Medicare Levy Surcharge 2026-27: Do You Need Private Health to Avoid It?
The Medicare Levy Surcharge threshold rises to $105,000 in 2026-27. Here's whether private hospital cover is worth it at your income — with the break-even calculation.
The Medicare Levy Surcharge (MLS) is an additional tax on top of your standard 2% Medicare levy — charged to higher-income Australians who don't hold appropriate private hospital cover. In 2026-27, the threshold increased significantly: singles now need to earn more than $105,000 (up from $97,000 in 2025-26) before the surcharge kicks in.
If you're on $104,000 and wondering whether to take out private cover: you don't need to. If you're on $107,000: you do — unless you want to pay the surcharge instead. The maths differs at every income level. This guide runs the break-even calculation for you.
What is the Medicare Levy Surcharge?
The MLS is an additional levy of 1%–1.5% on your income, charged annually if:
- Your income exceeds the MLS threshold, and
- You don't hold an appropriate level of private hospital cover for the full financial year
Extras-only cover (dental, optical, physio) does not count. You need a registered private hospital policy with a maximum hospital excess of $750 for singles ($1,500 for families).
The MLS is separate from — and on top of — the standard 2% Medicare levy that most Australians already pay.
2026-27 MLS thresholds and rates
| Income (singles) | Income (families) | Surcharge rate |
|---|---|---|
| $0 – $105,000 | $0 – $210,000 | No surcharge |
| $105,001 – $123,000 | $210,001 – $246,000 | 1.0% |
| $123,001 – $164,000 | $246,001 – $328,000 | 1.25% |
| $164,001+ | $328,001+ | 1.5% |
The family income threshold increases by $1,500 for each additional dependent child after the first.
Key change from 2025-26: The entry threshold increased from $97,000 to $105,000 — meaning approximately 200,000 fewer Australians are exposed to the MLS in 2026-27. If you were previously caught by the surcharge, check whether you still are.
What income counts for MLS purposes?
The ATO uses your MLS income, which is broader than taxable income. It includes:
- Taxable income
- Total net investment losses (e.g. negative gearing losses added back)
- Reportable fringe benefits (salary packaging)
- Reportable employer super contributions (salary sacrifice to super is added back)
This means you can't salary sacrifice your way below the MLS threshold. The ATO sees through it.
The break-even question: private cover or pay the surcharge?
The fundamental question is: does private hospital cover cost more or less than the MLS?
At $105,001 (Tier 1 — 1% surcharge):
- MLS cost: $1,050/year
- Basic private hospital cover: approximately $1,000–$1,800/year depending on age and fund
At exactly the entry threshold, it's almost a coin flip. A young, healthy person can often find basic hospital-only cover at $900–$1,100/year — slightly under the MLS. An older person (40s–50s) pays more for the same cover, making the surcharge potentially cheaper.
The full break-even table:
| Income | MLS (Tier) | MLS cost | Basic hospital cover (est.) | Take out cover? |
|---|---|---|---|---|
| $105,000 | None | $0 | $1,000–$1,800 | No — no MLS |
| $110,000 | Tier 1 (1%) | $1,100 | $1,000–$1,800 | Borderline — depends on premium |
| $120,000 | Tier 1 (1%) | $1,200 | $1,000–$1,800 | Often yes |
| $130,000 | Tier 2 (1.25%) | $1,625 | $1,000–$1,800 | Yes for most people |
| $150,000 | Tier 2 (1.25%) | $1,875 | $1,000–$1,800 | Yes — cover is clearly cheaper |
| $180,000 | Tier 3 (1.5%) | $2,700 | $1,200–$2,200 | Yes — surcharge materially higher |
| $220,000 | Tier 3 (1.5%) | $3,300 | $1,200–$2,500 | Yes — clearly cheaper to insure |
Hospital cover estimates are annual premiums for a single person with a basic hospital policy, hospital excess of $500–$750. Premiums increase with age, particularly after 40.
The break-even shifts clearly in favour of taking out cover once income exceeds approximately $120,000–$130,000 — at that point the surcharge cost is comfortably above even the most expensive basic policy.
Use our Income Tax Calculator to estimate your total tax including Medicare levy and MLS at your income level.
The Lifetime Health Cover (LHC) loading: the hidden cost of delay
The MLS question is not just about this year's premium. If you're 30 or older and don't currently hold private hospital cover, taking it out later comes with a Lifetime Health Cover (LHC) loading.
LHC adds 2% to your hospital premium for every year you were over 30 without cover — capped at 70% above the base rate. The loading applies for 10 consecutive years once you take out cover.
Example: You're 38 and have never held private hospital cover. Taking it out now means paying the base premium plus 16% LHC loading (8 years over 30 × 2%). If the base premium is $1,200/year, you pay $1,392/year for the first 10 years.
If you wait until 45: that's 15 years over 30, adding 30% to your premium.
This is a real cost that accumulates the longer you delay taking out cover — separate from and on top of the MLS calculation. For anyone in their 30s who crosses the MLS threshold in 2026-27, getting hospital cover now locks in a lower LHC loading baseline.
What counts as qualifying private hospital cover?
To avoid the MLS, your policy must:
- Be hospital cover (not extras-only)
- Be registered with an Australian health insurer
- Have a maximum hospital excess of $750 or less for singles ($1,500 or less for couples/families)
The cheapest MLS-compliant products are "basic hospital" tiers — covering only the legally required minimum set of clinical categories. These are fine for MLS avoidance purposes if the only goal is to dodge the surcharge. They won't cover things like joint replacements, cardiac procedures, or rehabilitation — check what's included if you expect to use the cover.
Strategies to reduce your MLS exposure
1. Check your actual MLS income (not just salary)
If you negatively gear a property, the net loss is added back to your income for MLS purposes. Many investors forget this and underestimate their MLS income. If you're close to a threshold, this can push you into a higher tier — or out of the surcharge zone entirely after a profitable year.
2. Time your hospital admission
If you take out private cover mid-year but need hospital treatment in the same year, the MLS applies to the portion of the year you didn't hold cover. You can't take out cover retroactively.
3. Family income threshold
For couples and families, the MLS uses combined income. The family threshold of $210,000 means two earners each on $100,000 ($200,000 combined) don't pay MLS — unless one earner's individual income exceeds the single threshold ($105,000). A couple earning $110,000 + $95,000 = $205,000 combined is below the family threshold and pays no MLS.
Frequently asked questions
What is the Medicare Levy Surcharge threshold for 2026-27?
For singles: $105,000. For families: $210,000 (increasing by $1,500 for each dependent child after the first). These thresholds increased from $97,000 / $194,000 in 2025-26.
Does salary sacrificing into super reduce my MLS income?
No. Reportable employer super contributions (including salary sacrifice amounts) are added back to your taxable income when the ATO calculates MLS income. You cannot reduce your MLS exposure by salary sacrificing to super.
Do I need extras cover or just hospital cover to avoid the MLS?
Hospital cover only — extras-only policies (dental, optical, physio, etc.) do not count for MLS purposes. You need a registered private hospital policy with an excess of $750 or less for singles.
I'm under 30. Do I need private health cover?
There's no MLS on income under $105,000, so income under that threshold means no surcharge regardless of age. If you're under 31 and have no private hospital cover, you haven't started accumulating LHC loading. Once you turn 31, you begin accumulating 2%/year — so there's a genuine financial reason to take out cover before or shortly after your 31st birthday if you expect to eventually hold it.
What happens if I have private cover for only part of the year?
The MLS applies to the proportion of the year you didn't hold qualifying private hospital cover. If you took out cover on 1 January 2027 (halfway through the 2026-27 year), you'd pay the MLS on half a year's income. The ATO calculates this daily.
Is it worth getting private health cover just to avoid the MLS?
At income above $130,000, private hospital cover almost always costs less than the MLS alone — making it financially worth it purely as a tax strategy. Below $120,000 (especially for younger, healthy people), basic hospital cover and the MLS can be close enough that the answer depends on your specific premium quote. Get quotes from at least 2–3 funds before deciding.
Medicare Levy Surcharge thresholds and rates in this article reflect the 2026-27 financial year, effective 1 July 2026. Thresholds are indexed annually. Private health insurance premiums vary by fund, age, and state — obtain current quotes before making any decision. This article is general information only and does not constitute financial or health advice.
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Written by
Mahi PatilSoftware engineer & personal finance enthusiast · Melbourne, Australia
Built Dolaro.com.au to create accurate, free Australian finance tools. Invests in Australian and global ETFs and writes about the topics researched firsthand. More about Mahi →