Medicare is the backbone of Australia’s healthcare system, providing affordable access to medical services for millions of Australians. But a common question is: who actually pays for Medicare? In this blog post, we break down the sources of Medicare funding, how the system is supported financially, and recent government investments shaping Medicare in 2025.
Medicare’s Funding Sources: A Shared Responsibility
Medicare is primarily funded by the Australian Government through a combination of general taxation revenue and a specific levy known as the Medicare levy. Here’s how the funding works:
1. The Medicare Levy
Most Australian taxpayers contribute to Medicare through the Medicare levy, which is currently set at 2% of taxable income. This levy is collected by the Australian Taxation Office (ATO) alongside income tax and helps fund the Medicare system directly.
- The levy applies to most Australian residents earning above a certain income threshold.
- Some low-income earners, seniors, and specific groups may be exempt or pay a reduced levy.
- Additionally, higher-income earners without private hospital insurance may pay the Medicare Levy Surcharge (MLS), an extra tax designed to encourage private health coverage and reduce pressure on the public system.
2. General Taxation Revenue
Beyond the Medicare levy, the Australian Government allocates a significant portion of general tax revenue to fund Medicare and related health services. This includes funding for:
- Subsidised doctor visits and specialist consultations
- Public hospital services
- Diagnostic tests and treatments
- The Pharmaceutical Benefits Scheme (PBS), which subsidises prescription medicines
The government’s budget for Medicare represents one of the largest investments in Australia’s social infrastructure.
Recent and Ongoing Government Investments in Medicare
The 2025–26 Federal Budget marks the largest investment in Medicare since its inception over 40 years ago. Key highlights include:
- A historic $7.9 billion boost aimed at increasing bulk billing, making more GP visits free to patients by 2030. This will deliver an additional 18 million bulk billed GP services annually, saving patients hundreds of dollars each year.
- Funding for the expansion of Medicare Urgent Care Clinics, providing free urgent healthcare services across Australia, especially in regional and rural areas.
- Investments totaling over $600 million to increase the supply of doctors and nurses, ensuring Medicare can meet growing demand.
- Enhanced support for mental health services, aged care reforms, and cheaper medicines through the PBS.
These investments are funded through government revenue, which includes income from the Medicare levy and general taxation.
Role of State and Territory Governments
While the Australian Government funds Medicare and primary healthcare services, state and territory governments share responsibility for the broader health system, particularly public hospitals. They receive financial assistance from the federal government but also contribute their own budgets to manage hospital infrastructure, community health programs, and emergency services.
Who Ultimately Pays for Medicare?
- Australian taxpayers fund Medicare through the Medicare levy and income tax.
- Higher-income earners without private hospital insurance contribute additional funds via the Medicare Levy Surcharge.
- The Australian Government allocates substantial portions of its budget, drawn from various tax revenues, to sustain and expand Medicare services.
- States and territories co-fund hospital services and some community health programs, complementing federal Medicare funding.
Why Understanding Medicare Funding Matters
Knowing who pays for Medicare helps Australians appreciate the collective effort behind their healthcare system. It also highlights the importance of:
- Maintaining the Medicare levy to ensure sustainable funding.
- Encouraging private health insurance uptake to ease public system demand.
- Supporting government policies that invest in healthcare workforce and infrastructure.
Conclusion
Medicare in Australia is funded through a combination of the Medicare levy, general taxation, and contributions from state and territory governments. The shared financial responsibility ensures that Medicare remains a robust, accessible system for all Australians. With the landmark 2025–26 budget injecting record funding, Medicare is well-positioned to continue delivering affordable healthcare services into the future.