Private health insurance makes sure you’re covered if you need medical care, but it can also help at tax time. To encourage Australians to take out cover, the government offers several incentives that can reduce your premiums and help lower your overall tax bill.
Does having private health insurance affect the tax I have to pay?
Private health insurance premiums are not tax-deductible, so they won’t directly reduce your taxable income.
However, having cover can still save you money at tax time through:
- The private health insurance rebate: a contribution from the government to help reduce the cost of your premiums.
- Avoiding the Medicare Levy Surcharge (MLS): an extra tax for higher-income earners without private cover.
Private health insurance can also help you avoid Lifetime Health Cover (LHC) loading. While not a tax, it’s a government-imposed cost that can significantly increase your premiums if you don’t take out cover by age 31.
Private health insurance rebate
The private health insurance rebate is a contribution from the Australian Government to help eligible Australians cover the cost of their health plan. It applies to all types of private health insurance, covering both hospital and extras policies.
You can claim your rebate in one of two ways:
- Through your health insurance provider, who will apply the rebate directly upfront and reduce your premiums.
- When you lodge your tax return, with the rebate paid as a lump sum.
The rebate amount is the same whether you claim it upfront or at tax time, so it just depends on which method you prefer.
How much you receive depends on income and age: the rebate decreases as income rises, though older Australians receive higher rebates within each income tier.
For the 2025–26 tax year, the income thresholds and rebate amounts are as follows:
| Income tier | Single income | Family income* | Aged under 65 | Aged 65–69 | Aged 70+ |
|---|---|---|---|---|---|
| Base | $101,000 or less | $202,000 or less | 24.12% | 28.14% | 32.16% |
| Tier 1 | $101,001 – $118,000 | $202,001 – $236,000 | 16.08% | 20.10% | 24.12% |
| Tier 2 | $118,001 – $158,000 | $236,001 – $316,000 | 8.04% | 12.06% | 16.08% |
| Tier 3 | $158,001+ | $316,001+ | 0% | 0% | 0% |
| Source: ATO Rebate rate shown effective from 1 April 2026 to 30 June 2026. * The family income threshold increases by $1,500 for each dependent child after the first. |
|||||
Medicare Levy Surcharge
The MLS is an additional tax of 1–1.5% for higher-income earners who do not have an appropriate level of private hospital cover.
To avoid paying the MLS, your cover must have an excess of $750 or less for singles policies and $1,500 or less for couples and family policies.
Most Basic hospital policies meet this requirement, but extras cover does not qualify.
Surcharge rates for 2025-26 are as follows:
| Income tier | Base tier income | Tier 1 income | Tier 2 income | Tier 3 income |
|---|---|---|---|---|
| Single threshold | $101,000 or less | $101,001 – $118,000 | $118,001 – $158,000 | $158,001 or more |
| Family threshold | $202,000 or less | $202,001 – $236,000 | $236,001 – $316,000 | $316,001 or more |
| MLS rate | 0% | 1% | 1.25% | 1.50% |
| Source: ATO | ||||
Medicare Levy vs Medicare Levy Surcharge: what’s the difference?
The Medicare Levy is an extra 2% tax on top of your standard income tax. It helps fund the Medicare system and is generally paid by everyone, regardless of income or whether you have private health insurance, unless you qualify for a reduction or exemption.
The Medicare Levy Surcharge (MLS), on the other hand, is a separate tax for higher-income earners who don’t have an appropriate level of private hospital cover.
Lifetime Health Cover (LHC) loading
LHC loading is an additional cost applied to private health insurance premiums if you don’t take out hospital cover before the age of 31. If you join later in life, you may pay more for your cover.
The loading increases by 2% for every year you are over 31 when you first take out hospital cover, up to a maximum of 70%. Once applied, the loading stays in place for ten years, as long as you maintain continuous cover. If you cancel cover, you may become liable for LHC loading again.
Your loading is based on your LHC ‘base day’, which is 1 July following your 31st birthday.
For example, if you first take out private health insurance at age 40, you could pay a 20% loading on top of a standard policy (2% for each year over 30) for ten years.
LHC loading only applies to hospital cover, not extras. This means you need hospital cover to avoid the loading – extras cover on its own won’t be enough.
You’re not entitled to the private health insurance rebate on the portion of your premium that relates to the LHC loading.
What health insurance do I need to avoid the MLS and LHC loading?
If your main goal is to avoid extra costs like the MLS and LHC loading, you don’t need a high level of health insurance. It must be hospital cover rather than an extras plan, but in most cases, a Basic hospital policy will be enough.
As long as your policy meets the government’s requirements, you can choose a lower-cost option to avoid these charges without paying for features you may not need.
From April 2026, these are the cheapest hospital insurance options available through Savvy:
| Type | Monthly premium |
|---|---|
| Single | $78 |
| Couple | $157 |
| Family | $157 |
| Single parent | $126 |
| Source: Compare Club, March 2026 Prices are for Basic hospital plans based on a 35-year-old adult living in Sydney, earning base tier income, and choosing a $750 per person excess. |
|
Keep in mind that Basic plans provide only a minimum level of cover for medical issues. Choosing a higher level of hospital cover can give you more protection while still helping you avoid the MLS and LHC loading.
