Health insurance gap payments

What are out-of-pocket costs?

Out-of-pocket costs, often called the 'gap' or 'out-of-pocket' costs represent the amount of money you'll need to pay for medical services after any contributions from Medicare and your private health insurer have been accounted for.

Here's a simplified way to think about it:

1. Doctors and hospitals set their fees: For any medical service or hospital stay, the doctors, specialists, and the hospital itself will have their own charges.
2. Medicare contributions: Medicare, Australia's public health system, has a list of subsidised services called the Medicare Benefits Schedule (MBS). In a public hospital, Medicare will cover all the costs. As a private hospital patient, Medicare will typically cover 75% of the MBS fee. For services outside of a hospital, Medicare covers 85% of the MBS fee, or 100% for GP visits. Of course, your specialist or GP might charge more than the MBS fee - sigh.
3. Your private health fund contributions (for hospital costs): If you're a private patient in a hospital and the service is covered by your policy, your health fund will pay the remaining 25% of the MBS fee, along with the hospital fees. However, private surgeons typically charge a much higher price than the MBS, which your health fund may not fully cover.
4. The Gap: If your doctor or hospital charges more than the combined total of what Medicare and your private health fund pay, the remaining amount is your out-of-pocket cost.

Out-of-pocket example

For example, if a surgeon charges $800 for an in-hospital procedure with an MBS fee of $500:

• Medicare might pay: 75% of $500 = $375
• Your health funds will pay: 25% of $500 = $125
• You health fund may tip in a bit more, let's say and extras $100
• Total covered: $375 + $125 + $100 = $600
• Your out-of-pocket cost: $800 (surgeon's fee) - $560 (amount covered) = $200

You might also have an excess or co-payment on your hospital insurance policy, which is a set amount you agree to pay towards a hospital admission. This is also an out-of-pocket cost.

How big can the gap payment be?

The size of a gap payment can vary significantly. It can range from nothing at all to hundreds or even thousands of dollars for a single hospital episode.

Several factors influence the potential size of your out-of-pocket costs:

• The doctor's fees: Doctors in private practice are free to set their own fees. If they charge significantly above the MBS fee, your gap will be larger.
• Your health fund: Every health fund has different policies about how much they will cover for different treatments.
• Health fund / provider agreements: Most health funds have arrangements with specific doctors and hospitals to reduce or eliminate gap payments for their members. This is sometimes called a 'preferred provider network' or similar.
• The type of medical service: Complex surgeries or treatments often involve multiple specialists and more expensive equipment, potentially leading to higher costs.

According to APRA's quarterly private health insurance statistics for the December 2024 quarter, the average out-of-pocket payment for hospital treatment where a gap was paid was $276.44. However, these are just averages, and for some specialties, like orthopaedics, the average gap can be much higher. Some reports indicate that out-of-pocket expenses for privately insured Australians have been rising.

To get a better understanding of typical costs for specific procedures, you can use the Australian Government's Medical Costs Finder. This website provides information on typical fees charged by specialists and out-of-pocket costs for common treatments in different locations.

How to avoid out-of-pocket costs

While it's not always possible to eliminate all out-of-pocket expenses, especially in emergencies, there are several steps you can take to minimise them:

• Go to a public hospital as a public patient: If you are treated as a public patient in a public hospital, your treatment will be covered by Medicare, and you generally won't have any out-of-pocket expenses for the hospital stay or the doctors treating you. However, you won't be able to choose your doctor, and you may face longer waiting times for elective surgery.
• Get a quote before treatment: Before undergoing any planned hospital procedure as a private patient, ask your doctors (including your surgeon, anaesthetist and any assistants), the hospital and your health fund for written estimates of all likely costs. This is called Informed Financial Consent. The documents should detail:
  • The MBS item numbers for your procedure.
  • The fees each provider will charge.
  • The amount Medicare will cover.
  • The amount your health fund will cover.
  • The gap amount you will need to pay for each service.
  • Any hospital charges, including your excess or co-payments. Don't be afraid to ask questions if anything is unclear.
• Use a partner hospital (agreement hospital): Health funds have agreements with many private hospitals. If you use one of these "agreement" or "partner" hospitals, your health fund will generally cover more of the costs, leaving you with potentially lower out-of-pocket expenses for these components. Your fund can provide a list of their agreement hospitals.
• Use doctors who participate in your health fund's medical gap scheme: Many health funds have "gap cover" or "access gap" arrangements with doctors. If your doctor agrees to use this scheme for your treatment, they may agree to charge a no-gap fee (meaning your fund and Medicare cover the entire fee) or a known gap (a capped out-of-pocket amount, often up to $500 per doctor per hospital episode).
  • Ask your GP to refer you to specialists who participate in your fund's scheme, or ask your specialist directly if they will use it for your treatment.
  • Your health fund can often provide a list of doctors who have previously participated in their scheme, though doctors can choose to participate on a case-by-case basis.
• Switch to a health fund with a lower gap payment record (or review your current cover): Some health funds have a better track record than others when it comes to their members experiencing lower or no gap payments. It's worth reviewing your policy annually to ensure it still meets your needs and offers good value in terms of benefits and potential out-of-pocket costs. Compare what different funds pay towards common procedures and their agreements with doctors and hospitals. Ensure your policy actually covers the treatments you are likely to need.

Which health funds have the lowest gap payments?

The private health insurance Ombudsman publishes data on how many treatments heath funds process with and without a gap. It also collects data on how many treatments have either no gap or a 'known gap', as well as the actual % of hospital charges covered.

Theoretically, the higher these percentages, the more likely you'll be able to get any given treatment without having to pay a gap. It's not always as simple as this, but it's a great place to start your comparisons.

Here is the most recent data from the Ombudsman's State of the Health Funds report. On balance, HBF is the best performing of the big funds on these metrics.

Gap payment for hospital vs extras

The way gap payments work differs significantly between hospital cover and extras cover (also known as general treatment or ancillary cover).

Hospital Cover Gaps:

• As detailed above, hospital gaps primarily relate to fees charged by doctors that are above the combined Medicare and health fund benefit (based on the MBS).
• They can also arise from hospital charges not fully covered by your fund (e.g., for a private room, specific medical devices, or if you haven't met your excess/co-payment).
• Health funds often have "gap cover schemes" with doctors and agreements with hospitals to help reduce these out-of-pocket costs for their members.

Extras Cover Gaps:

• Extras cover helps with the costs of services generally not covered by Medicare, such as dental, optical, physiotherapy, chiropractic, and podiatry.
• For extras services, there is no MBS fee. Instead, providers set their own fees.
• Your health fund will pay a set benefit amount or a percentage of the cost for a covered service, up to an annual limit.
• The gap for extras is the difference between what the provider charges and the benefit your health fund pays.
• For example, if your dentist charges $200 for a check-up and clean, and your extras cover pays a benefit of $120 for that service, your out-of-pocket cost (gap) will be $80.
• Some health funds have "preferred provider" or "members' choice" networks for extras services. Using a provider in this network might mean you receive a higher benefit (percentage back) and therefore have a lower gap payment.

In essence, hospital gaps are often about doctors' fees exceeding the MBS structure, while extras gaps are about the difference between the provider's fee and your fund's fixed benefit or percentage rebate for out-of-hospital services.

Frequently Asked Questions

• What is the Medicare Benefits Schedule (MBS)?

  The MBS is a list of medical services for which the Australian Government provides a subsidy. It includes a fee (the schedule fee) considered appropriate for each service. Medicare pays a percentage of this fee (75% for in-hospital private patient services, 85% for out-of-hospital specialist services, 100% for GP services). Doctors are not obligated to charge only the MBS fee.

• What's an excess or co-payment?

  An excess is a lump sum you agree to pay upfront towards your hospital admission before your health fund starts paying benefits. A co-payment is a recurring amount you agree to pay for each day you are in hospital, often capped at a certain amount per admission or per year. Choosing a policy with an excess or co-payment usually results in lower premiums. These are out-of-pocket costs.

• Can I ask my doctor to charge less?

  While you can always discuss fees with your doctor, they are not obliged to reduce their charges. However, asking about their fees and whether they participate in your health fund's gap cover scheme before treatment is a key step in managing potential out-of-pocket costs. You also have the right to seek a second opinion or choose a different doctor if you are concerned about the costs.

• What if I get a surprise bill after my hospital stay?

  If you receive an unexpected bill, first check it against the Informed Financial Consent documents you should have received. Contact your doctor's office or the hospital to clarify the charges. If you're still unsure or believe there's an error, contact your health fund for assistance. If you cannot resolve the issue, you can contact the Private Health Insurance Ombudsman.

Written by

Tim Bennett

Insurance expert

A seasoned journalist with over 10 years of experience in news, politics and finance reporting, Tim has previously held roles at the ABC, SBS and Fairfax Media. Tim’s expert insights have been quoted in The Australian, The Daily Telegraph, The Courier Mail and more. He regularly appears on TV and radio, and has been interviewed on 7 News, Sunrise, SBS News, ABC Local, 3AW and 5AA. Tim is passionate about simplifying complex insurance topics for Australian consumers. He holds a Bachelor of Arts (Politics) from Macquarie University and a Tier 1 General Insurance (General Advice) certification, which meets the requirements of ASIC Regulatory Guide 146 (RG146). If you’re interested in a media interview with Tim, please reach out to our PR team at aupr@finder.com. See full bio

Tim's expertise

Tim has written 153 Finder guides across topics including:

• Personal finance
• Financial comparison
• Health insurance
• General insurance
• Life insurance