Many Aussies take out private health insurance for a different reason, one of which is to save on tax. If you’re considering taking out cover for tax purposes, there are some things you need to be aware of.
In Australia, there are 3 main ways to use private health insurance to save on tax. They are:
The MLS, the LHC, premium rebates — private health insurance comes off a lot more complicated than it should. Let’s walk through each of these to give you a better idea of how health insurance can deliver more than just cover.
Below are some basic policies from Finder partners with enough cover to avoid both the Lifetime Health Cover Loading and the Medicare Levy Surcharge. All prices are based on a single individual with less than $101,000 income and living in Sydney.
Most Australians already pay the Medicare Levy, which is a 2% tax on your income that helps fund the public health system. The Medicare Levy Surcharge (MLS) is something different: it's an additional tax of 1% to 1.5% that applies to higher-income earners who don't hold private hospital cover.
If you earn above a certain threshold and don't have hospital cover, the government charges you extra tax. If you do have cover, you're exempt.
The simplest way to avoid the MLS is to hold an eligible private hospital policy for the full financial year. Because the surcharge is calculated on a daily basis, taking out cover mid-year won't eliminate your liability, but it will reduce it.
| Tier | Single income | Family income | MLS rate |
|---|---|---|---|
| Tier 0 (no surcharge) | $101,000 or less | $202,000 or less | 0% |
| Tier 1 | $101,001 – $118,000 | $202,001 – $236,000 | 1.0% |
| Tier 2 | $118,001 – $158,000 | $236,001 – $316,000 | 1.25% |
| Tier 3 | $158,001 or more | $316,001 or more | 1.5% |
Family thresholds increase by $1,500 for each dependent child after the first.
🔥 Hot tip
Remember, extras cover does not exempt you from the MLS. The only way to avoid the MLS is to take out hospital cover.
This is where many people get caught out. The ATO doesn't use your standard taxable income to calculate MLS. It uses a broader figure that can be higher than what you see on your payslip.
Your income for MLS purposes includes:
The Lifetime Health Cover loading is the government's strategy to encourage younger Australians to take out hospital cover early. Unlike the MLS, LHC loading isn't a tax, but rather a premium increase applied by your insurer.
To avoid the LHC entirely, the deadline is 1 July following your .
For every year you go without hospital cover after your LHC base day, a 2% loading is added to your hospital premiums. Here’s what that looks like:
| Age you take out cover | Years without cover | LHC loading |
|---|---|---|
| By 31 (base day) | 0 | 0% |
| 35 | 4 years | 8% |
| 40 | 9 years | 18% |
| 45 | 14 years | 28% |
| 50 | 19 years | 38% |
| 65+ | 34+ years | 70% (maximum) |
You may be exempt from the LHC if you meet one of the following conditions:
The private health insurance rebate is a government subsidy that reduces the cost of your premiums. Depending on your income and age, you can receive back a percentage of what you pay, which could make private health insurance more affordable.
The rebate is income-tested, meaning higher earners receive a smaller percentage (or nothing at all), applying to hospital cover, extras cover and combined policies.
The rebate percentage is adjusted each year. For FY2025–26, the rates split across two periods: 1 July 2025 to 31 March 2026 and 1 April 2026 to 30 June 2026. If you claim the rebate as a premium reduction through your insurer, they handle this automatically. If you claim it through your tax return, the ATO calculates a blended rate for the full year.
As a general guide, base-tier earners (singles under $101,000, families under $202,000) receive a rebate of approximately 24% on eligible premiums for FY2025–26, depending on age. The rebate reduces as your income rises and cuts out entirely at Tier 3 ($158,001+ for singles, $316,001+ for families).
| Thresholds | ≤$101,000 | $101,001-118,000 | $118,001-158,000 |
|---|---|---|---|
< Age 65 | 24.118% | 16.079% | 8.038% |
Age 65-69 | 28.139% | 20.098% | 12.058% |
Age 70+ | 32.158% | 24.118% | 16.079% |
| Thresholds | ≤$202,000 | $202,001-236,000 | $236,001-316,000 |
|---|---|---|---|
< Age 65 | 24.118% | 16.079% | 8.038% |
Age 65-69 | 28.139% | 20.098% | 12.058% |
Age 70+ | 32.158% | 24.118% | 16.079% |
What is the private health insurance rebate and how has it changed?
Unsure of how to complete the Medicare Levy Surcharge section of your tax return or claim your rebate? This article can help you.
Are you over 31 years of age and don’t have private hospital cover? Then read this guide, because it could save you a LOT of money in the future.