HCi Factsheet – Understanding your health insurance choices and the Medicare Levy Surcharge (MLS)
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Understanding your health insurance choices and the Medicare Levy Surcharge (MLS)
24 August 2026
Medicare is the Government funded system that gives Australians access to quality medical care. Most working Australians pay a levy, or tax, to help support Medicare. Some will also pay the Medicare Levy Surcharge.
The Medicare levy is a 2% levy on your salary and wages. It is applied to all Australians as part of their tax return unless they have an exemption or reduction.
An additional surcharge applies to higher income earners (see below for thresholds). This is called the Medicare Levy Surcharge (MLS).
If you earn enough to be liable for the MLS, you may be exempt from this tax by holding an appropriate level of private health insurance hospital cover.
To be clear, not all health insurance cover will exempt you from the MLS. To ensure you hold the right level of cover to exempt you from the surcharge, read on.
What is the Medicare Levy Surcharge (MLS)?
The MLS is an additional tax of 1% to 1.5% applied to some individuals and families. If applicable, it is generally calculated by the ATO in your annual tax return.
MLS tiers are based on your income for singles or your combined income for couples. Income for MLS includes things like reportable super contributions and reportable fringe benefits.
Do I have to pay the MLS?
You may pay the MLS if you and your spouse
- earn above the MLS income threshold, and
- do NOT hold hospital cover for you, your spouse and all dependants, and/or
- hold a hospital policy with an excess over $750 per person ($1,500 for couples and families).
Currently, MLS income thresholds are:
- Singles: $105,001 or more per year
- Couples/Families: $210,001 or more per year (plus $1,500 for each dependent child after the first)
So if you earn above these thresholds, you may have to pay the MLS. You can find out more about the MLS and the income thresholds on the ATO’s website. Note that income thresholds for the surcharge generally increase on 1 July each year.
What is a hospital excess?
An excess is an amount you agree to pay towards your hospital treatment. Generally, higher excess has lower premiums. Each adult on a HCi hospital policy may have to pay an excess once per calendar year.
Health insurance and the MLS
As noted above, not all health insurance cover will exempt you from the MLS.
Holding Extras cover only or any type of hospital policy with high excess amounts (over $750 for singles or $1,500 for multi person policies) does not protect you from having to pay the MLS. Of course, you can add hospital cover to your extras or change your current excess.
If you earn under the MLS threshold, changing your HCi excess will not impact your tax.
Note that you also may be liable for the MLS any time you are not covered, including during a suspension of cover while travelling overseas.
MLS applies to spouses and dependants too
If you have a spouse, your combined income is used for assessing the MLS threshold.
You may be liable for the MLS if your spouse or any of your dependants are not covered by appropriate hospital cover, even if you personally would not be liable.
For MLS purposes, your adult children over 21 who are not studying full time and/or have a spouse or dependants of their own are not considered as dependants.
The impact of your spouse and dependants on your MLS will apply for those days you have a spouse or dependant. For instance, if you married on 1 December, you will be assessed as a single for 5 months and a family for the remaining 7 months of the year. This will be calculated as part of your annual tax return.
What if my hospital cover is not “appropriate”?
Only “appropriate” or approved cover will exempt you from the MLS. You can change your hospital cover policy to include dependants or change the excess.
By moving to a lower excess hospital policy, you can:
- meet the Government’s MLS exemption rules – and potentially minimising your tax,
- reduce your costs when you need hospital treatment, as your upfront excess payment will be lower,
- keep the same HCi value hospital cover with no other changes to your benefits.
How much could I save?
If you earn more than the MLS threshold, having a $1,000 excess hospital policy means you could be paying additional tax. And this additional tax can be hundreds or thousands of dollars. For example, a family earning $240,000 could face a $3,600 MLS.
So, by switching to a lower excess hospital policy and maintaining the same high level of hospital cover, you may avoid the MLS. Even though a lower excess policy may have slightly higher premiums, this is usually still less than the additional tax you may have to pay if the MLS applies to you.
ATO administration of the MLS
Your Medicare levy and MLS payments are calculated by the ATO as part of your annual tax return.
The MLS can be applied for a full or partial year if your circumstances change. It is generally a liability above any employer withheld amounts.
HCi provides your hospital policy type and excess to the ATO on your behalf. So once you have selected an appropriate level of hospital cover, you don’t have to do anything.
Questions about the Medicare Levy Surcharge?
Calculating your Medicare levy Surcharge (MLS) can be complex so we suggest discussing it with your tax agent or accountant. The ATO may also be able to help answer your questions.
Please contact us for information about changing your hospital excess or to add hospital cover to your HCi extras cover.
HCi used its best endeavours to ensure this information was accurate at the time of publication. From time to time, circumstances relating to the subject matter may change which may impact the accuracy of the information. This information is also general in nature and does not take into account any specific health or financial situation. Before making any decisions in relation to this information, you should consider your own financial and health situation and seek professional advice. Health Care Insurance Ltd ABN 43 009 579 088. A Registered Private Health Insurer.
