More than 15.2 million Australians have some form of private health insurance, yet the number of people without Hospital cover has been rising steadily since around 2000. For someone earning $100,000 as a single, skipping hospital cover means paying an extra $1,000 to $1,500 a year through the Medicare Levy Surcharge alone — before you factor in what you’d pay if you actually need treatment.
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This article is general information only and does not constitute professional advice. For your specific situation, consult a qualified professional.
The most common reason people take out private health insurance is to avoid the Medicare Levy Surcharge — a tax penalty that kicks in once your income passes a certain threshold. The most common reason people don’t have it is the cost. That tension between what you pay to have cover and what you pay to go without is where the real financial decision lives, and it’s getting harder to call.
Understanding how Australian health insurance really works helps you see where the money actually goes — and whether skipping it is costing you more than you think. Here’s what you actually need to know.
Key Takeaways — What the Research Reveals About Health Insurance Choices
The Medicare Levy Surcharge is an additional tax you pay if you earn above a certain income and don’t have an appropriate level of private hospital cover. It’s designed to encourage people to take out private insurance and reduce pressure on the public hospital system.
What I tend to notice is that many people compare the cost of a policy against what they’d pay in premiums, but forget to factor in what the surcharge would cost them over several years. The gap between those two numbers is where the real choice lives. You can negotiate a better deal on your private health insurance if you know where to look, but only if you’re in the market at all.
The Numbers That Matter — Premiums, Surcharges, and Rebate Cuts
Three numbers drive the cost of having — or not having — private health insurance in Australia: the premium you pay, the surcharge you avoid, and the rebate you receive. All three are shifting in ways that make the decision more expensive either way.
Premiums for 2026 are projected to rise between 3.9% and 4.4%. For a single person on a combined hospital and extras policy, that’s an extra $127 to $144 a year. Families face $191 to $216 more. These estimates are based on the average combined single policy of $3,264 a year and the average family policy of $4,908 a year.
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| Policy Type | Average Annual Premium | 2026 Increase (3.9%–4.4%) |
|---|---|---|
| Single combined Hospital + Extras | $3,264 | +$127 to $144 |
| Family combined Hospital + Extras | $4,908 | +$191 to $216 |
| Silver Hospital (single, aged 65+) | $4,460 | +$174 to $196 |
On the other side of the ledger, the Medicare Levy Surcharge hits singles earning over $93,000 and families over $186,000. The surcharge is 1% of your income at the lowest tier, rising to 1.5% at the top. For someone earning $100,000, that’s $1,000 a year — every year — that goes to the ATO instead of a health fund. Compare that to the cost of a basic hospital policy, and the gap can be surprisingly narrow.
For older Australians, the stakes are even higher. From 1 April 2027, proposed changes would reduce the private health insurance rebate for people aged 65–69 earning under $101,000 as a single (or $202,000 as a family) from 28% to 24%. For those aged 70 and over in the same income bracket, the rebate would drop from 32% to 24%. That means a single policyholder aged 70+ with a silver hospital policy could pay around $358 more per year. Around 3 million Australians aged 65 and over would be affected if these changes pass Parliament.
You can read more about choosing the right excess on your health insurance policy to manage these premium increases without losing coverage.
Four Misconceptions That Cost Australians Money
Misunderstanding the Medicare Levy Surcharge Thresholds
The surcharge isn’t just for high earners. The $93,000 single threshold is below the average full-time earnings in many states, and the family threshold of $186,000 includes your spouse’s income. If you’re a couple each earning $93,000, you’re over the family threshold and paying the surcharge — even if you thought you were below it. The surcharge applies per year, not per policy, and there’s no rebate for it if you don’t have cover.
Assuming Medicare Covers Everything
Medicare covers public hospital treatment, but it doesn’t cover dental, optical, physiotherapy, or most allied health services. If you need a knee replacement as a public patient, you’ll wait — and the wait can be months or longer. Private cover lets you choose your surgeon and timing, but the real cost of going without is the gap between what you’d pay out of pocket and what insurance would cover. Many people don’t realise that even with cover, co-payments and excess fees can still add up.
Thinking the Rebate Cuts Won’t Affect You
If you’re under 65, the proposed rebate cuts starting in April 2027 don’t touch you directly. But the same political pressure that drives rebate changes also affects premium trends. The 3.9%–4.4% increase for 2026 is the highest in years, and if rebates are cut for older Australians, the cost pressure on the whole system could push premiums higher across all age groups.
Waiting Until You’re Older to Get Cover
Private health insurance in Australia uses community rating, meaning insurers can’t charge you more based on your health history. But the Lifetime Health Cover loading adds 2% to your premium for every year you’re aged 31 or over without hospital cover. If you take out your first policy at 40, you’ll pay 20% more than someone who took it out at 30 — and that loading stays for 10 years. The cost of waiting is baked into the system.
How to Weigh the Real Trade-Offs of Going Without Cover
Calculate Your Surcharge Exposure First
Your income — not your health — determines the most immediate cost of going without. Check your taxable income for the current year. If you’re single and earning over $93,000, or in a family with combined income over $186,000, the surcharge applies. Multiply your income by the surcharge rate (1%, 1.25%, or 1.5%) to get the annual cost. Compare that to the cheapest hospital policy that meets the surcharge exemption requirements. If the policy costs less than the surcharge, you’re financially better off with cover.
Factor in the Rebate You’re Leaving on the Table
The private health insurance rebate reduces your premium based on your age and income. For someone under 65 earning under $101,000, the rebate is 24% of the premium. That means a $1,200 policy effectively costs $912. The rebate is means-tested, so higher earners get less or nothing. But if you’re in the income bands that qualify, the rebate narrows the gap between having cover and going without even further.
Account for Out-of-Pocket Costs Either Way
Even with private cover, you’ll face co-payments, excess fees, and gap payments for some treatments. The average combined single policy costs $3,264 a year, but the average hospital benefit paid out is substantial — around $6.7 billion in Hospital benefits in the three months to June 2025 alone. The question is whether you’ll be among the people who need those benefits. For elective surgery, dental work, or physiotherapy, the out-of-pocket costs without insurance can quickly exceed the premium you were trying to save.
Upcoming Changes to Watch
The proposed rebate cuts for older Australians require amendments to the Private Health Insurance Act 2007 and must pass Parliament before they take effect on 1 April 2027. If you’re aged 65 or over, or approaching that age, the rebate reduction from 28% to 24% (or 32% to 24% for 70+) could add hundreds of dollars to your annual premium. The 2026 premium increase of 3.9%–4.4% is more certain — it reflects the annual cycle of premium adjustments and is already being factored into health fund pricing. For younger Australians, the Lifetime Health Cover loading remains the most predictable cost of delaying cover. You can decode health insurance jargon to understand exactly what each policy component means for your pocket.
Frequently Asked Questions About Health Insurance Costs and Coverage
What happens if I earn just over the Medicare Levy Surcharge threshold? ▾
Can I avoid the surcharge with a cheap basic hospital policy? ▾
Will the proposed rebate cuts affect me if I’m under 65? ▾
How is the 2026 premium increase calculated? ▾
What is the Lifetime Health Cover loading and how does it work? ▾
Does having private health insurance affect my Medicare benefits? ▾
Why the Decision to Drop Cover May Be More Expensive Than You Think
The cost of skipping private health insurance isn’t just the premium you don’t pay — it’s the surcharge you do pay, the rebate you forfeit, the loading you accumulate, and the out-of-pocket costs you face when you need treatment. With premiums rising 3.9%–4.4% in 2026 and rebate cuts on the horizon for older Australians, the gap between having cover and going without is narrowing in both directions. The choice that makes sense today depends on your income, your age, and how long you plan to stay uninsured — but the data suggests that for most people, the costs of going without are higher than the premium you’re trying to save.
Remember: this article is general information only. For advice on your specific situation, speak to a qualified professional.
If this was useful, you might also want to read top tips for choosing the right hospital cash plan.
Sources and Further Reading
How to negotiate a better deal on your private health insurance in Australia — Practical steps to reduce your premium without dropping your cover.
The ultimate guide to choosing the right excess on your health insurance policy — How adjusting your excess affects your premium and your out-of-pocket costs.
Money.com.au (2026). 🔗
Money.com.au (2026). 🔗
