Medicare Levy Surcharge and hospital cover

Could private health insurance hospital cover help minimise tax?

If you earn $93,001 or more as a single ($186,001 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 | 2023/2024 financial year

Income threshold

$93,000 or less $93,001 - $108,000 $108,001 - $144,000 $144,001 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 $930 - $1080 $1350 - $1800 $2160 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 | 2023/2024 financial year

Income threshold
(increases by $1,500 per child after your first)
$186,000 or less $186,001 - $216,000 $216,001 - $288,000 $288,001 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 $1860 - $2160 $2700 - $3600 $4320 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: 

  1. 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 
  2. Calculate your annual income for MLS purposes with the Medicare Levy Surcharge income calculator 
  3. Subtract your hospital premium from your MLS amount 
  4. That amount staring you in the face right now is your tax savings, if you were to take out a hospital policy
  5. 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 FY22-23

No hospital cover – paying MLS

Mae’s MLS estimate for FY22-23:

$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 $108,001 - $144,000 (MLS Tier 2), living in VIC. Premium shown is inclusive of 8.202% Australian Government Rebate on Private Health Insurance. Prices displayed are based on 1 October 2023 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 FY22-23

No hospital cover – paying MLS

The Bluth's MLS estimate for FY22-23:

$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 $216,001 - $288,000 (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 October 2023 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

Accident Only Hospital (Basic)

Minimum Basic cover with additional coverage available in the event of an accident
$ 19.10
per week
Select
  • Emergency Ambulance Cover
  • Upgraded cover in the event of an accident

Entry Hospital (Basic+)

Entry hospital cover for some essentials
$ 19.35
per week
Select
  • Emergency Ambulance Cover
  • Dental Surgery
  • Joint Reconstruction

Private Hospital (Bronze)

Basic level private hospital cover with some exclusions and restrictions to keep costs down
$ 22.45
per week
Select
  • 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

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

Up to 12 weeks free plus skip 2 & 6 month waits on extras*. Get 6 weeks free after your first month, and a further 6 weeks free after 12 months when you join by July 15 and 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. Must maintain combined hospital and extras cover continuously and be financial for 12 months from the cover start date to be eligible to receive further 6 weeks free. No other discount will be applied in second year of membership. Other waits (including hospital waits), annual limits and sub limits apply. Extras claims made with a previous fund count towards annual limits. Offer only available via Frank health insurance website or phone. Not available with any other offer. Ends 15 July 2024.