Do self-employed Australians and sole traders need private health insurance?

Why the question matters when you’re self-employed

If you’re self-employed—whether you run a small business or you’re one of Australia’s many sole traders and freelancers—you’re likely used to watching cash flow closely. Health insurance premiums can feel like a large, recurring expense, and it’s natural to ask whether private health insurance is something you can go without.

There isn’t a single answer that suits everyone. Whether private health insurance is worthwhile depends largely on your income and your health needs. What makes the decision feel more pressing for self-employed people is that you don’t have an employer providing sick leave. If illness or injury forces you to stop working, the financial impact can be immediate.

That’s why many self-employed Australians think about health insurance not only as a healthcare decision, but also as a way to manage business risk. Staying as healthy as possible—and having support in place if you need hospital treatment—can be viewed as an investment in your ability to keep earning.

Hospital cover: what it can offer a self-employed worker

One of the key components of private health insurance is Hospital Cover. For a self-employed person, the potential benefit is straightforward: if you need surgery or a procedure in hospital, Hospital Cover can help you avoid long waiting lists. It may also allow you to choose your own doctor and potentially have your own room.

These features matter because time is often money when you work for yourself. If private cover helps you access treatment sooner, it may help you get back on your feet—and back to work—faster than you otherwise could. That can be particularly relevant if your income depends on you being physically present, meeting deadlines, or maintaining a regular schedule for clients.

Of course, Hospital Cover is still a cost, and not every policy will be equally useful. The practical question is whether the protection it offers aligns with the risks you want to reduce: delays to treatment, extended recovery time, and the knock-on effect those can have on your income.

Extras cover: when it may be worth considering

Extras Cover is another common part of private health insurance. For some self-employed Australians, it can be a useful addition—especially if your job is physically demanding, such as a trade, or if you have a very active lifestyle.

Extras Cover can help with the costs of services that support recovery and ongoing wellbeing. Examples mentioned include physiotherapy and remedial massage. It may also help with items such as reading glasses, which can be relevant if you spend long hours working at a computer screen.

For freelancers and sole traders, the appeal of Extras Cover often comes down to whether you’re likely to use the included services. If you regularly rely on allied health services to stay mobile, manage pain, or maintain performance at work, Extras Cover can feel less like a “nice to have” and more like part of your working toolkit.

Income fluctuations and the Medicare Levy Surcharge (MLS)

Self-employed income can fluctuate, which can make it difficult to predict annual earnings. That uncertainty becomes important when you consider the Medicare Levy Surcharge (MLS).

The MLS means that 1%, 1.25% or 1.5% of your income may be deducted at tax time if you did not have Hospital Cover during the financial year and your income exceeded certain thresholds. The thresholds referenced are more than $101,000 for a single person, or more than $202,000 combined for a couple, single parent or family.

A key point for freelancers and sole traders is timing. If you earn over the limit and weren’t expecting to, it’s too late to take out Hospital Cover at the end of the financial year to avoid the surcharge. To be totally exempt from the MLS, you need to have held Hospital Cover throughout the year.

However, if you take out Hospital Cover partway through a financial year, it may still reduce your MLS, because you would only pay the surcharge for the days you didn’t have cover. For people whose income is likely to exceed the threshold, that can make taking out Hospital Cover earlier in the year a practical option to consider.

Because income and tax situations vary widely, it can be sensible to speak with an accountant or financial adviser for advice tailored to your circumstances.

Medicare Levy vs Medicare Levy Surcharge: a common confusion

Many people confuse the Medicare Levy with the Medicare Levy Surcharge, but they are not the same.

The Medicare Levy is a separate charge that generally applies to almost every Australian (except in special circumstances). It is set at 2% of your income and is paid for Medicare at tax time.

The Medicare Levy Surcharge, by contrast, only applies to those earning above the relevant income threshold and who did not hold Hospital Cover during the financial year.

For self-employed Australians, this distinction matters because you may have to pay both the Medicare Levy and the Medicare Levy Surcharge depending on your income level and whether you held Hospital Cover.

If you’re buying cover mainly to manage the MLS, don’t ignore value

If your main motivation for taking out Hospital Cover is to avoid the Medicare Levy Surcharge, you might be tempted to search for the cheapest policy you can find. Cost matters—particularly when you’re managing variable income—but price alone is not the whole story.

A low-cost policy that doesn’t suit your needs may not be good value for money. Even if it helps with the MLS, it may not provide the practical benefits you’d want if you actually needed treatment. The more useful approach is to balance affordability with whether the policy works for you.

For self-employed people, “works for you” can mean different things: how you prefer to access care, whether you want the option to choose your own doctor, and how much you value potentially reducing time away from work if you need hospitalisation.

A possible premium saving if your income drops: check the Private Health Insurance Rebate

There is also a potential savings angle for self-employed people whose income changes. If your income has dropped significantly and you already have health insurance, it may be worth checking whether your eligibility for the Private Health Insurance Rebate has changed.

This rebate can reduce your health insurance premiums by between 8.095% and 32.385% if your income falls within certain thresholds. If you become eligible for a higher rebate percentage due to an income decrease, you can notify your insurer and potentially see your premiums reduce.

There is also an alternative approach: you can keep paying the higher premiums and then receive a refund at tax time. Some people may prefer to get the savings immediately rather than waiting.

How to approach choosing a policy as a freelancer or sole trader

The most suitable health insurance policy for a freelancer, small business owner or sole trader is one that fits both your budget and your healthcare needs. There are many policies on the market, and the range can make comparisons feel time-consuming—particularly if you’re already juggling client work, invoicing, and business admin.

One practical issue raised is that not all policies are available on all comparison websites. That means the set of options you see can vary depending on where you look.

When comparing options, it can help to be clear on what you’re trying to achieve. For example:

• If your priority is reducing the risk of long hospital waiting lists, focus on Hospital Cover features that matter to you.
• If your work is physical or you rely on regular treatment to stay productive, consider whether Extras Cover supports services you actually use.
• If your income may exceed the MLS threshold, factor in the timing of when you take out cover, since holding it for the whole year affects whether you’re fully exempt.
• If your income has dropped, check whether your rebate eligibility has changed and whether updating your insurer could lower your premiums.

Don’t forget business insurance needs alongside health cover

Health insurance is only one part of the wider insurance picture for self-employed Australians. If you work for yourself, you may also need insurance for your business. The original material notes that there are common types of business insurance to consider, even though it does not list them in detail.

In practice, the key takeaway is that personal health cover and business insurance address different risks. Health insurance focuses on healthcare costs and access, while business insurance typically relates to the operation of your work and the exposures that come with serving clients and earning income.

A note on general information and getting personal advice

Health insurance and tax considerations can be complex, especially when your income varies from year to year. The information discussed here is general in nature and does not take into account your personal circumstances. If you need advice, consider speaking with an insurance or financial expert.

For many self-employed Australians, the decision comes down to balancing cost against the potential benefits: quicker access to treatment, support for recovery, and possible tax implications if your income is above the MLS threshold. Taking the time to compare policies carefully—and revisiting your settings when your income changes—can help ensure you’re paying for cover that genuinely supports the way you live and work.