As for your friend saying you are taxed for the medicare levy in your pay, that's not right, it's added on at the end of the financial year when you do your tax return and is calculated on your taxable income (so after any allowable deductions).
The tax tables - ie the basis for what your employer takes out of your pay on a weekly/fortnightly/monthly basis will usually include the medicare levy (the one that most people pay). It will not include anything for the medicare levy surcharge. Perhaps that is where your friend is confused.

When you do your tax return at the end of the year any deductions that you may have are taken into account and the correct tax, medicare levy and any applicable surcharge are calculated (plus any rebates etc) and that is what generally results in a tax payable or refund at tax time.

But Ausgirl makes a really good point - it's not only any tax consequences that you need to consider, it is also how much you will get back, any excesses on claims and waiting periods.