Private Health or MLS? $1,300–$2,400/yr If You Skip It (2025-26)

The short version: The Australian Government Private Health Insurance Rebate reduces the cost of private hospital cover by subsidising a percentage of your premium. The rebate amount depends on your age and income. **2025-26 rebate tiers (for singles):** | Income | Under 65 | 65-69 | 70+ | |---|---|---|---| | $97,000 or less | 24.608% | 28.710% | 32.812% | | $97,001-$113,000 | 16.405% | 20.507% | 24.608% | | $113,001-$151,000 | 8.202% | 12.303% | 16.405% | | Over $151,000 | 0% | 0% | 0% | **For couples/families, double the income thresholds** (e.g., $194,000, $226,000, $302,000).

Add $1,500 per dependent child after the first. **How to claim the rebate:** - As a premium reduction: your health insurer reduces your premium by the rebate amount. You pay less each month. This is the most common method. - As a tax offset: you pay the full premium and claim the rebate back in your tax return.

This gives you a higher deduction during the year but a refund at tax time. **Example:** You earn $85,000 and pay $2,400/year in hospital cover premiums. - Rebate: 24.608% × $2,400 = $590.59/year - Your effective premium: $2,400 - $590.59 = $1,809.41/year ($150.78/month) The rebate is adjusted on April 1 each year based on premium increases and indexation. If your income changes, you should notify your insurer to adjust the rebate — if you claim too much, you will need to repay it through your tax return.

If you earn above certain income thresholds and do NOT have compliant private hospital cover, you pay the Medicare Levy Surcharge (MLS) on top of the standard 2% Medicare Levy. **2025-26 MLS thresholds and rates (singles):** | Income | MLS Rate | |---|---| | $97,000 or less | 0% (no MLS) | | $97,001-$113,000 | 1.0% | | $113,001-$151,000 | 1.25% | | Over $151,000 | 1.5% | **For couples/families, double the thresholds.** **The key question: is private cover cheaper than the MLS?** Let us compare for a single person earning $130,000: - MLS at 1.0%: $130,000 × 1.0% = $1,300/year - Basic hospital cover: approximately $1,200-$1,800/year - Minus rebate (16.405%): approximately $200-$295 - Net cost of hospital cover: approximately $1,000-$1,505/year At $130,000 income, basic hospital cover and the MLS cost roughly the same. But with hospital cover, you actually get something — access to private hospitals, choice of doctor, shorter waiting times for elective surgery. At $160,000 income: - MLS at 1.5%: $160,000 × 1.5% = $2,400/year - Basic hospital cover: approximately $1,200-$1,800/year (no rebate at this income) - Hospital cover is clearly cheaper AND you get healthcare benefits **The crossover point:** For most singles, private hospital cover becomes cheaper than the MLS at around $100,000-$110,000 income.

Below that, neither the MLS nor private cover applies (or the cost difference is minimal). **Important:** The MLS is based on 'income for MLS purposes', which includes taxable income PLUS reportable fringe benefits, total net investment losses (including negative gearing), and reportable super contributions. Your MLS income can be significantly higher than your taxable income.

Real talk — Lifetime Health Cover (LHC) loading is a government incentive to encourage people to take out hospital cover early. If you don't have hospital cover by July 1 after your 31st birthday, you pay a 2% loading on your premium for every year you're uninsured after that date. **How it works:** - Base day: July 1 after you turn 31 (or July 1 after you first register for Medicare if you arrive in Australia after age 31) - Loading: 2% per year without hospital cover, up to a maximum of 70% - The loading is paid on top of your premium for 10 continuous years of holding cover, then it's removed **Example:** You turn 31 in 2020 and take out hospital cover in 2026 (6 years late). - LHC loading: 6 × 2% = 12% - If your base premium is $2,000/year, you pay $2,000 × 1.12 = $2,240/year - Extra cost: $240/year × 10 years = $2,400 total loading over the decade **At the extreme:** Someone who waits until age 60 to take out cover (29 years late): - LHC loading: 29 × 2% = 58% - On a $3,000/year premium: $3,000 × 1.58 = $4,740/year - Extra cost: $1,740/year × 10 years = $17,400 total loading **Strategic implications:** - If you're approaching 31 and considering private cover, take it out before July 1 after your 31st birthday to avoid any loading - If you already have a loading, you need to maintain cover for 10 continuous years for it to be removed.

Dropping cover and rejoining resets the 10-year clock but the loading itself doesn't increase further (it's based on your age at joining, not gaps) - For people arriving in Australia: you've a 12-month grace period from registering for Medicare to take out hospital cover without loading **The LHC loading makes waiting increasingly expensive.** For many Australians in their mid-30s and above, taking out basic hospital cover sooner rather than later saves money in the long run, even if you don't use the cover immediately.

This is the most-asked question in Australian personal finance, and the answer depends on your income, health, age, and values. Here's a framework: **You probably SHOULD have private hospital cover if:** - Your income is above $97,000 (single) or $194,000 (couple) — the MLS makes it cheaper to have cover than not - You're approaching 31 and want to avoid Lifetime Health Cover loading - You want choice of doctor for planned surgeries (orthopaedics, obstetrics, cardiac) - You want a private room and shorter waiting times for elective surgery - You're planning pregnancy — obstetrics waiting periods are 12 months, so you need to be covered well before conception - You've a pre-existing condition that may need elective surgery (e.g., knee replacement, cataracts) **You can probably SKIP private hospital cover if:** - Your income is under $97,000 — no MLS penalty and the rebate is modest - You're young, healthy, and happy to use the public system - You're under 31 — no LHC loading concern yet - You live near a major public hospital with good services - You would rather self-insure by saving the premium in a high-interest savings account **What about extras cover (dental, optical, physio)?** Extras cover is a different calculation entirely.

Most extras policies pay out less in benefits than you pay in premiums — the average Australian claims 85 cents for every $1 in extras premiums. If you've good teeth and rarely see a physio, you're mathematically better off paying out-of-pocket. However, if you regularly use dental, optical, and allied health services, a mid-range extras policy can break even or save money. **The self-insurance alternative:** Some financial advisers recommend taking out basic hospital cover only (to avoid MLS and LHC loading) and skipping extras entirely.

Put the extras premium ($50-$100/month) into a savings account and pay for dental, optical, and physio yourself. Over 10 years, you will likely come out ahead.

One thing people miss: Private health insurance in Australia ranges from basic hospital-only policies ($80-$120/month) to comprehensive hospital-and-extras policies ($300-$500+/month). Here's how to choose: **Hospital cover tiers (standardised since 2019):** - **Basic:** Covers only a minimum set of procedures.

Does NOT cover things like heart surgery, hip replacements, or pregnancy. Designed purely to avoid the MLS. - **Bronze:** Covers most in-hospital services except some exclusions (e.g., pregnancy, assisted reproduction, weight loss surgery). Good for younger people. - **Silver:** Covers joint replacements, cataracts, heart surgery, rehabilitation — aimed at over-55s.

Doesn't cover pregnancy in basic Silver. - **Gold:** Covers everything including pregnancy, assisted reproduction, psychiatric, and palliative care. The most comprehensive level. **Key tip: choose by EXCLUSIONS, not inclusions.** Instead of looking at what is covered, look at what is excluded. If you're a 35-year-old male, you probably don't need pregnancy cover or assisted reproduction.

A Bronze policy with those exclusions will be significantly cheaper than Gold. **Excess and co-payments:** - Higher excess ($500-$750) = lower premium. If you rarely go to hospital, the higher excess saves money year on year. - Co-payments ($0-$50/day in hospital) can further reduce premiums - A $750 excess means you pay the first $750 of any hospital admission.

For many people, this is a once-every-few-years event, making the premium savings worthwhile. **How to compare:** Use the government's official comparison tool at privatehealth.gov.au. It shows all policies available in your state, with clear details on what is covered and excluded. ASIC MoneySmart also has a useful comparison framework. **Annual review:** Health insurance premiums increase every April 1 (typically 3-6% per year).

Heads up — Review your policy annually and switch if a comparable policy is cheaper with another insurer. There are no penalties for switching between funds, and portability rules mean you keep your waiting period credits. That catches a lot of people off guard.