The Surcharge for Not Holding Private Hospital Cover
The Medicare levy surcharge is charged to people above an income threshold who do not hold private hospital cover, at between 1% and 1.5% of income depending on the tier. It is a policy instrument rather than a health charge: it exists to make the cheapest complying hospital policy less expensive than not having one, and for many people above the threshold it succeeds.
- The answer: Without private hospital cover, income above the threshold attracts a surcharge of 1%, 1.25% or 1.5% depending on which tier you fall into.
- The trap: Income for the surcharge is broader than taxable income and includes reportable super contributions and the grossed-up value of fringe benefits.
- The recommendation: Compare the surcharge to the cheapest complying hospital policy, not to the policy you would want. Only hospital cover counts; extras cover does not.
Where the AI summary above gets this wrong
"You can avoid the Medicare levy surcharge by taking out private health insurance."
That's surface-true. Here's what it misses:
- Only hospital cover counts — Extras cover — dental, optical, physiotherapy — does nothing for the surcharge. A policy has to include hospital cover with an excess at or below the specified limit.
- The income test is a family test where you have a family — A couple or family is assessed on combined income against a higher threshold, so one partner's income alone does not settle it.
01 Who pays it
The surcharge applies to individuals and families above the income threshold who do not hold complying private hospital cover for the whole income year, and it is charged for the days they were uncovered rather than as an annual all-or-nothing amount.
Income for surcharge purposes is broader than taxable income. It adds reportable fringe benefits, reportable superannuation contributions, total net investment losses and the amount on which family trust distribution tax has been paid.
A family threshold applies where you have a spouse or dependent children, assessed on combined income, and it increases for each dependent child after the first. Where the family threshold is exceeded, both partners are liable unless each holds cover.
Source: ATO — Medicare levy surcharge
02 What counts as cover
Only private hospital cover from a registered health insurer counts, and only where the policy excess does not exceed the specified limit. Extras cover on its own does not, and neither does overseas travel insurance or ambulance-only cover.
The cover has to be held for the full year to avoid the surcharge for the full year. Taking a policy out in February leaves the earlier period exposed, and the surcharge is apportioned to those days.
The Medicare levy itself is a separate charge and is not avoided by holding private cover. The two are frequently confused; the levy is covered in the Medicare levy reference and applies regardless of your insurance status.
Source: ATO — Medicare levy
03 The arithmetic against a premium
The comparison is between the surcharge on your income and the cost of the cheapest complying hospital policy, net of any private health insurance rebate you are entitled to. For someone just over the threshold the two are close; well above it the surcharge is clearly larger.
The worked example below puts your income against a premium. What it does not weigh is whether you want the cover, which is a separate question — the surcharge decision is about which is cheaper, and the insurance decision is about what you want from it.
For retirees the calculation shifts, because the income test uses a definition that excludes tax-free super pension payments. A self-funded retiree living on $80,000 of pension payments may be well under the threshold on the measure that counts, and paying a premium for surcharge reasons that no longer apply.
Shows: the Medicare levy surcharge on your income against the cost of a basic complying hospital policy, so you can see which is cheaper. Ignores: the private health insurance rebate, the Lifetime Health Cover loading, the value of the cover itself, and any part-year apportionment.
Source: ATO — Medicare levy surcharge
I would check whether you are still above the threshold on the measure that counts before renewing. Plenty of retirees keep a hospital policy they first took out to dodge the surcharge, and their surcharge income has been below the threshold for years. Keep the cover if you want the cover — but stop paying for it for a reason that stopped applying.
FAQ
What is the Medicare levy surcharge?
A charge of 1%, 1.25% or 1.5% of income for individuals and families above the income threshold who do not hold complying private hospital cover. It is charged for the days you were uncovered.
Does extras cover avoid the Medicare levy surcharge?
No. Only private hospital cover from a registered insurer counts, and only where the policy excess is at or below the specified limit. Extras cover on its own does nothing for the surcharge.
Do retirees pay the Medicare levy surcharge?
Only if their income for surcharge purposes exceeds the threshold. Tax-free super pension payments after 60 are not included in that measure, so many self-funded retirees fall well below it.
Sources
Regulator references
- ATO — Medicare levy surcharge · Australian Taxation Office · 2026The Medicare levy surcharge and the income tiers at which it applies.Last verified: 2026-09-07
- ATO — Medicare levy · Australian Taxation Office · 2026The Medicare levy, who pays it and the reductions and exemptions available.Last verified: 2026-09-07
Calculator unit tests · the assertions this page's worked example is checked against, and their last result
Changelog
- 2026-09-07 — initial publish (new format)
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Jordan Reeves
Founder of Talk Through Wealth. A software engineer for over a decade before turning to retirement planning, Jordan built the projection engine after watching family members get fragmented, country-by-country advice that never reconciled. He writes about retirement the way the engine computes it: month-by-month, lifetime-long, and skeptical of any rule of thumb that hasn't been run through the math.