Patients often assume that due to the increasing costs they're paying for their insurance policy, they're covered for much more than they actually are. It's not until they need to use their health insurance that they find out their policy doesn't cover everything they thought it does -- sometimes after already having a costly procedure.

There are two common reasons for this: not checking your policy to see what you're covered for, and not knowing the different gap payments in your policy for the medical services you need.

A 'gap payment' is what you pay out of pocket for medical services that aren't fully covered by Medicare and a standard private health insurance policy.

Not knowing your gap cover makes it difficult to calculate exactly how much you'll pay out of pocket for medical services.

To avoid being stung by unexpected gap payments, and find out what your policy covers, we recommend you compare health insurance policies with help from the experts at Compare Club.

You can reduce or avoid gap payments by choosing a health insurance policy with a 'no gap' or 'known gap' scheme. You must also choose a doctor participating in your funds' gap scheme for the in-hospital medical service you need.

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3 Types of Gap Arrangements and What You Need to Know

When you have a Medicare recognised procedure performed in hospital, your private hospital insurance and Medicare will pay you benefits towards the medical costs associated with that procedure. These benefits will usually equal 100% of the Medicare Benefits Schedule fee (MBS).

Gap cover is usually included in a private hospital policy and covers that part of doctors fees that are above the MBS fee (otherwise known as the gap). Hospital policies can cover all of the gap (no gap policies), part of the gap (known gap policies) or none of the gap.

1. No Gap Arrangement

Many private health insurers offer 'no gap' policies. This means that the doctor and insurer agree to charge/pay the same amount for a particular in-hospital medical service, so you usually won't have to pay anything out of pocket.

2. Known Gap Arrangement

Some private health funds have policies that include a 'known gap'. This means your insurer and doctor agree to charge a fee that is a set amount above the insurer's total benefit amount. You will then have to pay an out of pocket amount at the 'known gap' rate for the medical service.

3. No Arrangement

When there is no fee/benefit arrangement between a doctor and a private health insurer you have to pay the difference between the total Medicare and health fund rebate and the fee for the medical service out of pocket. If you require an expensive procedure and have a health insurance policy with no arrangement, this could result in significant out of pocket costs.

Choose your life stage.

I’m looking at health cover for…

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Choose your life stage.

I’m looking at health cover for…

Just meMe and my partnerMy familyMe and my kid(s)

With the help of the advisers at Compare Club, it's never been easier to understand what you're paying for and why. Not only can they help you understand the different gap schemes, but you can also compare your current level of cover to similar policies and see exactly what you could be saving, all at no cost to you.

This article is opinion only and should not be taken as medical or financial advice. Check with a financial professional before making any decisions.