Worked Examples and Checklists
Hospital cover or pay the Medicare Levy Surcharge? Worked examples for 2026–27
Side-by-side arithmetic for singles and families at each surcharge tier, including the rebate, LHC loading and excess risk, to see when cheap hospital cover wins.
For most singles earning above $105,000 and families above $210,000 in 2026–27, a low-cost hospital policy with an excess of up to $750 (single) or $1,500 (family) costs less than the Medicare Levy Surcharge. The gap widens as income rises, because the surcharge grows with income while premiums do not and the rebate shrinks only gradually. The exceptions are incomes just over the threshold, older first-time buyers with a heavy Lifetime Health Cover loading, and people who would only hold cover for part of the year. The worked examples below show the arithmetic with illustrative premiums.
This guide is part of how to compare policies step by step.
The comparison formula
The policy must be hospital cover with an excess within the limits; extras do not count. Premiums below are illustrative figures for a Basic or Bronze-level policy; check real quotes on privatehealth.gov.au.
Example 1: single just over the threshold
Mia, 28, has income for surcharge purposes and taxable income of $107,000 in 2026–27. Tier 1: 1% surcharge, 16.079% rebate. No loading (she is under her base day).
- Surcharge: $107,000 × 1% = $1,070
- Basic hospital, illustrative $1,150 premium; rebate $1,150 × 16.079% = $184.91. Some insurers offer an age-based discount at her age, but ignore that here. Cost: $965.09
Cover saves her about $105 in the first year. She also locks in no LHC loading for life, provided she keeps hospital cover.
Example 2: single in the middle tier
Daniel, 45, earns $140,000, no investment losses. Tier 2: 1.25% surcharge, 8.038% rebate. He has never held hospital cover, so his loading is (45 − 30) × 2% = 30%.
- Surcharge: $140,000 × 1.25% = $1,750
- Basic hospital, illustrative $1,150 premium: loading $345, rebate $1,150 × 8.038% = $92.44. Cost: $1,150 + $345 − $92.44 = $1,402.56
Cover still costs about $347 less, even with a 30% loading. After 10 continuous years the loading drops off.
Example 3: high earner
Laura, 39, earns $190,000. Tier 3: 1.5% surcharge, no rebate. Loading (39 − 30) × 2% = 18%.
- Surcharge: $190,000 × 1.5% = $2,850
- Bronze, illustrative $1,750 premium plus $315 loading: $2,065
Cover saves $785 and actually covers common surgery.
Example 4: family
Ravi and Ana, both 42, have two children and combined income of $240,000 in 2026–27 (Ravi $150,000, Ana $90,000). The family threshold for two children is $211,500, and tier 1 runs to $247,500, so they are in tier 1. Neither has held hospital cover, so each has a 24% loading.
- Surcharge: ($150,000 + $90,000) × 1% = $2,400
- Family Basic hospital, illustrative $2,500 premium: loading $600, rebate $2,500 × 16.079% = $401.98. Cost: $2,698.02
Here the surcharge is about $298 cheaper than cover in year one. If their income rose into tier 2 (1.25%), the surcharge would be $3,000, and cover with a smaller rebate (8.038%: $200.95) would cost $2,899.05: cover wins by about $101. For this family, the decision depends on whether they value the cover itself and on expected income growth.
Summary table (illustrative)
| Case | Surcharge | Cover cost | Cheaper |
|---|---|---|---|
| Single $107k, age 28 | $1,070 | $965 | Cover by $105 |
| Single $140k, age 45 | $1,750 | $1,403 | Cover by $347 |
| Single $190k, age 39 | $2,850 | $2,065 | Cover by $785 |
| Family $240k, both 42 | $2,400 | $2,698 | Surcharge by $298 |
Use the surcharge calculator and the rebate calculator with your own quotes.
What the formula leaves out
- Excess risk: if you are admitted, you pay the excess, up to $750 or $1,500. But you also receive benefits that the surcharge never gives you.
- Restricted cover: a Basic policy may pay only public-hospital rates. It avoids the surcharge but may not help much when you need it. See restricted cover and exclusions.
- Future years: buying cover stops an LHC loading growing by 2% a year. Waiting later makes cover more expensive for 10 years once you do join.
- Part years: the surcharge is calculated per day without cover, so joining mid-year still saves the remaining days.
- Income changes: a bonus or capital gain can move you up a tier. Think about the expected year, not last year.
Checklist before you decide
- Work out income for surcharge purposes, including salary sacrifice and net rental losses.
- Use the threshold for the right year: 2025–26 for the return you lodge now, 2026–27 for this year.
- Get at least two hospital quotes for your state with excess within the limit.
- Apply your loading and rebate tier.
- Compare the net cost with the surcharge, then decide whether the cover itself is useful.
When to get advice
If you are near a threshold, have complex income, or are separating or newly partnered during the year, a registered tax agent can check the calculation.
FAQ
Does a $1,000 excess policy avoid the surcharge?
Not for a single. The excess must be $750 or less for singles and $1,500 or less for couples and families.
If I join on 1 June, do I avoid the whole year's surcharge?
No, only the days you are covered. The rest of the year attracts the surcharge.
Is the surcharge refunded if I join later?
No. It is assessed for each day without appropriate cover in that income year.
Can my employer's group policy help?
If it provides appropriate hospital cover for you, yes. Group discounts can also lower the cost.
Sources
- PrivateHealth.gov.au — surcharge thresholds, rebate tiers and policy statements
- Australian Taxation Office — calculating the surcharge in your return
- Tax Practitioners Board — check a tax agent is registered
