How to Avoid the Medicare Levy Surcharge (2026–27)
The Medicare Levy Surcharge (MLS) is an extra tax of 1% to 1.5% on higher earners who don't hold private hospital cover. The good news: it's entirely avoidable, and for many people the cover that avoids it costs less than the surcharge itself. Here's exactly how to avoid it, who has to, and when it's worth doing.
The one rule: hold appropriate hospital cover
You avoid the MLS by holding an appropriate level of private patient hospital cover with a registered Australian health fund, for the whole income year. Key details that trip people up:
- It must be hospital cover. Extras-only cover (dental, optical, physio) does not exempt you.
- "Appropriate" means the policy's excess is no more than $750 for singles or $1,500 for couples/families. A basic policy with a $750 excess is enough.
- You must hold it for the full year. If you take it out partway through, you may still owe the surcharge for the uncovered days.
- Every adult on the policy must be covered — for a couple, both partners need hospital cover.
Who actually has to worry about it
The MLS only applies above the income thresholds. For 2026–27 (income for surcharge purposes — broadly taxable income plus reportable fringe benefits and super):
| Tier | Single income | Family income | Surcharge |
|---|---|---|---|
| Base | ≤ $105,000 | ≤ $210,000 | 0% |
| Tier 1 | $105,001 – $123,000 | $210,001 – $246,000 | 1.0% |
| Tier 2 | $123,001 – $164,000 | $246,001 – $328,000 | 1.25% |
| Tier 3 | > $164,000 | > $328,000 | 1.5% |
Family thresholds rise by $1,500 for each dependent child after the first. Below the base threshold there is no surcharge, so cover is a lifestyle choice, not a tax one. The MLS is separate from — and on top of — the standard 2% Medicare levy almost everyone pays.
Is cover actually cheaper than the surcharge?
This is the real question. Work out two numbers:
- Your surcharge: your income × your tier rate. On $130,000 (Tier 2, single) that's 1.25% = $1,625/year.
- A basic hospital policy after the rebate: often around $1,100–$1,500/year for a single, depending on state and age.
In that example, taking cover both removes the $1,625 surcharge and gives you actual hospital cover — usually the better deal above the Tier 1 threshold. Below Tier 1, the surcharge is zero, so cover only makes sense if you want it for health reasons.
Don't forget Lifetime Health Cover. Separately from the MLS, if you first take hospital cover after 1 July following your 31st birthday, a 2% loading per year is added to your premium (up to 70%). So delaying cover to dodge the surcharge can cost more later.
Exemptions and edge cases
- If your income is below the threshold, you're exempt — no cover needed for tax purposes.
- Some people are exempt from the Medicare levy itself (e.g. certain foreign residents and visa holders); the MLS follows the same exemption rules.
- The surcharge is calculated on a daily basis — you only pay it for the days you were both over the threshold and uninsured.
See your surcharge vs the cost of cover
Enter your income to compare the MLS you'd pay against a net premium after the rebate — and find which is cheaper for you.
Try the Rebate & Surcharge Calculator →Frequently asked questions
How do you avoid the Medicare Levy Surcharge?
Hold an appropriate level of private hospital cover with a registered Australian health fund for the full income year. Any complying hospital policy (even a basic one with an excess of $750 or less for singles) exempts you from the surcharge. Extras-only cover does not count — it must be hospital cover.
What income triggers the Medicare Levy Surcharge in 2026-27?
For 2026-27 the surcharge starts above $105,000 for singles and $210,000 for families (plus $1,500 per child after the first). It is 1% from Tier 1, 1.25% from Tier 2 ($123,001 single / $246,001 family) and 1.5% from Tier 3 ($164,001 single / $328,001 family).
Is private hospital cover cheaper than the surcharge?
Often yes, once you are above the Tier 1 threshold. A basic hospital policy after the government rebate can cost less than the surcharge you would otherwise pay — and you actually get cover. Compare your net premium against your surcharge to decide.
Related
- Medicare Levy Surcharge: full guide
- Private health insurance rebate tiers
- Rebate & surcharge calculator
Sources
- ATO — Medicare Levy Surcharge income thresholds and rates (2026–27)
- privatehealth.gov.au — Medicare Levy Surcharge; appropriate hospital cover
- ATO — Lifetime Health Cover loading
Figures as of June 2026 (2026–27 thresholds). Premiums vary by insurer, state and age. Verify current figures on ato.gov.au and privatehealth.gov.au. General information, not financial or health advice (ASIC RG 244).
Cite this article
Randive, A. (2026). How to Avoid the Medicare Levy Surcharge (2026-27). DecisionsCalc. https://decisionscalc.com/articles/how-to-avoid-medicare-levy-surcharge/