saved quite a few pineapples or even just a fiver, it’s still a win!
How it works:
Mae
30 y/old single
Earned 110k in FY24-25
No hospital cover – paying MLS
Mae’s MLS estimate for FY24-25:
$1,375.00
Mae doesn’t have private health insurance hospital cover, so MLS applies.
Mae has to pay it in her tax return for the year. She mentally kisses that summer festival she’d been thinking about all winter goodbye.
With hospital cover for the full financial year – not paying MLS
Mae pays:
$1,174.25 per year for Frank Accident Only Hospital (Basic) and no longer needs to pay the MLS.
She instantly saves $200.75 in tax. Not too shabby!
The cherry on top? Mae also gets cover for Accidents and Emergency Ambulance with her Frank hospital cover.
Mae has done her homework and understands that Accident Only Hospital (Basic) has far more exclusions than inclusions, but it does what she needs it to do right now.
*Based on 1 person on a Single policy, aged 30, earning between $118,001 - $158,000 (MLS Tier 2), living in VIC. Premium shown is inclusive of 8.095% Australian Government Rebate on Private Health Insurance. Prices displayed are based on 1 April 2025 premiums and are subject to change.
See product fact sheet for further information on the level of cover used in this example.
How it works:
Bluth family
2 adults (both 27) and 1 dependant under 18
Family
Earned 270k combined in FY24-25
No hospital cover – paying MLS
The Bluth's MLS estimate for FY24-25:
$3,375.00
Lucy and Georgos pay this when they do their tax return for the year as they don’t have a private health insurance hospital cover.
If they were to feel their feelings, they would say they are mildly annoyed at paying extra for not much in return.
With hospital cover for the full financial year - not paying MLS
Lucy and Georgos pay:
$2,724.30 per year for Frank Bronze Plus Hospital (Bronze+) and pay no MLS.
While the $650.70 they save in tax should just cover Mum and Dad’s coffee budget for the year, they get more inclusions with a higher hospital tier (Bronze+).
The Bluth's get private health benefits for 25 clinical categories to cover a few treatments that are pretty important to them, such as:
- Tonsils, adenoids and grommets
- Digestive system
- Joint reconstructions
- Chemotherapy, radiotherapy and immunotherapy for cancer
- Ear, nose and throat
- Gynaecology
- Breast surgery (medically necessary)
But wait – there's more! Lucy and Georgos are eligible for the age-based discount (available on all Frank hospital covers for members aged 18–29 years). As they are 27 years old, they receive a 6% discount on their policy until they turn 41. Learn about the age-based discount.
*Based on 2 adults, 1 dependant on a Family policy, adults aged 27, earning between $236,001 - $316,000 (MLS Tier 2), living in VIC. Premium shown is inclusive of 8.202% Australian Government Rebate on Private Health Insurance and 6% age-based discount. Prices displayed are based on 1 April 2025 premiums and are subject to change.
See product fact sheet for further information on the level of cover used in this example.
Affordable hospital cover with Frank
- Emergency Ambulance Cover
- Dental Surgery
- Joint Reconstruction
Bronze Hospital
- Emergency Ambulance Cover
- Bone, joint and muscle
- Digestive system
* The price shown is per week and applies to a Single, aged 30, living in VIC. It excludes LHC loading and includes a Base Tier Government Rebate
| Extras services (when included on cover) |
|---|
| All extras benefits except as specified below. Waiting Period: 2 Months |
| Optical, home and domestic aids and medical aids. Waiting Period: 6 months |
| Major dental services (including full & partial dentures, orthodontics, crown & bridgework, endodontic services such as root canal, gold fillings, indirect restorations, surgical extractions of a tooth/teeth including wisdom teeth). Waiting Period: 12 Months |
| Health appliances including nebuliser pump, blood glucose monitor, pressure garments, sleep apnoea monitor, extremity pump, hearing aids, orthopaedic appliances (GMHBA approved), prostheses (GMHBA approved non-surgical), tens monitor, podiatry surgical procedures and orthotic appliances (foot). Waiting Period: 12 Months |
| Hospital services (when included on cover) |
|---|
| Accidents - bodily injuries resulting from accidents which occur after the date of joining GMHBA or upgrading to a higher cover. Waiting Period: No |
| Obstetrics and maternity. Waiting Period: 12 months |
| Pre-existing ailment, illness or condition (other than psychiatric, rehabilitation and palliative care). Waiting Period: 12 months |
| Any other benefit for hospital (or hospital substitution) treatment. Waiting Period: 2 months |
A pre-existing condition is one where signs or symptoms of your ailment, illness or condition, in the opinion of a medical practitioner appointed by GMHBA (not your own doctor), existed at any time during the six months preceding the day on which you purchased your hospital insurance or upgraded to a higher level of hospital cover and/or benefit entitlement.
A special waiting period applies to obtain benefits for hospital treatment for new members who have pre-existing conditions. The waiting period also applies to existing members who have recently upgraded their level of hospital cover. If the ailment, illness or condition is considered pre-existing:
New members
New members must wait 12 months for any hospital benefits (other than psychiatric, rehabilitation and palliative care).
Existing members (transferring or upgrading)
Members transferring/upgrading to a higher hospital cover must wait 12 months to get the higher hospital benefits (other than psychiatric, rehabilitation and palliative care).
Existing members (with at least 12 months membership)
Existing members with at least 12 months membership in total across their old and new cover are entitled to the lower benefits on their old cover.
Silver Hospital cover provides the same single room coverage as Gold Hospital, but co-payments of $100 per day up to a maximum of $700 per admission apply. Co-payments are not the same as hospital excess. Please note: Some private hospitals only have single rooms and co-payments will apply.
Co-payments do not apply.
What does Basic hospital insurance cover?
Basic policies are exactly that – basic. For example, Frank Accident Only Hospital (Basic) provides the minimum standard clinical categories required for a ‘basic’ rating.
This cover provides benefits as a private patient in a public hospital shared room only for the following restricted clinical categories:
- Hospital psychiatric services
- Rehabilitation
- Palliative care
Most hospital services are Restricted or Excluded on Basic tiered hospital covers, meaning there may be significant out-of-pocket expenses if used. Learn more about hospital cover.
Basic covers are a great way to avoid additional tax if you’re earning over the MLS thresholds and can help to keep costs down if you don't need to be covered for a lot of services. Frank Accident Only Hospital (Basic) cover also includes Emergency Ambulance and Accident coverage.
Why choose Frank health insurance?
Are you a higher income earner and need less tax in your life? Then you need more Frank.
Our range of health insurance policies mean that it’s your call – you could go basic with a policy that only gets you off the hook for additional tax and not much more, or you could look at a higher level of cover or even add extras cover on if you’re wanting a little, well, extra. Peace of mind is pretty nice after all.
Frank is a not-for-profit health insurer with a focus on affordable cover and great member experience. With an Australian-based customer service team that really cares, we’re here for you when you need it.
Hear from real members on Product Review.
How to get started
Take a look through our covers and see what takes your fancy. All you have to do is decide what level of cover suits you best.
Frequently Asked Questions
MLS is an additional levy paid by those with higher incomes who don’t have appropriate private health insurance hospital coverage for the full financial year. If it applies to you, it will be included in your tax return each year.
The total number of days you held hospital cover in the previous financial year are shown on your Private Health Insurance Tax Statement. If you’re only covered for part of the financial year, then you would have to pay MLS for those days not covered.
Changes to your circumstances throughout the financial year can change the MLS that you may need to pay. This could be things like if you’re no longer with a spouse, have had a second child, suspended or cancelled your private health insurance hospital cover, etc.
It’s best to check in with a tax professional as soon as you can when things change. They’ll be able to make sure there’s no surprises on the way at the end of the financial year.
Yes, you’re in this one together. For Medicare Levy Surcharge purposes, you're counted as a member of a family if you had a spouse or dependants for any part of the financial year.
If you have a spouse, you’ll both be assessed as a combined family income. If you earn over $194,000 together, you may have to pay MLS.
If you only had a spouse for part of the financial year, it can get a tad confusing working out how much MLS you’d need to pay. Check out the ATO info about income for MLS purposes to learn more.
Yes. The Medicare Levy is what most of us pay in our tax each year (2% of taxable income), regardless of health insurance coverage.
The Medicare Levy Surcharge is an additional levy on top of this, applied only to higher income earners who don’t have private hospital health insurance hospital cover. Both the Levy and the Surcharge are used to fund Medicare.
The current Medicare Levy rate is 2% and helps to fund Medicare, Australia’s public health system. The Medicare Levy was originally 1% in 1984 when it was first introduced and has gradually increased to the 2% level it is today.
In 1997, the Medicare Levy Surcharge was introduced. The surcharge also goes towards funding Medicare.
Short answer – no. However, you can claim the Australian Government Rebate on Private Health Insurance (rebate) to offset the cost of your health insurance policy. This subsidy, like the Medicare Levy Surcharge, is Tiered, and based on your annual taxable income, but also your age bracket. It can be claimed through your Private Health Insurance fund as a reduced policy premium, or as a lump sum refund from the ATO when you complete your tax return.
At the end of each financial year, your policy tax data is sent directly to the ATO to be pre-filled automatically into your tax return.
Learn more about the Australian Government Rebate on Private Health Insurance.
It depends on your income tier, but the MLS ranges from 1-1.5% of your taxable income. Your circumstances, such as whether you’re single or a couple, and the age of the oldest person on your policy also play a part.
Learn more about income thresholds.
An appropriate level of private patient hospital cover is provided by a registered health insurer and meets the following requirements:
- If you’re single, your policy must have an excess of $750 or less
- If you’re a couple, single parent or family, your policy must have an excess of $1,500 or less
- Every hospital product tier from Basic through to Gold can meet these requirements
- Extras policies do not count as an appropriate level of private patient hospital cover.
All of Frank’s hospital policies meet the appropriate level of private patient hospital cover requirements to avoid MLS.
If you temporarily suspend your membership, you may have to pay MLS for the suspension period as you wouldn’t have held an appropriate level of hospital cover during that time.
This would appear on your private health insurance tax statement as ‘days without cover’.
While it’s not compulsory, approximately 14.8 million Australians currently have private health insurance cover*.
There are many reasons for this, even with Medicare public healthcare available.
It can offer:
- Choice of provider or specialist
- The ability to avoid public hospital waiting lists by attending a private hospital (with private hospital coverage)
- Privacy in your own room (subject to availability)
- Peace of mind
- Extras policies for services not covered by Medicare such as dental, physiotherapy and glasses that are a great way to proactively look after your health
* Based on March 2024 Australian Prudential Regulation Authority (APRA) data
It’s an age-based loading on your private health insurance hospital policy premiums for every year you didn’t have hospital cover after you turned 30. The Australian Government introduced LHC to encourage people to take out private hospital insurance earlier in life and stay covered.
To avoid LHC, you have to take out hospital cover by 1 July after your 31st birthday. If you don’t and you sign up after this time, a 2% loading is added to your premium for every year that you didn't have hospital cover after you turned 30. Once you take out hospital cover, the loading stays in place for 10 years of continuous cover and then is removed.
If you have a Lifetime Health Cover (LHC) loading applied to your policy, it’s worth knowing that the rebate doesn’t apply to the LHC portion of your premium.
LHC is not related to your earnings or to the Medicare Levy / Medicare Levy Surcharge, however it will affect the premiums you pay.
Find out more about Lifetime Health Cover Loading.
If you're 18-29 years old, you may be eligible to receive an age-based discount on your Frank hospital cover. It’s a discount of between 2-10%, based on your age when you joined Frank on a hospital cover. Extras cover on its own is not eligible for the age-based discount.
If you held an age-based discount from another fund, Frank will honour that when you join if there is less than a 30 day gap in cover between leaving your previous insurer and joining Frank.
The age-based discount isn’t related to the Medicare Levy / Medicare Levy Surcharge, but it will affect the final premium that you pay if you're eligible.
Up to 12 weeks free plus skip 2 & 6 month waits on extras if you join on combined cover by July 31*. Get 6 weeks free after your first month, and a further 6 weeks free after 12 months if you maintain combined cover.
*For new members joining on combined hospital and extras cover, paying by direct debit. Must not have been a Frank member in the last 12 months. Must pay first month’s premium to receive initial 6 weeks free. Other waits (including hospital waits), annual limits and sub limits apply. View full terms & conditions.
