Why does health insurance have gap fees and out-of-pocket costs

Chris Stanley

Chris Stanley

Updated 15/04/2021

A gap payment is what you pay out of pocket for the portion of a medical or hospital fee that isn't covered by Medicare or your health fund. Find out more.

Why does health insurance have gap fees and out-of-pocket costs

A Guide To Private Health Insurance Gap Fees & Out Of Pocket Costs

Key Points

  • Even if you have private hospital cover, it's common for patients to have to pay out-of-pocket expenses.

  • Gap fees happen when doctors and surgeons charge more than the Medicare Benefits Schedule fee.

  • You can avoid high gap fees by finding a health fund that matches your specific needs.

When you have to visit the hospital, the last thing you expect is to be left out of pocket -- especially if you already have hospital cover.

But hidden gap fees can pop up when you least expect them -- often at the worst possible time.

The good news is that gap payments can be minimised if you're on the right policy.

To ensure you aren't footing expensive bills after every hospital visit, we'll take you through all things gap fees, including how to cut down on additional bills.


What are gap payments?

The term 'gap' refers to the difference between the Medicare Benefit Schedule fee and the actual charge for private medical services you receive in hospital.

While Medicare takes care of a portion of your expenses, it was never designed to pay for everything.

It's one of the reasons millions of Australians hold health insurance.

Medicare will generally pay 75% of the Medicare Benefit Schedule (MBS) fee for private medical services you receive in hospital.

If you have appropriate hospital cover, your insurer will then cover the remaining 25% of the MBS fee.

This is where gap fees often kick in.

Doctors and other healthcare professionals such as surgeons and anaesthetists are able to set their own fees.

Many charge private patients more than the MBS fee.

The difference between the MBS fee and the actual charge is known as the gap.

If your insurer won't cover the cost of this gap, then you have to foot the bill.

This can leave some Australians -- especially older Aussies who are more likely to need hospital treatment -- with bills for hundreds or even thousands of dollars.

A quick note: you'll also need to make sure that you've got the right tier of hospital cover for your treatment.

You'll face a hefty bill if you try to claim on an item you're not covered for.

Why do gap payments even exist in Australian healthcare?

There's a whole range of services that are subsidised by the Australian Government through Medicare -- this is known as the Medicare Benefits Schedule (MBS).

Many doctors and other medical professionals 'bulk bill' and accept Medicare's benefits as full payment of services.

But they can charge more than the MBS fee, especially if they don't view it as a reasonable fee for their time and skills.

What's more, they can choose whether or not they want to participate in an insurance fund's gap cover arrangement.

What that means for you is that you can't assume all your hospital treatments will be fully covered if you're treated as a private patient.

That's why it's important to make sure you've got the right health cover for your needs, and to check if any of the health professionals who will be treating you charge more than the MBS fee.


Can I minimise gap fees or avoid them entirely?

You can, providing your insurer has an agreement with the doctor or specialist as part of their gap fee scheme.

Doctors, specialists and other medical professionals are free to choose on an insurer-by-insurer basis if they want to participate in their gap fee schemes.

That's why it's worth checking which professionals your insurer has agreements with.

If there's none nearby, then it may be worth comparing insurers.

If you get treatment from people on your insurer's medical professionals list, you can expect to pay lower -- or sometimes even zero -- gap fees.

Here's an example of how it works. Let's say you require surgery for a hip problem that's slowly getting worse.

You're booked in with a specialist surgeon, and you expect both Medicare and your private health insurance to cover most of your expenses.

If your surgeon charges up to the current MBS fee, there won't be any hidden gap fee.

But if your surgeon charges over that amount, and doesn't take part in your insurer's gap scheme, you'll need to cover the out-of-pocket costs yourself.

What is the Access Gap Cover Scheme?

Access Gap Cover (AGC) is a scheme offered by participating health insurers that is intended to reduce or eliminate out-of-pocket expenses that everyday Australians with private health insurance have to deal with.

In short, the AGC is a way to simplify potential gap fees for private hospital treatments, and it lets everyone know exactly how much they will need to pay out of pocket -- if anything at all.

The AGC is not only good for patients, but it's also good for medical professionals.

This is because it helps bridge the financial gap if a surgeon, for example, charges more than the MBS fee.

While many funds offer the Access Gap Cover scheme, a number of funds offer their own Gap Cover arrangement.

To find out more about your Gap Cover arrangement and how it affects you, make sure you speak to your health fund about the medical providers who participate in their scheme.

It can also be helpful to compare different health funds' Gap Cover.

The team at Compare Club can help with this.

Can I claim out-of-pocket medical expenses on my tax?

Unfortunately, as of 1 July 2019, you can no longer claim out-of-pocket medical expenses for certain services and items on your tax.

The net medical tax offset is no longer available, which means you'll need to take care of any gap payments out of your own pocket, without receiving a tax break.


How can I calculate what my gap will be?

You will need a few pieces of information to work out how much your gap payment is likely to be.

First, make sure you know the expected MBS fee for your particular medical needs.

The federal government's Medical Cost Finder can help with this.

You'll also want to ensure your chosen medical professional is part of your private health fund's gap cover arrangement.

Once you know how much they will charge (e.g. whether it's over or under what the MBS recommends), you can work out what the gap will be after Medicare and your insurer have paid their share.

For example, you need a procedure with an MBS fee of $4,000.

If your surgeon charges $4,500 for the procedure, Medicare will cover 75% of $4000 (in this case $3,000)

Your private health fund may cover the additional 25% of the MBS fee -- this example, that's $1,000.

That will leave a $500 gap which you will have to pay out of your own pocket unless your insurer has a no-gap arrangement with the surgeon.

If your fund does have an arrangement, they will pay an additional gap benefit of $500 and the service will be fully covered.

Many insurers have a "no-gap" limit.

That's the highest amount they'll cover before you start to incur out of pocket expenses.

That's why it's absolutely vital to get all the information, including costs, before you start your treatment.

Gap expenses

The average gap fee for hospital treatment has increased by 6.8% between June 2017 and September 2020.




June 2017

Sept 2019

Sept 2020

Average % out-of-pocket expenses by hospital treatment

Specialist Consultants












General Surgical
























Plastic / Reconstruct






Assist at operations












Is it worth getting private health insurance if I have to pay gap fees?

While Medicare allows Australians to get a significant portion of their healthcare costs covered, it won't pay for everything.

Some hospital procedures also have lengthy waiting lists if you're being treated in the public system.

That's where private health insurance comes in.

It allows you to get treated a lot quicker and can give you peace of mind that you won't be left with a hefty bill.

But, as we've seen, it's important to find a health fund that has a good number of medical professionals who take part in their Gap Scheme near to where you live.

It's worth taking the time to compare policies and find one that matches your current lifestyle and your medical needs.

Cheaper isn't always better here, and some will work out to be much more cost-effective than others when it comes to gap payments.

How can I find a policy to eliminate gap fees?

This is where Compare Club can help.

Simply provide a few details like your life stage, postcode and what type of cover you're looking for, and we'll crunch the numbers to find a selection of health insurance policies for your circumstances.

If you're looking to avoid gap fees, it's worth taking the time to speak to our specialist team after you've got your initial quote.

They can help compare the Gap Schemes from the funds on our panel and find a policy that fits your needs.

Most importantly, they could help to minimise those nasty gap payments.


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

References: Australian Tax Office, Medical Expenses, March 2021. Medicare Benefits Schedule, MBS Online, March 2021.

Chris Stanley is the sales & operations manager of health insurance at Compare Club. With extensive experience and expertise, Chris is a trusted leader known for his deep understanding of health insurance markets, policies, and coverage options. As the sales & operations manager of health insurance, Chris leads a team of dedicated professionals committed to helping individuals and families make informed decisions about their health insurance needs.

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Chris Stanley

Sales & Operations Manager for Health Insurance