Is Private Health Insurance Worth It in Australia?
Private health insurance is usually treated as a healthcare decision. For higher-income Australians it is also a tax decision — because without appropriate hospital cover, the Medicare Levy Surcharge can add 1%, 1.25% or 1.5% to your tax bill.
Private health insurance vs the Medicare Levy Surcharge
If your income is above the relevant threshold and you do not hold an appropriate level of private hospital cover, you may have to pay the Medicare Levy Surcharge (MLS).
The MLS is separate from the ordinary Medicare levy. It adds 1%, 1.25% or 1.5% to your tax, calculated on your income for Medicare Levy Surcharge purposes — which is broader than taxable income alone.
Could private hospital cover actually cost you less than the surcharge you are already paying?
That is the comparison most people never run.
Overtime, shift penalties, court time and allowances can push a police officer over an MLS threshold even when base salary sits comfortably below it.
2026–27 Medicare Levy Surcharge thresholds
These are the Australian Government thresholds for the 2026–27 financial year (1 July 2026 – 30 June 2027).
| MLS tier | Single | Family | MLS rate |
|---|---|---|---|
| Base Tier | $105,000 or less | $210,000 or less | 0% |
| Tier 1 | $105,001 – $123,000 | $210,001 – $246,000 | 1% |
| Tier 2 | $123,001 – $164,000 | $246,001 – $328,000 | 1.25% |
| Tier 3 | $164,001 and above | $328,001 and above | 1.5% |
For families with children, the family threshold increases by $1,500 for each dependent child after the first. If you are a couple or family, the test looks at your combined income — not just yours.
Source: Australian Government — privatehealth.gov.au. Thresholds are reviewed each 1 July.
Example: a single taxpayer on $130,000
Take a single taxpayer with income for MLS purposes of about $130,000 and no appropriate private hospital cover. That falls inside the 2026–27 Tier 2 range, so the 1.25% rate applies.
$130,000 × 1.25% = $1,625
The estimated Medicare Levy Surcharge is roughly $1,625 for a full year without appropriate hospital cover — paid at tax time, with nothing to show for it.
Note the surcharge is applied to the whole income figure, not just the amount above the threshold. Crossing a tier boundary by a small margin can therefore cost more than you expect.
So what would appropriate private hospital cover actually cost you for that year?
If a suitable policy costs less than — or close to — the surcharge you are already paying, private hospital cover deserves a proper look.
Don't compare the premium in isolation
The useful comparison is not:
Private health insurance premium vs paying nothing.
It is:
Cost of appropriate hospital cover
versus
Medicare Levy Surcharge otherwise payable.
Then factor in the private health insurance rebate you may be entitled to, Lifetime Health Cover, the policy excess, waiting periods — and the actual healthcare benefit of being covered.
Hospital cover and extras cover are not the same thing
For MLS purposes you generally need an appropriate level of private hospital cover. An extras-only policy — dental, optical, physiotherapy — does not satisfy the hospital cover requirement on its own.
The policy excess also matters. A hospital policy with an excess above the limit set for MLS purposes will not exempt you, so a cheap high-excess policy can leave you paying the surcharge anyway. Check the policy's excess before you rely on it.
Three things people get wrong
It does not remove the ordinary Medicare levy
The Medicare levy and the Medicare Levy Surcharge are different charges. Most taxpayers still pay the ordinary levy whether or not they hold private cover. Appropriate hospital cover may prevent the additional surcharge.
Taking out cover in June does not wipe the year
The surcharge is worked out on the days you were not appropriately covered. Cover taken out late in the financial year does not remove the surcharge for the uncovered part of the year — which is why timing the decision matters.
Lifetime Health Cover gets more expensive with age
Lifetime Health Cover loading increases the cost of hospital cover for people who take it out later in life. So the decision is not only about this year's tax saving — the long-term premium position matters too.
"Income for MLS purposes" is broader than salary
It generally includes taxable income, reportable fringe benefits, reportable employer super contributions, deductible personal super contributions and net investment losses. That is why the surcharge catches people who thought they were under the threshold.
So — is private health insurance worth it?
There is no single answer. It depends on your income, your family position and the policy you buy.
It is worth investigating where:
- Your income is above, or approaching, the relevant MLS threshold.
- You are already paying a meaningful Medicare Levy Surcharge on your return.
- The cost of suitable hospital cover is close to, or below, the surcharge you would otherwise pay.
- You are part of a couple or family — the combined income test catches a lot of households.
- You value the additional healthcare choice that private hospital cover provides.
- Lifetime Health Cover loading is becoming relevant to your age.
The PoliceTax approach
If your tax return shows a significant Medicare Levy Surcharge, don't just accept the number. The questions worth answering are:
- How much Medicare Levy Surcharge am I actually paying?
- Which income threshold did I cross — and was it the single or family test?
- What MLS rate applied to me?
- What would appropriate private hospital cover cost?
- Would taking out hospital cover make financial sense for next financial year?
Want advice before you take out private health insurance?
If your return is showing a Medicare Levy Surcharge and you want to understand the tax impact before deciding whether to buy hospital cover, talk to PoliceTax. We can review your circumstances, explain how the surcharge was calculated and set out the comparison clearly.
Get your MLS position explained
Rather than guessing whether private health insurance is worthwhile, get the tax numbers on the table first. PoliceTax works with police officers every day.
Frequently asked questions
Does private health insurance reduce my income tax?
Private health insurance premiums are not generally an income tax deduction. However, holding an appropriate level of private hospital cover for the full year can prevent the Medicare Levy Surcharge from applying, which can reduce the total amount you pay at tax time.
Do I still pay the Medicare levy if I have private health insurance?
Generally yes. The ordinary Medicare levy and the Medicare Levy Surcharge are two different charges. Private hospital cover does not usually remove the ordinary Medicare levy — it may prevent the additional surcharge.
Does extras cover avoid the Medicare Levy Surcharge?
No. An extras-only policy covering dental, optical or physiotherapy does not satisfy the private hospital cover requirement for Medicare Levy Surcharge purposes.
What income is counted for the Medicare Levy Surcharge?
Income for MLS purposes is broader than taxable income. It generally includes taxable income, reportable fringe benefits, reportable employer superannuation contributions, deductible personal super contributions and net investment losses. That is why some people are surprised to find the surcharge applies to them.
If I take out hospital cover in June, does that wipe the whole year's surcharge?
No. The Medicare Levy Surcharge is worked out on the days in the year you did not hold appropriate hospital cover. Taking out cover late in the year does not remove the surcharge for the earlier uncovered days.
Can PoliceTax tell me whether private health insurance is worth considering?
PoliceTax can show you the Medicare Levy Surcharge on your return, the income tier you fell into and the rate that applied. You can then compare that tax cost against real quotes for appropriate private hospital cover.
General information only. It does not take your personal circumstances into account and is not financial product advice about any particular health insurance policy. Thresholds, rates and policy rules change — obtain advice for your own position before making a decision.