Private Health vs Medicare Levy Surcharge
2026/27 · Is it cheaper to buy hospital cover or pay the surcharge?
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How the Medicare Levy Surcharge works in 2026/27
The Medicare Levy Surcharge (MLS) is a separate charge on top of the standard 2% Medicare Levy. It applies to higher-income earners who choose not to hold eligible private hospital cover. The surcharge is assessed on your income for MLS purposes (taxable income plus reportable fringe benefits, net investment losses and reportable super contributions) at three tiers:
$105,001 – $123,000: 1% · $123,001 – $164,000: 1.25% · $164,001+: 1.5%
The singles threshold for 2026/27 has moved to $105,000 (up from $101,000 in 2025/26). “Eligible hospital cover” means a registered private health insurance product that includes cover for hospital treatment — extras-only policies don’t count.
To avoid the MLS, you need to maintain eligible cover for the full income year. If you take out cover mid-year, a pro-rata surcharge applies for the uncovered period.
Which income counts for the surcharge?
The surcharge is not based on taxable income alone. The ATO uses “income for MLS purposes”: your taxable income plus reportable fringe benefits, net investment losses and reportable super contributions. If you have a partner, your combined income is used and the family thresholds apply.
For 2026/27 the family thresholds are $210,000 or less (no surcharge), $210,001–$246,000 (1%), $246,001–$328,000 (1.25%) and $328,001 or more (1.5%). The family threshold rises by $1,500 for each dependent child after the first.
Worked example
A single 35-year-old has $90,000 taxable income and $27,000 in reportable fringe benefits. Their income for MLS purposes is $117,000, which falls in the 1% tier. Without eligible hospital cover, the surcharge is $1,170 for the year.
How to compare the surcharge with the cost of cover
- Work out your income for MLS purposes, not just your salary.
- Find your tier and multiply your income by the rate.
- Compare that with the annual cost of a basic hospital policy after the government rebate.
- Remember that Lifetime Health Cover loading can add to the premium if you take cover after 30 and have not held it continuously.
This is general information, not financial advice. Source: ATO – Medicare levy surcharge income, thresholds and rates.
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Frequently asked questions
What is the Medicare Levy Surcharge?
It is an extra levy, on top of the standard Medicare levy, for people above certain income thresholds who do not hold an appropriate level of private hospital cover. The surcharge rate depends on your income tier.
Will extras-only cover avoid the surcharge?
No. To avoid the surcharge you generally need an eligible private hospital cover policy. Extras (general treatment) cover on its own does not count.
Is the surcharge the only reason to have hospital cover?
No. Lifetime Health Cover loading, waiting periods and what a policy actually covers all matter too. This calculator compares the surcharge with the cost of cover, so it is one input to your decision, not the whole picture.
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General information only, not tax or financial advice. Figures are estimates based on 2026/27 ATO rates and thresholds. Page last updated: October 2026. Check ato.gov.au or speak to a registered tax agent before making decisions. See our disclaimer & privacy page.