Gap Fees & Out of Pocket Costs For Health Insurance

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 health insurance 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 the 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 take out private health insurance.

Medicare generally pays 75% of the Medicare Benefit Schedule (MBS) fee for the private medical services you receive while you're 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 their actual charged amount is known as the gap.

If your insurer won't cover the cost of this gap, then you will have to foot this (often large-ish) 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.

Important 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 does this mean for you?

The main thing is that you can't assume that all your hospital treatments are fully covered when 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 are none gap-friendly medical professionals nearby, then it's worth your while to compare insurers to find one that works with local practitioners.

If you opt to get your treatment from specialists and doctors on your insurer's medical professionals list, you can expect to pay lower – or sometimes even zero – gap fees.

Want an example?

Let's say you need hip surgery for 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 participate 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 intend to reduce or eliminate out-of-pocket expenses for everyday Australians who already have private health insurance.

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 good for patients, and it's also good for medical professionals because it helps bridge the financial gap for those practitioners who charge 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 ask 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, though this is definitely something to discuss with your financial adviser.

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.

Want another example?

• You need a procedure with an MBS fee of $4,000.

• 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 – which for this example, is $1,000.

That leaves a $500 gap which you will have to pay out of your own pocket unless your insurer has a no-gap arrangement with your chosen 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, which is the highest amount they'll cover before you start to incur additional out of pocket expenses.

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

Gap expenses

The average gap fee for hospital treatment has increased by 7.1% between December 2023 and December 2024.

Average percent of out-of-pocket expenses by hospital treatment type:^

^Source: APRA June 2024 figures

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.

Private health cover can get you faster treatment and, with the right policy, you won't even be left with a hefty bill.

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

This is why it's worth taking the time to compare policies to find one that matches your current lifestyle, your medical needs – and your household budget.

Cheaper isn't always better, and some cover works out to cost you more in the end, if it means your gap cover isn't being taken into consideration when you choose your policy.

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 that suit your circumstances.

If you're looking to avoid gap fees, it's worth taking the time to speak to our health insurance experts.

They'll help compare the gap schemes from various insurers so you don't have to, and find a policy that fits your needs. Most importantly, they can help to minimise – or even eliminate – those nasty gap payments.

Sources

Australian Tax Office, Medical Expenses, June 2024. Medicare Benefits Schedule, MBS Online, June 2024 APRA June 2024 Membership and Benefits summary.

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.

Meet our health insurance expert,  Chris Stanley

Chris's top health insurance tips:

• 1

  Australia’s public health system is world-class, but wait times for public hospitals can be long, inconvenient - and leave you living in constant pain while you wait.

• 2

  An appropriate private health insurance policy can speed up your surgery, relieving your pain sooner.

• 3

  Family health cover means your children are covered under the same policy as you.

• 4

  Many health insurance policies come with a 12-month waiting period for pregnancy-related cover, so it’s a good idea to get a family policy organized well before starting your family. This means your child will be covered from birth until at least their early twenties (depending on which health fund you select).