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Last Updated on 25 September 2018

Health Insurance & The Gap

Medicare pays for a portion of covered medical treatments. Private health insurance policies pay additional costs not covered by Medicare.  However, many insurance policies do not cover 100 percent of all expenditures incurred when you obtain healthcare.  The amount that you must pay out of pocket for care is referred to as “The Gap.”


Check out this chart to see how costs are rising:

What is The Gap?

The gap refers to any money you must personally pay when receiving treatment in a hospital or from a health care provider.  This could include:

  • Co-pays
  • The costs of excluded benefits or services
  • Treatment not covered by Medicare or by private insurance
  • Treatment costs in excess of policy limits
  • Payments for provider fees that exceed the maximum fee amounts allowed by Medicare

It can be difficult to determine what out-of-pocket costs you face until you need medical services. The gap introduces uncertainty when planning for healthcare expenditures. To avoid surprise costs, it is beneficial to shop for private health policies that provide gap cover. This will allow you to limit or avoid out of pocket costs.


See the average gap fees paid by patients

What Are the Different Types of Gap?

There are four primary reasons why a gap may occur, leading to medical expenses that insurance will not pay:

  1. The hospital insurance you choose is not comprehensive. The insurance may require co-pays, have exclusions or impose other limits on benefits.
  2. The care that you receive is not covered. Medicare does not cover all types of treatment. Most dental care, physiotherapy, occupational therapy and elective procedures are not covered. Private health insurance policies also have exclusions, which vary among dTo avoid the gap, you must chooseifferent health insurance funds. 
    See how costs are paid for ancillary treatment
  3. The hospital or doctor providing care does not have an agreement with your health insurance fund. Health insurance funds may require doctors to be registered with the fund and to agree to certain terms and conditions. If you seek care from an unregistered doctor, your insurance may not pay all costs. The doctor or hospital may also not choose to accept gap cover arrangements, leaving you responsible for more
  4. The doctor charges more than the Medicare Benefits Schedule. Medicare has established a Medicare Benefits Schedule (MBS) with set fees for various services.  Medicare pays 75 percent of the fee designated by the MBS. You can buy private insurance to pay the other 25 percent of the designated fee. The government does not establish fees for doctors and medical professionals decide what to charge. If the fees exceed the Medicare Benefits Schedule, you will have to pay the costs above-and-beyond what Medicare and your private insurer pay.

When the gap occurs because a doctor charges a higher fee than the Medicare benefits schedule (MBS) allows, this is referred to as “The Medical Gap.”

Does private health insurance eliminate the gap?

Not all private health insurance policies eliminate the gap.  It depends upon whether gap coverage is part of the policy coverage.

Medicare will pay for 75 percent of covered services, but only up to the amount designated by the Medicare Benefits Schedule (MBS). A basic private health fund without gap coverage could pay the additional 25 percent, but only up to the maximum fees set by the MBS. If the physician charges more than the amount designated in the MBS, this creates a medical gap.  Patients must pay the excess fees above-and-beyond what the MBS payment schedule designates.

Consider, for example a simple procedure that Medicare has listed on the MBS as costing $100 maximum.  Medicare would pay $75 and a basic private health insurance policy with hospital cover would pay $25. If the hospital where the procedure took place charged $150, there would be costs of $50 to pay out-of-pocket. The following chart illustrates the amount that is in the gap that you are responsible for paying in this example:


The Gap Chart

Private health insurance policies could eliminate these costs if you opted for gap cover. Look for this type of policy when shopping for insurance if you do not want any unexpected health costs.

What is Gap Cover?

Gap cover is a type of insurance coverage that protects you from out-of-pocket expenses.  There are different types of gap cover arrangements:

  • Full gap cover. Some health insurance funds will cover 100 percent of fees in excess of the MBS. Even with full gap cover, you will need to pay any co-payments required by your health insurance fund.
  • Partial gap cover. Some funds cover only a part of the excess costs and fees above what MBS allows for a specific treatment.
  • Known gap cover. A designated fee (a “known gap”) is charged for each procedure the doctor performs. The doctor must provide you with written details about the out-of-pocket expenses prior to treatment so you can give “informed financial consent.” The known gap fee can be charged for every additional procedure with a separate item number.

Gap cover only pays expenses if the doctor participates in your health insurance fund’s medical gap cover scheme.  If the doctor does not participate in the gap cover scheme with your health insurance fund, you will be responsible for all costs charged over the MBS scheduled fee.

Choosing a Health Fund with Gap Cover

Different types of health funds provide different gap cover. When selecting a private insurance policy:

  • Determine if it offers full, partial or known gap cover. Not all policies do.
  • Ask your doctor or chosen hospital which health insurance funds they have registered with.
  • Review the policy for exclusions, limitations and co-pay requirements.

How to Avoid the Gap

To avoid the gap, you must choose a health insurance fund with gap cover and you must ensure that the doctor will participate in the gap cover scheme.  Depending upon your health insurance policy:

  • You likely will be limited to seeing a doctor that has registered with your health insurance fund. If your doctor has not registered, you can try to convince your doctor to register so your gap cover will pay for the excess fees. The doctor will have to accept the terms of your fund in order for you to claim your gap cover benefits.
  • The doctor must agree to participate in the gap scheme for your particular treatment. Doctors can decide on a case-by-case basis if they wish to participate in a gap scheme.
  • You must find out if all caregivers are participating in the gap scheme. This can include surgeons, anesthetists, assistant surgeons and all other medical professionals who will be providing care.

You can also avoid the gap by choosing only doctors that charges up to the MBS scheduled fee and that do not charge any co-pays or excess fees. However, this significantly limits your choice of physician and your choice of treatments.

Frequently Asked Questions About Health Insurance

There are three types of health insurance in Australia. They are:

  • Hospital Cover
  • Extras Cover (also known as general or ancillary cover)
  • Ambulance Cover

Hospital cover can ensure any unexpected surgeries, treatments or hospital stays you may require will be covered. With appropriate cover you will have the flexibility to choose your own doctor and the option of receiving treatment in a private hospital.  Most hospital covers allow you to stay in a private room. One other perk is skipping the public hospital systems’ waiting list, which can be lengthy for non emergency treatment.

Extras cover pays benefits for a a range of services, often including treatments and procedures related to the fullowing:

  • Dental/oral health
  • Glasses and contact lenses
  • Podiatry
  • Physiotherapy
  • Psychulogy
  • Acupuncture
  • Remedial massage
  • Chiropractic
  • Hearing aids
  • Travel vaccinations

Ambulance cover, as the name suggests, will cover you should you require emergency ambulance transport. In an emergency, there is enough to worry about. Having the expenses covered for provides security and peace of mind. Many hospital covers include emergency ambulance transport If yours doesn’t, you will need to shop for this separately.

Life is unpredictable. You never know when you might need cover. No matter what life stage you’re in, there’s a policy out there for everyone. You can select as much or as little cover as you want, depending on your health needs and requirements. It’s a small price to pay for the peace of mind health cover provides.

There is no one answer here. Costs vary across providers and policy types. Just because a policy is cheap, that does not mean it is ‘value for money’ and vise versa. Make sure you check what’s included and excluded in a policy before signing up, as you want to purchase a policy that best fits your specific needs.

Premium: A premium is the price you pay for your insurance policy (it may be paid annually or on an ongoing basis).

Policy: An insurance plan. In other words, it is the type of insurance you choose to select.

Policy Holder: The owner, or ‘holder’ of a policy.

Claim: In the event that you require treatment for a service covered by your policy, you can lodge a claim for reimbursement of all or part of the cost of that treatment.. These days, most claims are submitted electronically by the health care provider (dentist, physio etc)

Lifetime Health Cover: Lifetime Health Cover was put in place to encourage young Australians to seek out and maintain ownership of private health insurance early in their lives. If you do not take out a policy before you turn 31, extra charges will be applied should you take out a policy at a later time.

This means you will pay a 2% loading on top of your premium for every year that passes after you turn 30. For example, if you take out a policy for the first time at age 32, you will be charged 4% of your premium as an extra, then at age 40, 20% and so on, up to a maximum loading of 70%.

The loading is payable for 10 consecutive years of cover - after which it is removed and you premiums will be reduced.

Pharmaceutical Benefits Scheme (PBS): Medicare offers assistance for Australians with many of their their prescribed medication costs through the PBS. This assistance is in the form of subsidies towards the cost of many medications. You can check if your prescribed medication is on the list of subsidised items here.

Medicare Levy Surcharge: The Medicare Levy Surcharge is an additional charge (tax) applied to single Australian taxpayers who earn over the income threshold of $90,000 per year, or families/couples who earn over $180,000 per year. This surcharge is only applied to those who choose not to have a private health insurance policy.

The surcharge is designed to reduce pressure on the public health system by encouraging those with higher incomes to invest in private health cover.

Private Health Insurance Rebate: The government’s Private Health Insurance rebate lowers premiums for most Australians with private health insurance Older Australians may enjoy an even higher rebate. Our calculator can help you estimate the Government health insurance rebate you may receive.

Disclaimer: The above information is correct and current at the time of publication

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