Every year around tax time, the same realisation hits thousands of Australians: a surcharge they could have legally avoided, now baked into their tax bill. The Medicare Levy Surcharge (MLS) is a tax on higher earners who don't hold private hospital cover, and for most people over the threshold, a cheap hospital policy costs less than the surcharge itself. But not always, and the funds selling you cover would rather you didn't know where the line sits. Here's how to avoid it without overpaying.
Who pays the MLS in 2026-27
The surcharge applies if your income for MLS purposes is above the threshold and you don't hold an appropriate level of hospital cover for the full financial year. The rate steps up by income tier (privatehealth.gov.au):
| Singles income | Couples / families income | MLS rate |
|---|---|---|
| Up to $105,000 | Up to $210,000 | 0% (no surcharge) |
| $105,001 to $123,000 | $210,001 to $246,000 | 1% |
| $123,001 to $164,000 | $246,001 to $328,000 | 1.25% |
| $164,001+ | $328,001+ | 1.5% |
Two things worth knowing. The rate applies to your whole income, not just the part above the threshold, so crossing a tier by a single dollar re-prices the lot. And the family threshold rises by $1,500 for each dependent child after the first. Income for MLS purposes is broader than your salary: it adds back things like reportable super contributions and fringe benefits, so check your real figure before assuming you're under.
What actually counts as qualifying cover
This is where people overpay. To dodge the MLS you need hospital cover with an excess of $750 or less for singles, or $1,500 or less for couples and families (ATO). That's it. A Basic tier policy qualifies. You do not need Silver, you do not need Gold, and you do not need extras. Extras-only cover (dental, optical, physio) does not count, no matter how much you pay for it. Neither does travel insurance.
So the cheapest compliant Basic hospital policy avoids the exact same surcharge as a top-tier Gold policy. If tax is your only reason for buying, anything above Basic is money spent on cover you didn't need for the job.
The maths: surcharge vs the cheapest qualifying policy
Here's the MLS you'd pay at different single incomes, against a cheapest qualifying Basic policy of roughly $1,000 a year (a mid-point of the $920 to $1,320 range across states, before the government rebate). Green rows are where cover wins. The pink row is the trap.
| Single income | MLS you'd pay | Cheapest qualifying policy | Better option |
|---|---|---|---|
| $106,000 | $1,060 (1%) | ~$1,000 | Line-ball: in dearer states the tax is cheaper |
| $120,000 | $1,200 (1%) | ~$1,000 | Cover, saves ~$200 |
| $130,000 | $1,625 (1.25%) | ~$1,000 | Cover, saves ~$625 |
| $150,000 | $1,875 (1.25%) | ~$1,000 | Cover, saves ~$875 |
| $170,000 | $2,550 (1.5%) | ~$1,000 | Cover, saves ~$1,550 |
| $200,000 | $3,000 (1.5%) | ~$1,000 | Cover, saves ~$2,000 |
MLS = rate for your tier applied to your whole income. Policy cost is an indicative cheapest Basic singles premium before the government rebate; actual price varies by fund and state. If you earn under $158,000 the rebate lowers the premium further, widening the gap in cover's favour.
For couples, the same logic starts at $210,000 combined income, with the cheapest qualifying couples policy from around $180 a month (roughly $2,160 a year). Above the threshold, cover almost always beats the surcharge, and the gap grows fast with income.
How to avoid it without overpaying
1. Buy Basic, not more
If tax is the only reason you're buying, the cheapest compliant Basic hospital policy does the whole job. Being upsold to Silver or Gold "just to be safe" can double or triple your premium for a surcharge exemption you already had at Basic.
2. Check you're actually over the line first
At incomes just above $105,000, the surcharge can be smaller than even the cheapest policy, especially in states where Basic cover runs dearer. If you're in that zone and you don't otherwise want private cover, paying the MLS can be the cheaper choice. Cover only clearly wins once your income climbs a little higher. Don't buy a policy to avoid a tax that's smaller than the policy.
3. Hold it for the full financial year
The MLS is pro-rated by the number of days you're uninsured. A policy that starts on 1 July and runs all year gives you a full exemption. Start it halfway through and you still pay the surcharge for the uninsured half. If you're buying to dodge the MLS, the start date matters as much as the policy.
4. Don't confuse extras with hospital cover
Extras cover feels like "having insurance," but it does nothing for the MLS. Only hospital cover with a qualifying excess counts. Paying for an extras-only policy and assuming you're exempt is one of the most common and expensive mistakes.
The move at tax time
The MLS is one of the few taxes you can legally opt out of, but only if you get the cover right: qualifying tier, low enough excess, held for the full year, and not a dollar more than you need. The hard part isn't the rule, it's finding the genuinely cheapest qualifying policy in your state without wading through 40 funds and a hundred tiers.
That's the job Konkrd does. Tell us your income and state, and the Navigator finds the cheapest cover that actually exempts you from the surcharge, explains why it qualifies in plain English, and gives you a straight answer, not a sales funnel. Your policy then lives in your Locker with a renewal reminder, so next year's surcharge never sneaks up at tax time.
Health insurance, conquered. Start your quote.
This article is general information only and doesn't consider your personal circumstances, and it isn't tax advice. MLS rates, thresholds and premiums change, and income for MLS purposes can differ from your salary: check privatehealth.gov.au, the ATO and any fund's Product Statement before deciding. Dollar figures apply the MLS rate for each tier to the stated income and compare it against an indicative cheapest Basic singles premium of about $1,000 a year (range $920 to $1,320 by state, before the government rebate). They're worked examples, not quotes: your actual cost depends on the policy you choose. Sources: privatehealth.gov.au (Medicare Levy Surcharge), ATO (appropriate level of cover), Finder (cheapest qualifying policy pricing, 2026), 2026 state pricing guide.
