This is a question that we hear a lot so we decided to turn it into a FAQ. To be able to answer this question properly, it requires an understanding of a couple of things: 
  1. Medicare Levy 
  2. Medicare Levy Surcharge  
 
Short Answer: 
 
It will be generally be correct that there is a Medicare Levy amount reporting in your return. Once you go over a base amount, you are required to pay the Medicare Levy at a rate of 2% of your assessable income. This will apply for every taxpayer, unless a concession or exemption applies.  
 
There is an extra Medicare amount that is charged when your income exceeds the stated threshold. This extra charge is called the Medicare Levy Surcharge (MLS).  The assessable income thresholds are applied in tiers and these tiers currently start at $93,000 for an individual and $186,000 in family income (2023-2024 FY rates). The MLS is based upon how much you earn and can be up to 1.5% of your total assessable income.  
 
If you go over that that MLS threshold amount and you don't have private hospital insurance then you'll pay the extra amount.  
 
This means that the private health cover that you have will ensure that you don't pay the Medicare Levy Surcharge, however the base amount will still be charged.  
 
 
Long Answer: 
 
If you want a more detailed understanding of what this means then here is the Long Answer:  
 
What is the Medicare Levy?
The Medicare Levy is an additional charge in your tax return that helps pay for healthcare in Australia.  
 
There is a base amount of money you need to earn before you have to pay the Medicare Levy. The base amount changes every year. For example, for the 2021-2022 financial year, the Medicare Levy base amount is $23,365 for individuals ($36,925 for seniors and pensioners entitled to SAPTO). And $39,402 for family income.  
 
This means that if you make more than this amount of money, you'll have to pay the Medicare Levy, which is 2% of your overall assessable income. Note I said assessable income. This can be different to your taxable income.  
 
There are also circumstances where you may qualify for a discount or complete exemption from the Medicare Levy. But this will be assessed on a case by case basis.  
 
For more information on the Medicare Levy, see this link> https://www.ato.gov.au/Individuals/Medicare-and-private-health-insurance/Medicare-levy/
 
What is the Medicare Levy Surcharge?
The Medicare Levy Surcharge is a tax that some taxpayers have to pay if they don't have private hospital insurance. It's an extra charge that's added on top of the regular Medicare Levy. 
 
If you earn more than a certain amount of money and you don't have private hospital insurance, you'll have to pay the Medicare Levy Surcharge. The amount of the surcharge is based on how much money you earn and it can be up to 1.5% of your income. 
 
The idea behind the surcharge is to encourage people to take out private hospital insurance so that they can help pay for their own healthcare. If more people have private insurance, it means that there's less pressure on the public healthcare system, which is funded by taxes. 
 
It's important to note that the Medicare Levy Surcharge only applies to the part of the year that you didn't have private hospital insurance. So if you take out private insurance partway through the year, you'll only have to pay the surcharge for the part of the year that you were without insurance. 
 
In a summary it is penalty that a taxpayer will pay for having no private health insurance.  
 
For more information on the Medicare Levy Surcharge, see this link> https://www.ato.gov.au/Individuals/Medicare-and-private-health-insurance/Medicare-levy-surcharge/
 
For more information on Private Health, see this link>  https://www.privatehealth.gov.au/
 
How do I avoid the Medicare Levy Surcharge?  
  • your taxable income for MLS purposes is below the income threshold (see above), 
  • your taxable income for MLS purposes is over the income threshold and you have approved hospital insurance (see below) for you and all of your dependents with a registered health insurer. From 1 April 2019, the total yearly front-end deductible or excess on the policy can be no greater than $750 for singles and $1,500 for families/couples. (Prior to 1 April 2019, the maximum deductible or excess was $500 for singles or $1,000 for families/couples.) 
  • you are normally exempt from the Medicare levy because you are a prescribed person and you do not have any dependents. Your  income level is not considered in this case, 
  • you are a high-income earner who had already purchased a hospital insurance product with a total yearly front-end deductible or excess greater than $500 for singles or $1,000 for families/couples, on or before 24 May 2000. In this case you will continue to be exempt from the surcharge as long as you maintain continuous membership under the same hospital treatment policy. 
Does the type of private health insurance matter?
Yes. To avoid the surcharge you must hold hospital cover.
 
To be exempt from the surcharge, your hospital cover must be held with a registered health insurer and cover some or all of the fees and charges for a stay in hospital.  
From 1 April 2019, the maximum permitted excesses for private hospital insurance is $750 for singles and $1,500 for couples/families (i.e. if multiple hospital claims are made in a single year, the excess paid by you cannot exceed $750/$1,500).  
 
The following types of health insurance do not provide an exemption: 
  • General treatment cover without hospital cover;  
  • Overseas Visitors Cover or Overseas Student Health Cover; or 
  • Cover held with non-registered insurers, such as international insurers.  
 
 
Who does the private health policy need to cover?
Who you need to hold cover for will depend upon your family situation. If you are a family with a combined income above the family income threshold, you must hold hospital cover for you, your partner, and your dependents to avoid the surcharge. If your partner or one of your dependents is not covered, you will pay the surcharge. 
 
We are often asked, what about adult children? A person over the age of 21 who is not a full-time student is not considered a dependent for MLS purposes. 
 
A person who is covered as a dependent aged over 21 on a family hospital policy, who also earns over the MLS income threshold, is liable to pay the MLS. To be exempt from the MLS, the person needs to take a hospital policy for themselves.