Not a wealth move — a leak to plug. If you earn over the threshold with no hospital cover, you're paying an extra tax for nothing. Often a basic policy costs about the same and you get something back.
1The idea
Everyone pays the 2% Medicare levy. On top of that, higher earners without private hospital cover pay an extra Medicare Levy Surcharge (MLS) of 1% to 1.5% of income — the government's nudge to take some load off the public system.
Here's the quirk worth knowing: if you're over the threshold, a basic hospital policy can cost about the same as — or less than — the surcharge you're already paying. So instead of handing over 1.5% and getting nothing, you redirect similar money into actual cover.
There's a second clock: Lifetime Health Cover adds 2% to your premium for every year you delay hospital cover past age 31 — so waiting gets permanently more expensive.
2Who it's for
Singles earning over ~$97k, or families over ~$194k, with no private hospital cover — you're the one paying the surcharge.
Below the threshold? The surcharge doesn't apply to you — don't buy cover just to dodge a tax you're not paying. Buy it for the health reasons, or not at all.
The income test is broader than your salary — it adds back reportable super, investment losses and fringe benefits, so check the real figure.
3The worked example
A single earning $120,000 with no hospital cover sits in the 1.25% surcharge tier:
Surcharge for no cover (1.25% × $120k)−$1,500
A basic hospital policy instead~$1,200
You're better off by~$300 + you're covered
The surcharge buys you nothing. For roughly the same outlay — sometimes less — you cancel the surcharge and hold actual hospital cover. That's the whole trick.
4Try it on your numbers
Surcharge vs a basic policy
Basic policy /year$1,200
Your surcharge tier1.25%
Surcharge if you stay uncovered−$1,500
A basic hospital policy$1,200
Taking cover leaves you+$300 ahead
Family thresholds rise by ~$1,500 per child after the first. Premiums vary by age, state and excess — get a real quote. Estimates only.
5The honest caveats
It must be hospital cover. Extras-only ("ancillary") policies don't switch off the surcharge — you need a registered hospital policy.
Basic policies have an excess and exclusions. They clear the surcharge, but read what's actually covered before you rely on it.
Don't tip yourself backwards. If a policy costs much more than your surcharge, you're only ahead if you value the cover — be honest about which it is.
6How to action it
Work out your income for MLS and whether you're over the threshold (the calculator above is the quick check).
If you are, price a basic hospital policy on a comparison site and put it beside your surcharge.
Near or past 31 and uninsured? Factor the Lifetime Health Cover loading — taking cover sooner locks in a lower premium for good.
General educational information, not personal tax, health-insurance or financial advice. MLS thresholds and rates are indexed and the income test has detail — confirm your specifics with a registered tax agent or at ato.gov.au. Figures are estimates for FY2025-26.