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Key Takeaways
- Private health insurance isn’t tax deductible, but it can still save you money through the Medicare Levy Surcharge and government rebate.
- If you earn above $101,001 as a single, you may pay more in Medicare Levy Surcharge than a basic private health policy would cost.
- Private hospital cover exempts eligible taxpayers from the Medicare Levy Surcharge. Extras cover does not.
- Cheaper policies can save you tax but may leave you with unexpected out-of-pocket costs when you use them.
- Whether private health insurance is worthwhile depends on your income, health needs and how much you value private treatment.
- The Lifetime Health Cover loading adds 2% per year for every year over 30 you wait, so timing matters.
Should I get private health insurance?
Many Australians are questioning whether private health insurance still offers good value. Saving money when it comes to tax time is an important part of the decision.
Consumer watchdog Choice has criticised some cheap hospital policies that technically satisfy the Medicare Levy Surcharge exemption but cover very little, leaving you out of pocket if you actually need treatment.
With cheaper health cover plans, you avoid extra taxes and surcharges, but you may have less coverage for treatments than you might need.
More than half of the Australian population (about 13.6 million people) have private health insurance. Many don’t fully understand what they are covered for, but they choose to have cover for several reasons.
In response to growing consumer debate, the Australian Competition and Consumer Commission (ACCC) has called for standardised policies across providers.
In response, the Government made changes to private health insurance to make it simpler for consumers to choose cover that best suits their needs.
The first wave of reforms included the introduction of four easy to understand tiers, discounts for young people, improved access to mental health treatment, and higher excesses in exchange for lower premiums.
Let’s start with the basics, plus a few common questions:
What is private health insurance in Australia?
Private health insurance is a policy that helps pay for part of your medical expenses when you need treatments or hospitalisation.
There are two types of private health cover:
- Hospital: to help when you need to go to hospital. This covers you for doctors, treatments, overnight rooms and theatre costs.
- General (usually known as extras): to help with ancillary treatments such as optical and dental care plus some alternative or allied health services like physio and massage.
Private health policies are often sold with a mix of hospital and extras cover.
According to Private Health Care Australia, 55% of Australians have private health cover.
Is private health insurance tax deductible?
The short answer is no. Private health insurance is not tax deductible. However, it can help you pay less tax at tax time. More on that below!
What is the Medicare Levy?
Most Australians pay 2% of their income as the “Medicare Levy”. This funds the public health system. Higher earners without private hospital cover pay an extra surcharge on top of this called the Medicare Levy Surcharge. That’s what the rest of this page is about.
Private health cover eases the burden on our public health system.
Private health cover can provide extra benefits such as:
- the ability to choose the hospital and date of medical treatments and operations,
- better quality of care with private room options,
- access to special services like private rooms or nicer maternity wards,
- shorter wait times,
- cover for dental and optical expenses,
- a sense of security, should the worst happen,
- a good way to pay less tax.
Is private health insurance worth it?
Yes. For many Australians, private health cover makes sense. The right health insurance policy provides you with peace of mind and security when you need it.
However, a growing reality is that many policyholders, especially those on lower or medium incomes, simply cannot afford the premiums and are dropping out of private cover.
Why are some Australians cancelling their private health cover?
15% of Australians with private health insurance dropped or reduced their cover in recent years.
Daniel Graham from Choice pointed out price increases of 54% in the last decade, while the consumer price index (a measure of inflation) grew only 20%.
News coverage suggests this shift away from private health insurance is due to
- The cost. Annual fee increases, far above CPI, move the better-quality private health policies beyond the reach of many Australians.
- With many policies, you still pay out of pocket for part of the medical services you need; this gap is the difference between what the medical specialist or hospital charges and what the policy actually pays. With expensive plans this gap can be smaller (or in some cases, top plans leave no gap) but with common, cheaper plans the gap still leaves some lower-income patients with unexpected bills.
- Confusing policies that are difficult to understand and even harder to compare mean people sometimes don’t get the cover they expected, but don’t realise until it’s too late.
How does private health insurance save you tax?
Private health insurance has both advantages and disadvantages, but most people agree that paying for private hospital cover can save Australians tax money.
Australia has a public healthcare system, Medicare, but the tax system also nudges higher earners toward private cover. Without it, your Medicare Levy Surcharge grows as your income grows. Eventually, private cover can end up cheaper than the surcharge itself.
But choosing the right plan at the right cost is not simple. A cheap plan or an expensive one? Hospital or extras, or both? Which insurers are better? What will be covered?
Many Etax clients ask about private health cover, so let’s look at this more closely and find some good resources to help you decide.
How the Medicare Levy Surcharge works
People earning $105,000 or more ($210,000 or above for families) are also required to pay an additional 1-1.5% of their annual income to the government. This is called the Medicare Levy Surcharge.
Medicare Levy Surcharge threshold and rates 2026-27
| Income Threshold | Base tier | Tier 1 | Tier 2 | Tier 3 |
| Single | Up to $105,000 | $105,001 – $123,000 | $123,001 – $164,000 | $164,001 or more |
| Family | Up to $210,000 | $210,001 – $246,000 | $246,001 – $328,000 | $328,001 or more |
| Medicare levy surcharge | 0% | 1% | 1.25% | 1.5% |
Example: How John’s private health cover saves him money at tax time
John is 29, lives in Queensland and earns $120,000 a year. John’s income puts him into the Tier 2 threshold so, without private hospital cover, he’ll pay 1.25% of his taxable income to the Medicare Levy Surcharge (MLS). This equals $1,500 a year.
Instead, John chose a typical QLD private hospital cover plan costing about $1,250 per year. John is also eligible for the Australian Government Private Health Insurance Rebate (8.038% of his hospital cover). Because John has private hospital cover, he does not have to pay the Medicare Levy Surcharge.
- Without hospital cover, John will pay the Medicare Levy Surcharge at $1,500 per year
- With the 8.038% rebate applied ($100.48), John’s basic hospital cover costs him $1,149.52 a year.
- With hospital cover, John’s annual tax saving is about $351
NOTE: Only private hospital cover creates an exemption from the Medicare Levy Surcharge. Extras do not affect your tax situation, so that cost is all paid by you. The average cost for hospital and extras cover in QLD is around $2,200.spital plus extras cover in QLD $1,831. See below for average costs across Australia.)
Lifetime Health Cover adds loading to your policy if you fail to take out (or keep) private hospital cover before your 31st birthday. This amounts to 2% of the policy cost per year for every year you are over 30, up to a maximum of 70%.
One big question for Australians:
If private health cover won’t take care of my common medical needs, is it better than paying into a public medical system that does?”
How to choose the right private health cover
If you make a good income
You can afford a high-level private plan with minimal gap costs, good benefits, services and a sense of security, then a comprehensive plan probably makes sense. As a higher income earner, you probably won’t see a tax advantage.
If you make a lower or average income
A private hospital plan will generally mean a bigger tax refund for you, and if your private cover won’t change your own decisions and spending to leave you out of pocket, then private cover might be a good idea.
On the other hand, if you buy basic private hospital cover just to avoid paying a bit of tax but end up using lots of expensive health services and pay an out-of-pocket gap each time, that might put you behind financially.
This does not mean that you should ignore private health cover. It simply means that if you choose the private health cover option, it makes far more sense to purchase a policy that actually looks after you when you need it.
The decision about whether to get private health can be complicated, so you need to decide how important each of these things is to you personally:
- The financial costs
- The tax benefits
- Access to private facilities and services
- Better care in emergencies (if you have the right plan)
- Access to better services if you need maternity or other special services
- And how much you value extras if you decide to pay for them…
…that’s a lot for each person to consider.
Try some of the links below, they have useful interactive tools that help you decide whether private health insurance makes sense for you.
How to compare private health policies
When choosing your private health cover option, it’s a good idea to take your time. Concentrate on getting yourself and your family an affordable policy that provides the cover you need (and avoiding items you don’t need).
- Read (lots) so you really understand what you need.
- Talk to friends, family and work colleagues.
- Ask health professionals for advice, where possible.
- Ask private health cover providers plenty of questions and never worry about asking too many. Tell them what you need and what you don’t want to pay for.
- Use a checklist to make sure you don’t miss anything when making your decision.
Frequently asked questions
You’re not legally required to have private health insurance in Australia — Medicare covers all Australian residents. However, if you earn above $101,001 as a single (or $202,001 for families), you may pay the Medicare Levy Surcharge on top of the standard Medicare Levy. In many cases, a basic private hospital policy costs less than the surcharge itself.
The Medicare Levy Surcharge (MLS) is an additional tax of 1% to 1.5% of your taxable income, paid by higher-income Australians who don’t hold an eligible private hospital policy. It’s separate from the standard 2% Medicare Levy that most working Australians pay.
No. You can’t claim private health insurance premiums as a tax deduction. However, if you earn above the Medicare Levy Surcharge threshold, taking out private hospital cover can help you avoid that surcharge.
If you earn above the MLS threshold and take out private hospital cover, you avoid paying the Medicare Levy Surcharge. Depending on your income and the cost of your policy, this can result in a meaningful tax saving each financial year.
No. Only private hospital cover creates an exemption from the Medicare Levy Surcharge. Extras (ancillary) cover such as dental and optical does not affect your MLS liability.
Lifetime Health Cover (LHC) loading is an additional charge added to your private hospital premium if you don’t take out cover before turning 31. It increases by 2% for each year you delay, up to a maximum of 70%. Once you’ve held hospital cover for 10 consecutive years, the loading stops.
It depends. If your income is below the MLS threshold, you won’t save on tax by getting private cover. However, there are other reasons to consider it, shorter wait times, choice of doctor, and access to services like dental that Medicare doesn’t cover. Run the numbers and consider your likely health needs before deciding.
Hospital cover pays for costs when you’re admitted to a private hospital, including your room, theatre fees, and some doctor costs. Extras (general) cover pays for ancillary services like dental, optical, physiotherapy, and some allied health treatments. Only hospital cover affects your tax.
Useful resources
During our research, we came across some great websites to help you make your private health cover decision:
PrivateHealth.gov.au: Health Insurance Explained
Choice: Do I Need Health Insurance? (Interactive Quiz)
Choice: Compare Health Policies (a powerful tool, but for Paid Members Only)
Compare Club: Choosing a health fund
PrivateHealth.gov.au: Lifetime Health Cover Loading calculator
Choice: Hospital Cover: What you need to know
Choice: Hints and Tips
Canstar: Average costs for health cover
