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An alarming number of Aussies don’t know about the surcharge that can sting next tax time

Reviewed by Executive General Manager – Health, Life & Energy, Steven Spicer
6 min read
19 Feb 2024
Couple filing tax return and looking over the Medicare Levy

While 14.42 million Australians have some form of private health insurance, new research from Compare the Market shows that an alarming number of people are in the dark about factors that can influence their premiums, such as Lifetime Health Cover loading. Additionally, many do not understand how private hospital insurance can potentially impact their tax return.

Compare the Market’s latest research shows that 40.8% of Australians don’t know how the Medicare Levy Surcharge (MLS) works – despite the impact it could have on your return at tax time.* Of those who didn’t know how the MLS works, 7.8% said they didn’t even know what it was. Lana Hambilton, Head of Health Insurance at Compare the Market, explains the correlation between the Medicare Levy Surcharge and private health insurance.

“If you earn more than $93,000 as a single or $186,000 as a couple in a financial year and don’t hold an eligible private hospital insurance policy throughout the financial year, you’ll incur a surcharge known as the Medicare Levy Surcharge. This threshold increases by $1,500 for each MLS dependent child after the first child,” Ms Hambilton said.

“The purpose of the surcharge is to ease pressure on the public health system by encouraging higher income earners to take out a private hospital insurance policy.”

Depending on your annual taxable income for MLS purposes, you may incur a surcharge of 1%, 1.25% or 1.5%. The higher your income, the more MLS you pay if you don’t hold relevant hospital cover.

Ms Hambilton said many people may not realise they’ll incur the surcharge for any days they don’t hold an eligible hospital insurance policy in a financial year if they earn over the threshold amounts.

“You’ll be subject to pay the MLS for any period during a financial year that you don’t hold suitable private hospital insurance if you earn above the threshold,” Ms Hambilton said. “This means if you’re potentially getting a pay rise this financial year, that could push you above the income threshold at tax time. In this instance, you would be required to pay the MLS for every day of the financial year that you did not hold a hospital insurance policy. It is therefore a good idea to take out hospital cover as soon as possible to prevent yourself from continuing to accrue the MLS, if you expect to be over the threshold this financial year.

“Similarly, if you’re already earning more than $93,000 as a single or $186,000 as a couple, you’ll be incurring the surcharge for the days you don’t have hospital cover. If you hold an extras-only policy, you’ll still need to pay MLS if you earn over that amount.”

Compare the Market’s data also showed that Lifetime Health Cover loading was also bamboozling many Australians. Nearly half (47.5%) of Australians surveyed said they didn’t understand how Lifetime Health Cover works, while around one in five (19.8%) didn’t know what Lifetime Health Cover Loading was.

“In a nutshell, Lifetime Health Cover loading is an initiative through the Government that encourages you to take out and maintain a private hospital policy earlier in life,” Ms Hambilton explained. “Really, you want to ensure you take out and hold an eligible hospital policy before 1 July following your 31st birthday to avoid being stung with the charge if you choose to take out private hospital insurance in the future.”

The loading accrues at 2% every year that you don’t hold hospital cover from the age of 30 and can increase to a maximum of 70%.

“While we are facing a cost-of-living crisis, the reality is that the loading can make hospital cover quite expensive,” Ms Hambilton warned. “For example, taking out hospital cover for the first time as a 41-year-old could add up to 20% to your base hospital premium. You’d need to pay this additional 20% every year for 10 years, providing there is no gap in your coverage.”

It should be noted that there are some exemptions, such as:

  • Current members of the Australian Defence Force (ADF)
  • Australian citizens or permanent residents who were overseas at the time of the deadline, providing they purchase hospital cover within 12 months of their return
  • New migrants aged 31 or over, providing they take out hospital cover within 12 months of becoming eligible for Medicare
  • Department of Veteran Affairs Gold Card holders
  • Those born before 1 July 1934

Compare the Market’s research also found that many Australians with private health insurance could be paying more than they need to for cover. In fact, more than half (53.2%) of those surveyed say they’ve never switched health insurance policies.

“Not all health insurance policies are the same and there can be big price discrepancies between health funds and the same level of cover,” Ms Hambilton said. “With premiums tipped to increase from 1 April this year, there’s never been a better time to review whether you’re paying the lowest price possible for your cover.

“You won’t need to reserve any waiting periods you’ve already served if you switch to the same or a lower level of cover. You may be able to save even more by re-evaluating your health needs and moving to a policy that includes what you need, but without the bells and whistles that could be driving up your premiums.”

In some good news, 46.76% of those surveyed with health insurance say they have changed policies at least once.

Ms Hambilton’s top tips for paying less for health insurance.

  1. Pay close attention to the offers available. In addition to policies with lower premiums, see which types of offers and other incentives are available to help sweeten the deal. For example, you may be entitled to frequent flyer points, discounts on shopping and food and even free weeks of cover.
  2. Switch, don’t ditch. Reassess your health needs and ensure you only pay for what you need. While higher levels of cover have more inclusions, they tend to come with higher premiums and you may be paying for services you don’t need.
  3. Compare apples with apples. While policies may have different prices when you’re comparing, you want to ensure you are completing a like-for-like comparison. Read the policy brochure carefully and pay attention to the inclusions, exclusions, waiting periods, excess amounts, and more.

*Survey of 1,002 Australian adults, conducted in November 2023.

For more information, please contact:  

Phillip Portman | 0437 384 471 | [email protected]

Compare the Market is a comparison service that takes the hard work out of shopping around. We make it Simples for Australians to quickly and easily compare and buy insurance, energy, and home loans products from a range of providers. Our easy-to-use comparison tool helps you look for a range of products that may suit your needs and benefit your back pocket.

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avatar of author: Phillip Portman

Written by Phillip Portman

When he’s not busy writing, Phillip can usually be found at the movies, playing with his Italian Greyhound Wilma, hanging out with his cockatiel Tiki, or talking about everything pop culture. He has a Bachelor of Arts in Communication and Journalism and has previously written about health, entertainment, and lifestyle for various publications. Phillip loves to help others and hopes that people learn something new from his articles.

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