Medicare Levy Surcharge vs Private Health (2025): Which choice actually reduces your tax?
Australia 2025 · Clear comparison, costs, eligibility, and step-by-step guide
TL;DR Summary
- Medicare Levy Surcharge (MLS) is an extra 1%–1.5% tax if you earn above the threshold and don’t have eligible private hospital cover.
- From 1 July 2025 thresholds lift to: Singles $101,000 / Families $202,000 (Tier 1), with higher tiers at $118k/$236k and $158k/$316k.
- Hospital cover (not extras) with a max permitted annual excess of $750 single / $1,500 family generally avoids MLS.
- Check if your annual premium minus rebate is less than your estimated MLS — if yes, cover may save money and give benefits.
- Don’t forget Lifetime Health Cover (LHC) loading: taking hospital cover after 31 can add up to 70% loading for 10 years.
Why this matters in Australia (2025)
With thresholds increasing from 1 July 2025, more Australians cross into MLS territory as wages rise. Paying MLS is a tax with no insurance benefits. Taking out eligible hospital cover can remove the surcharge and provide private care options. The right choice depends on your income tier, family status, age (rebate), and the net cost of premiums after the government rebate.
Comparison: Pay MLS vs Buy Private Hospital Cover
| Feature | Pay MLS (no hospital cover) | Buy Private Hospital Cover |
|---|---|---|
| Up-front cost | 1%–1.5% of MLS income; paid at tax time | Premiums (less private health insurance rebate) |
| What qualifies | N/A | Hospital cover only (extras doesn’t count). Excess ≤ $750/$1,500. |
| Health benefits | None | Private options, shorter waits (policy dependent) |
Who is each option best for?
- Pay MLS: You rarely use hospital services...
- Buy Hospital Cover: Your MLS bill would exceed...
- Family households: Remember the thresholds...
Step-by-step: How to decide (and apply)
- Work out your MLS tier...
- Estimate your MLS amount...
- Get quotes...
- Apply rebate...
- Compare net costs...
Costs, rebates & tax considerations
- MLS rates: 1%–1.5%
- Thresholds 2025: $101k / $118k / $158k
- Hospital cover limits: $750/$1,500
- Rebate: up to ~24.288% (under 65)
Quick example: $120k income → MLS ~$1,500...
FAQ (Australia 2025)
Do I need hospital cover to avoid MLS?
Yes...
What are the thresholds?
Singles...
Does extras count?
No...
How rebate works?
Up to...
Part-year cover?
Only covered days...
Sources / Official References
- PrivateHealth.gov.au...
- Services Australia...
Important disclaimer
This article is general information only...