The private health insurance tax trap that cost one family $1,600
Key takeaways
- You could be forced to pay the Medicare Levy Surcharge if your newborn isn't properly covered with health insurance.
- The ATO allows 2 months to add your baby to health insurance after birth.
- A quick policy update could save you from an expensive tax bill surprise.
Most people know the Medicare Levy Surcharge (MLS) can apply if you earn above a certain income and don't have private hospital cover.
What many don't realise is that your whole family – including your baby – needs to be covered to avoid paying it.
I have a friend who found this out in the most expensive way…
Surprise! A $1,600 tax bill
She and her partner both had private hospital cover. After welcoming a new baby, they didn't add their son to their health insurance policy right away; he'd arrived in a public hospital and it didn't feel urgent.
Also, life with a newborn is hectic and life admin isn't a high priority when you're surviving on 3 hours of stitched-together sleep and cold toast.
Eventually, just before his 1st birthday, they added bub to their policy.
Then tax time rolled around and they received the most unwelcome surprise.
"Because he wasn't listed on our policy right away, the ATO said we didn't have an 'appropriate level of private patient hospital cover' for the entire year," she shares.
"That meant we weren't exempt from paying the MLS, even though we had private health insurance. We were hit with a Medicare Levy Surcharge bill of around $1,600."
Now, a confession from me…
I didn't believe my friend at first 😬
Surely there's been a mistake with her health insurance, I thought. This just doesn't seem right.
I dug around the ATO website for a little while – always a fun exercise – and lo and behold, there it was, in black and white:
The warning for you:
If you have private health insurance, AND
And your income is over the threshold (currently $101,000 for individuals and $202,000 for couples/families), AND
You have a baby…
Don't dilly dally and update your policy, stat.
The ATO allows a two-month grace period after your baby is born. Most health insurers also automatically cover newborns for a short time, but to satisfy the tax office and avoid the Medicare Levy Surcharge, you'll need to update your health insurance policy and add your child within two months.
Learn from my friend's very expensive mistake
A quick phone call to your insurer could save you from a hefty tax surprise later.
While we're talking about insurance: have you checked your health cover lately?
Health insurance season is almost over, which means health funds will soon be ending their deals and offers.
Right now you can get a $300 Visa gift card from Finder when you take out an eligible Medibank Hospital & Extras policy. Get your quote before the offer ends June 30, 2026.
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