The Medicare Levy Surcharge was introduced to reduce demand on the public health system and encourage higher income earners to purchase private health insurance, according to the Australian Government. We’ve put together this quick guide on the MLS, how it’s calculated, and whether or not you have to pay it.
In this article:
- What is the Medicare Levy Surcharge?
- What’s the difference: Medicare Levy and Medicare Levy Surcharge?
- How do you avoid paying the Medicare Levy Surcharge?
- Do I have to pay the Medicare Levy Surcharge?
- Costs comparison: Medicare Levy Surcharge vs private health insurance
- MLS vs health insurance: Case studies
- When is the Medicare Levy Surcharge deadline?
- If I change or suspend my hospital cover, will I be charged the Medicare Levy Surcharge?
- Do non-Australian residents have to pay the Medicare Levy Surcharge?
What is the Medicare Levy Surcharge?
The Medicare Levy Surcharge is applied to Australian taxpayers who have an annual income over a certain amount and do not have private hospital insurance cover. You are likely to pay the MLS if you:
- do not have the minimum level of hospital cover required
- and are
- part of a family earning more than $180,000 per year or
- single, without children, and earning more than $90,000 per year.
The MLS is a percentage of your income payable to the Australian Taxation Office (ATO) when you lodge your tax return.
What’s the difference: Medicare Levy and Medicare Levy Surcharge?
It’s important to note the difference between the Medicare Levy and the MLS. As the government’s PrivateHealth website explains, the Medicare Levy is a tax applied to almost all taxpayers and, at the time of publication, is 2% of your taxable income. Depending on a range of factors, you may have to pay both the Medicare Levy and the MLS.
Learn more: What is the Medicare Levy and how much is it?
How do you avoid paying the Medicare Levy Surcharge?
You can avoid paying the Medicare Levy Surcharge by having private hospital cover in place which includes all of the following, as a minimum, as listed on the PrivateHealth website:
- private patient hospital cover
- a maximum excess of $750 for singles and $1,500 for couples or families
- be provided by a registered health insurer.
Do I have to pay the Medicare Levy Surcharge?
Whether or not you have to pay the MLS depends on your income. The ATO states that the definition of your ‘income’ for MLS calculation purposes includes your taxable income, plus some other considerations, such as fringe benefits, super contributions and, if applicable, your spouse’s income. The ATO website includes a full list of these considerations, as well as a calculator you can use to work out whether you’ll have to pay the MLS and, if so, how much you may have to pay. However, in general, the Medicare Levy Surcharge is:
Medicare Levy Surcharge by income bracket
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| If your income is: | ||||
|---|---|---|---|---|
| Singles | ≤ $90,000 | $90,001 to $105,000 |
$105,001 to $140,000 |
≥ $140,001 |
| Families | ≤ $180,000 | $180,001 to $210,000 |
$210,001 to $280,000 |
≥ $280,001 |
| Your MLS is: | 0.0% | 1.0% | 1.25% | 1.5% |
Source: ATO, current as at April 2021 for the 2020-21 financial year.
Costs comparison: Medicare Levy Surcharge vs private health insurance
It could be worthwhile to work out what MLS you could be paying and compare it to what a private health insurance policy would cost, to see if there could be any savings to be made come tax time. The ATO has a ‘Medicare Levy Calculator’ that may assist with this process. Canstar has analysed policies on our database, the results of which may help when comparing the MLS to average private health insurance premiums:
Table 1: Average annual hospital premiums by hospital tier: Base Rate applied
| Hospital Cover Tier |
Single Policy |
Family Policy |
|---|---|---|
| Basic | $905 | $1,746 |
| Basic Plus | $1,001 | $2,048 |
| Bronze | $1,138 | $2,278 |
| Bronze Plus | $1,230 | $2,482 |
| Silver | $1,478 | $2,964 |
| Silver Plus | $1,905 | $3,823 |
| Gold | $2,272 | $4,562 |
Source: www.canstar.com.au – 21/04/2021. Calculations are based on the average premiums for health insurance policies on Canstar’s database. National average premiums based on state averages weighted by state population of insured persons (APRA; Dec 2020). *The Australian Government Private Health Insurance Rebate, Base Tier for under 65s, of 24.608% has been applied to premiums. Average premium calculations are based on standalone hospital policies, excluding OSHC, Visitor and Corporate policies.
MLS vs health insurance: Case studies
Hypothetical example one:
Using ATO calculations, if you are
- part of a family
- with a combined income of $250,000 and
- don’t have private health insurance, then
- your MLS would be $3,125.
The average private health insurance premium (on Canstar’s database) for
- a family
- with Basic family hospital cover
- including a rebate of 8.202%
- costs $2,126 (at the time of writing).
Comparison (under these hypothetical conditions):
- MLS = $3,125.
- Private health insurance premium = $2,126.
Options to consider:
- Pay MLS, have no health insurance: Costs an extra $999/yr
- Buy health insurance, avoid MLS: Saves $999/yr (with the added benefit of having health insurance, but this does not take into considering any excesses you may have to pay).
Hypothetical example two:
According to the ATO, if you are:
- a single person
- aged under 60
- without private health insurance, and
- you earn between $90,001 and $105,000 for MLS purposes, then
- the MLS you would pay would be 1% of your income, so
- MLS would cost you between $900 and $1,050.
The average private health insurance premium (on Canstar’s database) for
- a single person
- with a Basic hospital policy
- including the rebate of 16.405% for those earning between $90,001-$105,000
- costs $1,003.
Comparison (under these hypothetical conditions):
- MLS = $900 to $1,050.
- Private health insurance premium = $1,003.
Options to consider:
- Pay MLS, have no health insurance: Ranges from
- saving $103 to
- costing $47 extra compared to the average Basic hospital policy.
- Buy health insurance, avoid MLS: Ranges from
- costing an extra $103 to
- saving $47 (with the added benefit of having health insurance, but this does not take into considering any excesses you may have to pay).
Compare Health Insurance with Canstar
The table below displays some of our referral partners’ hospital and extras policies for a 39-year-old single female seeking cover in NSW without pregnancy cover. The table is sorted by Star Rating (highest to lowest) followed by provider name (alphabetical). Use Canstar’s health insurance comparison selector to view a wider range of products. Canstar may earn a fee for referrals.
When is the Medicare Levy Surcharge deadline?
The Medicare Levy Surcharge is applied each financial year when you lodge a tax return. If your private hospital cover starts after 1 July of a particular financial year, the surcharge will only be applied for the period in which you didn’t have cover.
If I change or suspend my hospital cover, will I be charged the Medicare Levy Surcharge?
If you change or suspend your private hospital cover insurance provider you will be liable for the Medicare Levy Surcharge if there is a gap between when one policy ends and a new one begins and you are earning above the income thresholds.
Do non-Australian residents have to pay the Medicare Levy Surcharge?
If you’re a citizen of the UK, Sweden, Finland, Norway, Belgium, The Netherlands, Slovenia, Malta, Italy, Ireland, or New Zealand and you earn over the Medicare Levy Surcharge threshold but don’t have a hospital cover policy, you may have to pay the Medicare Levy Surcharge.
Overseas Visitors Health Cover (OSHC or working visa health cover) is not considered a sufficient degree of health cover to afford you exemption from the Medicare Levy Surcharge.
Citizens from the rest of the world can complete a Medicare Entitlement Statement to exempt themselves from paying the Medicare Levy Surcharge.
Main image source: ONYXprj/Shutterstock.com
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This content was reviewed by Deputy Editor Sean Callery and Digital Editor Amanda Horswill as part of our fact-checking process.
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