What Private Health Cover Avoids Medicare Levy Surcharge? (Australia 2025-26)
Last reviewed:
Primary tax-year context: 2025-26
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General information only. Speak with a registered tax agent for advice.
If your income is above the Medicare Levy Surcharge (MLS) threshold, having the wrong health cover can be almost the same as having no cover at all.
The ATO says you may have to pay MLS if you, your spouse, and your dependent children do not have an appropriate level of private patient hospital cover and your income is above the relevant threshold. Extras-only cover does not count.
What cover actually avoids MLS?
For MLS purposes, the cover needs to be private patient hospital cover from a registered insurer.
The ATO states the policy also needs to stay within these excess limits:
- $750 or less for a single policy
- $1,500 or less for a couples or family policy
That is the practical line. If the policy is extras-only, overseas visitor cover, travel insurance, or hospital cover with an excess above the allowed limit, it is not treated as appropriate MLS cover.
Why extras-only cover does not help
This is a common trap.
Extras cover can still be useful for dental, optical, physio, or similar costs, but the ATO is explicit that general cover or “extras” is not private patient hospital cover for MLS purposes. If your income is above the threshold, extras-only cover does not stop the surcharge.
2025-26 MLS thresholds
For the 2025-26 income year, the ATO threshold table is:
| Tier | Single income | Family income | MLS rate |
|---|---|---|---|
| Base | $101,000 or less | $202,000 or less | 0% |
| Tier 1 | $101,001 - $118,000 | $202,001 - $236,000 | 1% |
| Tier 2 | $118,001 - $158,000 | $236,001 - $316,000 | 1.25% |
| Tier 3 | $158,001 or more | $316,001 or more | 1.5% |
The family threshold increases by $1,500 for each dependent child after the first child.
What income counts for MLS?
MLS is not based only on your taxable income. The ATO uses a special MLS income test.
That matters because some people think they are below the threshold based on salary alone, but cross into MLS once reportable fringe benefits or other included amounts are counted.
Family cover rules matter
If you are part of a family, the test is not just whether you personally had cover.
The ATO position is that your spouse and dependent children also need the appropriate level of cover to avoid MLS for the relevant period. If part of the family is uncovered, the household can still face MLS.
Practical checklist
- Check whether your policy includes hospital cover, not just extras
- Check the excess on the policy
- Check the household position, not just your own
- Recalculate if reportable fringe benefits push your MLS income above a threshold
- Keep the insurer statement that shows how many days your policy provided the appropriate level of cover
Key takeaway
The real MLS question is not “Do I have private health insurance?” It is “Do I have the right hospital cover for myself, my spouse, and my dependants for the relevant days of the year?”
That is why people still get caught even after paying private health premiums.
Sources (verified)
- ATO: Paying the Medicare levy surcharge
- ATO: Appropriate level of private patient hospital cover
- ATO: Medicare levy surcharge income thresholds and rates
Before you decide on cover
If the risk is “I may still be paying MLS even though I have insurance”, run the household numbers next.
- Use the Medicare Levy & MLS Calculator if you need to test thresholds, family income, and whether the surcharge is large enough to justify checking your cover again.
- Use the Income Tax Calculator if you want to see the wider annual tax effect, not just the levy and surcharge in isolation.