Health insurers and intermediaries may see an uptick in demand for qualifying hospital cover products in the coming weeks, as Money.com.au warns higher-income Australians that July 1 marks the start of a new Medicare Levy Surcharge (MLS) obligation period.
The financial comparison site’s research found that 31% of Australians who received a pay rise in the past 12 months had their earnings pushed past the MLS threshold – a cohort that must secure eligible private hospital cover before the new financial year begins or face surcharge liability when they lodge their 2026-27 tax returns.
The MLS is charged on top of the standard 2% Medicare Levy. According to the Australian Taxation Office (ATO), the surcharge is levied on an individual’s taxable income, total reportable fringe benefits, and any amount on which family trust distribution tax has been paid. The rate varies by income band: 1% for those just above the threshold, rising to 1.25%, and then 1.5% for higher earners. For the current financial year, singles earning between $101,001 and $118,000 are subject to a 1% surcharge. The rate increases to 1.25% for incomes between $118,001 and $158,000, and to 1.5% for incomes at or above $158,001. Family and couples thresholds are set at double the singles figures across all tiers, with an additional $1,500 added per dependent child after the first, according to PrivateHealth.gov.au.
Based on Money.com.au’s figures, the minimum surcharge liability comes to $1,010 for singles and $2,020 for couples and families who went without eligible hospital cover for the entire 2025-26 year. Those who held qualifying cover for a portion of the year may owe less, since the MLS is calculated on a pro-rata basis relative to the number of uncovered days. The ATO processes each individual’s MLS liability through their annual tax return. Because the surcharge is not captured through employer tax withholding, it is added directly to a taxpayer’s assessed liability – meaning those subject to it may see a reduced refund or an unexpected tax bill upon lodgement.
Starting July 1, 2026, revised income thresholds will apply. Singles will be subject to the surcharge only if their income for MLS purposes exceeds $105,000, up from the current $101,000. For couples and families, the threshold rises to $210,000, from the current $202,000, with the $1,500-per-additional-dependent-child increment retained. Surcharge rates of 1%, 1.25%, and 1.5% remain unchanged under the new structure, according to PrivateHealth.gov.au. Chris Whitelaw, general manager of health insurance at Money.com.au, noted that for many higher earners, the opportunity to avoid the MLS in the current financial year has already passed. “For many Australians, it’s already too late to avoid the MLS for this financial year if they didn’t have eligible hospital cover in place. The opportunity now is to get cover before July 1 and maintain it throughout the next financial year, so you don’t get caught out again at tax time,” Whitelaw said.
On the question of whether cover or the surcharge represents better value, Whitelaw drew a direct comparison. “At a minimum, you need to take out a basic hospital policy to avoid paying the MLS. In many cases, the cost of cover is similar to – or even less than – what you’d otherwise pay in additional tax. The difference is that with health insurance, you’re paying towards cover and services you may actually use, whereas the MLS is essentially dead money,” Whitelaw said. He pointed to specific figures to frame the comparison. “Some of the cheapest eligible basic hospital policies start from around $1,000 a year for singles – less than the $1,066 Medicare Levy Surcharge payable by someone earning the average annual wage of $106,657 who doesn’t have eligible cover. It’s definitely worth comparing your cover options before July 1 and running the numbers,” he said. He also flagged a consideration for those weighing entry-level policies. “Entry-level hospital policies often provide limited benefits, so it’s generally worth considering at least a Bronze policy combined with extras. This gives you access to services you’re more likely to use throughout the year, like dental, optical, and physiotherapy,” Whitelaw said.
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Under the rules set out by PrivateHealth.gov.au, hospital cover must be held with a registered health insurer and must cover some or all fees and charges associated with a hospital admission. Since April 1, 2019, the maximum allowable annual excess has been capped at $750 for singles and $1,500 for couples and families. Policies carrying a higher excess do not confer an MLS exemption, with a limited exception for those who held a higher-excess policy continuously since on or before May 24, 2000.
Several categories of cover do not qualify for the exemption. These include general treatment-only policies, overseas visitors cover, overseas student health cover, and any policy held with a non-registered or international insurer, according to PrivateHealth.gov.au. The ATO also notes that changes in personal circumstances throughout the year – including shifts in income, marital status, dependants, or insurance coverage – can affect an individual’s MLS liability. Policyholders who suspend their hospital cover while travelling overseas remain liable for the surcharge during the period of suspension, even if the policy itself remains nominally active.
The Money.com.au research identified a generational pattern in MLS threshold exposure. Among those whose pay rises pushed them above the threshold, Millennials represented the largest share at 49%, followed by Gen Z at 39%. Gen X came in at 27%, while Baby Boomers accounted for just 7% of those affected.
