Australian Government Rebate & Medicare Levy Surcharge Explained

Two government policies quietly shape almost every private health insurance decision in Australia: the private health insurance rebate, which can reduce your premium, and the Medicare Levy Surcharge (MLS), which can increase your tax bill if you go without cover. They’re linked, income-tested, and worth understanding properly before you buy, cancel, switch or upgrade a policy.

The Australian Government Rebate

The rebate is a government contribution toward the cost of your private health insurance premium. It’s income-tested and also depends on the age of the oldest person covered by the policy — older policyholders get a slightly higher rebate percentage at the same income level.

You can take the rebate as a reduced premium (most people do this, chosen when you set up the policy) or claim it as a refundable tax offset when you lodge your tax return.

2025–26 income thresholds

Family status	Base tier	Tier 1	Tier 2	Tier 3
Single	$101,000 or less	$101,001–$118,000	$118,001–$158,000	$158,001 or more
Family	$202,000 or less	$202,001–$236,000	$236,001–$316,000	$316,001 or more

(The family threshold increases by $1,500 for each dependent child after the first.)

2025–26 rebate rates (1 July 2025 – 31 March 2026)

Age of oldest person on policy	Base tier	Tier 1	Tier 2	Tier 3
Under 65	24.288%	16.192%	8.095%	0%
65–69	28.337%	20.240%	12.143%	0%
70 and over	32.385%	24.288%	16.192%	0%

Rates adjust again from 1 April 2026 to 30 June 2026 (they drop slightly — for example, the under-65 base tier moves to 24.118%). Because the rebate is based on your income for the whole financial year, if your income shifts between tiers during the year, you may owe money back or receive extra as a tax offset when you lodge your return.

Important: if you’re the only adult on a policy, your whole premium (minus Lifetime Health Cover loading) is tested against your income. If multiple adults share a policy, each person’s share is tested against their own individual income — so two people sharing a joint policy can end up with two different rebate rates.

The Medicare Levy Surcharge

The MLS is effectively the opposite lever: it’s an extra tax, on top of the standard 2% Medicare levy, charged to higher-income earners who don’t hold an appropriate level of private hospital cover. It exists to encourage higher earners to take pressure off the public hospital system.

2025–26 MLS thresholds and rates

Threshold	Base tier	Tier 1	Tier 2	Tier 3
Single	$101,000 or less	$101,001–$118,000	$118,001–$158,000	$158,001 or more
Family	$202,000 or less	$202,001–$236,000	$236,001–$316,000	$316,001 or more
MLS rate	0%	1%	1.25%	1.5%

The surcharge is calculated on your entire income for MLS purposes, not just the portion above the threshold — so crossing into Tier 1 at $101,001 as a single person means paying 1% on the full $101,001, not just the dollar over the line. For a single person earning $120,000 with no hospital cover, that’s a Tier 2 surcharge of 1.25% — roughly $1,500 a year — which is often more than a basic hospital policy would cost.

To avoid the MLS, your hospital cover has to qualify

Not every policy counts. To be exempt from the MLS, your hospital cover generally needs:

• An excess no higher than $750 for singles or $1,500 for couples/families
• To be private hospital cover — extras-only policies don’t count, no matter how comprehensive

This is why even a Basic hospital policy can make financial sense for higher earners: it’s often cheaper than the surcharge itself, while also starting the clock on Lifetime Health Cover to avoid future loading.

How this connects to switching insurers

If you’re comparing or churning between funds, both of these figures should factor into your decision, not just the headline premium:

• Check your rebate tier before comparing quotes — a lower headline premium from one insurer might net out to a similar out-of-pocket cost as a higher one once the rebate is applied differently based on age brackets
• Never let hospital cover lapse for an extended period if you’re near or above the MLS threshold, since even a short gap can trigger a surcharge for that period
• If your income is trending toward a higher rebate tier boundary, it’s worth checking whether nominating a different rebate percentage with your insurer (or adjusting how you claim it) avoids owing money back at tax time

FAQs

Do I get the rebate automatically? You need to nominate your expected rebate tier with your insurer when you take out the policy (as a premium reduction), or you can choose to claim it later as a tax offset when lodging your return.

What happens if I estimate my rebate tier incorrectly? You’ll either owe the difference back to the ATO or receive extra as a tax offset when you lodge your tax return, depending on whether your actual income ended up higher or lower than estimated.

Does extras-only cover help me avoid the Medicare Levy Surcharge? No. Only an appropriate level of private hospital cover counts toward MLS exemption.

Is the MLS the same as the Medicare Levy? No. The Medicare Levy (2%) applies to almost all taxpayers regardless of insurance status. The MLS is an additional charge only for higher earners without appropriate hospital cover.

Know the right day to switch

Avoiding the Medicare Levy Surcharge means never letting your hospital cover lapse — the exact risk that switching funds can create if you mistime it. PHI Tracker keeps a live record of your private health insurance: your fund, tier, policy start date and the waiting periods you’ve served. So you can churn to a better deal or sign-up offer on the right day, with no gap in cover, no re-served waiting periods, and no surprise surcharge.

Create your free PHI Tracker account and know precisely when switching is worth it.

Figures shown are for the 2025–26 income year, sourced from the ATO, and were current as at July 2026. Thresholds and rates change most years — always check ato.gov.au for the year that applies to you, and this isn’t personal financial or tax advice.