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Last Updated on 17 December 2018

Health Insurance: Everything You Need to Know About “The Gap”


Medicare covers for a portion of medical treatments, but it’s not designed to pay for everything. This is one reason people have private health insurance: to pay for additional costs not covered by Medicare.

However, it’s not always possible for private health insurance to cover 100 percent of your healthcare expenses, which leaves you with some out of pocket costs. These costs are known as ‘the gap.’

Key Points
  • 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.
  • The gap is created when a doctor or specialist charges a fee that is higher than the Medicare Benefits Schedule (MBS).
  • You can reduce or avoid the gap by choosing a health insurance policy with a ‘no gap’ or ‘known gap’ scheme in place. You must also choose a medical practitioner participating in your fund’s gap scheme for the particular treatment you need.

What is the Gap?

Ambulance cover generally covers the cost of treatment and transport in an ambulance. Your level of coverage will determine whether you’re covered for both emergency and non-emergency transport. Don’t worry, we’ll cover that in more detail a little further on.

For example, when you visit a GP that doesn’t bulk bill, you’ll get a portion of the fee back from Medicare. The rest of the fee, however, comes out of your bank account. This is the gap.

The gap makes it confusing to work out exactly how much you’ll owe for a medical service. To avoid being caught off-guard by the gap, compare health insurance policies that provide gap cover. This can help you reduce or even eliminate gap fees.

Why Does the Gap Exist?

The Medicare Benefit Schedule (MBS) is a list of Medicare services subsidised by the Australian government. It establishes the amount that Medicare will cover for a specific list of services. Medicare does not always provide a full rebate for the fee.

Doctors who bulk bill agree to accept the Medicare benefit as full payment for each service, meaning they don’t charge more than the MBS and you are not left out of pocket.

However, medical practitioners are not bound to the MBS, and many charge more than the MBS fee. Doctors can also decide whether or not they will participate in an insurance fund’s gap cover arrangement.

Why Don’t All Doctors Charge the MBS Fee?

The MBS has not increased in line with the cost of running a practice, so doctors have to make up the difference by setting their own fees. A doctor’s fees have to cover a whole range of costs, such as:

  • Staff salaries
  • Building rent & utilities
  • Equipment and medical supplies
  • Insurance

Fortunately, many doctors do agree to participate in gap cover schemes through health funds.

Avoiding the Gap with Private Health Insurance

To avoid the gap, shop around for health insurance with a gap cover scheme. The next step is to find a doctor that participates in your health fund’s gap cover scheme. Doctors are not required to participate, so it’s important to find out before you receive medical treatments or services.

No Gap Scheme

A no gap cover scheme means exactly what it says: there’s no gap for services under the scheme, which means no out of pocket expenses for you. A health fund may provide full or partial cover for the gap, so be sure to clarify which level of cover you’re eligible for. A no gap scheme is ideal, as it allows you to avoid the gap entirely.

Known Gap

A known gap scheme establishes exactly how much you will pay out of pocket, so there are no unpleasant surprises when you get the bill. You’ll receive information in writing about the costs of each procedure in advance, so you can provide ‘informed financial consent’ in regards to the gap.

Gap Scheme Considerations
  • To avoid the gap, you must choose a fund with a no gap scheme and a doctor that participates in that particular scheme for the service you need.
  • If your doctor is not registered with your health fund’s gap cover scheme, you can ask if he or she would be willing to join. Doctors can decide on a case-by-case basis.
  • Find out if all of your medical professionals involved with your treatment or service are participating in the gap scheme, such as surgeons, anesthetists or assistants. If not, you may still be liable for a gap payment for that provider’s services.
  • When comparing health insurance, don’t be seduced by a policy’s gap scheme alone. Review the entire policy for exclusions, limitations, terms and conditions before making a final decision.

Shopping Around for No Gap Private Health Insurance

To find a policy with a no gap scheme, along with the other features that you’re looking for in health insurance, it’s wise to shop around. Compare policies to find one that offers you value for money across the board, rather than one outstanding feature. Health funds provide many different ways of saving you money, so it’s worth considering your options and switching if you find a better deal.

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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