Why you still pay Medicare even with private health insurance

If you’re paying for private health insurance every month, it can feel like something doesn’t quite add up when your tax estimate shows Medicare charges on top. It might feel like you’re being charged twice for the same thing, but in reality you’re not.

On your tax estimate or notice of assessment, there are two Medicare components listed under ‘Other liabilities’:

They're calculated differently, triggered by different rules, and don't respond to private health insurance in the same way.  

This is the part most people assume their private health insurance should cover, but it doesn't. The Medicare Levy is a standard contribution to Australia's public healthcare system. It helps fund things like public hospitals, GP visits, and subsidised medicines. Whether you use those services or not isn't the point, it's based on the idea that everyone contributes.  

For most taxpayers, it's calculated at 2% of your taxable income and having private health insurance doesn't remove this levy. You can have a full hospital cover, never use the public system, and still pay for it. This is because it's not tied to your personal usage or your insurance, but to your income.  

The only time this amount reduces or disappears is if your income falls below certain thresholds or you qualify for a specific exemption. Otherwise, it applies across the board.  

This is the one that actually connects to your private health insurance. The Medicare Levy Surcharge is an additional tax that applies if your income is above a certain threshold, and you don't have the right level of private hospital cover. It's designed to encourage higher earners to take the pressure off the public system by going private.  

Unlike the standard levy, this isn't automatic. It only kicks in when both of these conditions are met:  

The rate ranges from 1% to 1.5% of your income, depending on how much you earn. This is where private health insurance makes a difference. If you have an appropriate hospital policy in place for the full financial year, the surcharge doesn't apply.  

That's why this part is often described as avoidable. You're effectively choosing between paying the surcharge or holding a level of insurance cover that meets the requirements.  

Having private health insurance doesn't automatically mean you've avoided the surcharge. The policy has to meet specific criteria.  

It needs to be hospital cover. Extras cover on its own, like dental, physio, or optical, doesn't count toward avoiding the surcharge.

The policy must also fall within the allowed excess limits:  

If your excess is higher than this, the policy won't qualify for MLS purposes.  

You also need to be covered for the entire financial year. Even a short gap, like switching providers or starting a policy later, can trigger the surcharge for those uncovered days.  

It's really just about having the right type of cover, with the right structure, and in place for the full year.  

If you're seeing an MLS on your tax assessment despite having insurance, there’s usually a specific reason behind it. 

If something doesn't look right, it's worth checking these areas first before assuming the charge is correct.  

For those that fall within the MLS thresholds, it often comes down to a simple trade-off. Do you pay the MLS, or do you pay for a level of private hospital cover that removes it?  

In many cases, a basic hospital policy can cost less than the surcharge itself. That's why some people take out cover. Not necessarily for the benefits, but to avoid the extra tax.  

It's one of the few areas where the system gives you a choice. You either pay the government through the surcharge, or redirect that cost toward private cover that meets the requirements.  

If you're unsure whether your setup is working in your favour, check with your Beany accountant. We'll walk through your tax position, check the details, and make sure there are no surprises when your return is finalised.