Medicare Levy Surcharge vs Private Health Insurance
If you earn above $101,000 (single) or $202,000 (family) and don't have private hospital cover, you pay the Medicare Levy Surcharge. Sometimes the surcharge is cheaper than insurance—sometimes it's not. This page helps you understand the trade-off.
When does the MLS apply?
The Medicare Levy Surcharge applies to Australian residents for tax purposes who:
- Earn above the income threshold ($101,000 single / $202,000 family in 2024-25)
- Do not have an appropriate level of private hospital cover
The surcharge is 1% to 1.5% of your income, depending on how far above the threshold you are. This is in addition to the standard 2% Medicare Levy that all residents pay.
Example: Income of $120,000
No private hospital cover
MLS applies
- MLS rate
- 1.25%
- Annual MLS
- $1,500
- Medicare Levy (2%)
- $2,400
- Total levies
- $3,900
With basic hospital cover
MLS avoided
- MLS rate
- 0%
- Annual MLS
- $0
- Medicare Levy (2%)
- $2,400
- Total levies
- $2,400
Example: Income of $180,000
No private hospital cover
MLS applies
- MLS rate
- 1.5%
- Annual MLS
- $2,700
With basic hospital cover
MLS avoided
- MLS rate
- 0%
- Annual MLS
- $0
MLS rates by income tier (2025-26)
No MLS
Singles: $0 – $101,000
Families: $0 – $202,000
Tier 1
Singles: $101,001 – $118,000
Families: $202,001 – $236,000
Tier 2
Singles: $118,001 – $158,000
Families: $236,001 – $316,000
Tier 3
Singles: $158,001+
Families: $316,001+
Family thresholds increase by $1,500 for each dependent child after the first.
Why private cover can be cheaper than the surcharge
The MLS is calculated as a percentage of your income. Basic hospital cover is a fixed annual premium. As your income rises, the MLS grows while your premium stays constant—creating a crossover point.
- At $105,000: MLS is $1,050/year. Basic cover might cost similar or more.
- At $140,000: MLS is $1,750/year (Tier 2). Basic cover likely costs less.
- At $200,000: MLS is $3,000/year (Tier 3). Cover is almost certainly cheaper.
The exact crossover depends on your age (premiums increase with age), state, and the policy you choose. Use the calculator below to check your MLS exposure, then compare with insurer quotes.
Common misconceptions
"Extras-only cover avoids the MLS"
Extras policies (dental, optical, physio) do not satisfy the private hospital cover requirement. You need hospital cover—or combined hospital and extras—to avoid the surcharge.
"The cheapest hospital policy won't count"
As long as it's classified as hospital cover and has an excess of $750 or less (singles) or $1,500 or less (families), it satisfies the MLS exemption. Basic hospital policies with high excesses still qualify.
"Salary sacrificing into super lowers my MLS income"
MLS income includes reportable super contributions (RSC). If you salary sacrifice into super, those contributions are added back when calculating your MLS income. This differs from HELP, where salary sacrifice does reduce repayment income.
"Private health is a waste of money"
Whether insurance is "worth it" depends on more than avoiding the MLS. Consider: choice of doctor and hospital, shorter wait times for elective surgery, coverage for services Medicare doesn't cover, and the Lifetime Health Cover loading if you delay. The MLS calculation is just one factor.
FAQ
Is it cheaper to pay the MLS or get private health insurance?
It depends on your income. At lower incomes above the threshold, the MLS may cost less than basic hospital cover. At higher incomes (above roughly $140,000), the MLS typically exceeds the cost of basic cover, making insurance the cheaper option purely on cost.
What income triggers the Medicare Levy Surcharge?
For singles, the MLS applies when your income exceeds $101,000 (2025-26). For families, the threshold is $202,000 plus $1,500 for each dependent child after the first. 'Income' for MLS purposes includes taxable income plus some fringe benefits and super contributions.
Does extras-only cover avoid the Medicare Levy Surcharge?
No. Only private hospital cover (or combined hospital and extras cover) avoids the MLS. Extras-only policies covering dental, optical, and physio do not satisfy the MLS exemption requirement.
What is MLS income and how is it calculated?
MLS income is your taxable income plus reportable fringe benefits, reportable super contributions, and net investment losses (added back). This means salary sacrificing into super doesn't reduce your MLS income—the reportable super contributions are added back.
Check your MLS exposure
Use the Medicare Levy & MLS calculator to see exactly how much surcharge applies at your income level.
Check your MLS exposure →