Gap fees and out-of-pocket costs explained

What is a gap fee in health insurance?

A gap fee is the part of a doctor’s bill that Medicare and your health insurer do not pay. In Australian private health insurance it applies when you are admitted to hospital as a private patient. The Department of Health, Disability and Ageing puts it plainly: when a doctor’s fee for hospital treatment “is higher than the MBS fee, the difference is called the gap” (health.gov.au, page last updated 13 March 2025, read 8 November 2026).

The MBS fee is the Medicare Benefits Schedule fee, the amount the Australian Government sets for each medical service. Doctors are not bound by it. PrivateHealth.gov.au states that “there is no cap on the amount a doctor or health care provider can charge” (read 8 November 2026).

A gap is not the same as your excess. The excess is a set amount you agree to pay toward hospital charges when you take out the policy. The gap sits on each doctor’s account: the surgeon, the anaesthetist, the assistant surgeon and any other specialist. Out-of-pocket costs is the wider term. It covers gaps, the excess, co-payments and anything else neither Medicare nor the insurer pays.

This page is general information about Australian private health insurance in the 2026–27 financial year, not personal advice. It does not take your health, income or circumstances into account.

How is the gap worked out on a real MBS fee in 2026–27?

For an admitted private patient in Australia, Medicare pays 75% of the MBS fee for each item and the insurer pays at least the remaining 25%, if the policy covers the treatment (PrivateHealth.gov.au, read 8 November 2026). Everything above the MBS fee is the gap, unless a gap arrangement covers it.

Take a total knee replacement. MBS Online lists item 49518 at a schedule fee of A$1,577.30, updated 1 July 2026, with a Medicare benefit of A$1,183.00 at 75%. The insurer’s share is the rest of the fee, A$394.30. The table shows what the surgeon’s gap becomes as the fee charged rises above the schedule.

Plain Cover calculation from the MBS Online fee for item 49518 (schedule fee updated 1 July 2026) and the 75% and 25% rule on PrivateHealth.gov.au. Last verified 8 November 2026.

The government’s share never rises with the bill. On item 49518, Medicare pays A$1,183.00 whether the surgeon charges A$1,577.30 or three times that. Total hip replacement, item 49318, carries the same A$1,577.30 fee from 1 July 2026. The same arithmetic runs again for the anaesthetist’s items and the assistant surgeon’s items, each on its own account.

What do no gap and known gap mean?

No gap and known gap are agreements between an Australian health insurer and individual doctors. They are the main way insurers reduce gap fees. The Department of Health, Disability and Ageing defines both (read 8 November 2026):

• No gap: the insurer pays more than the MBS fee. If the doctor charges no more than the insurer’s no gap limit, the patient pays nothing for that doctor.
• Known gap: the doctor charges above the no gap limit but within a second limit set by the insurer. The patient pays a set, known amount.
• Above both limits: the insurer pays only its 25% of the MBS fee, and the patient pays the whole gap.

Two funds publish their known gap cap. Bupa says that if a doctor uses its Medical Gap Scheme, “you’ll never pay more than $500 per doctor”. HCF lists a “known-gap (an agreed amount – capped at $500)” under its Medicover scheme. Both pages were read on 8 November 2026 and neither states an effective date.

The catch is choice. PrivateHealth.gov.au states that “there is no requirement for any doctor to participate in an insurer’s gap cover agreement” and that doctors decide “on a case-by-case basis”. A surgeon on a fund’s list is not committed to using it for your operation in 2026–27.

Why you can still get a gap bill when your surgeon is no gap

Getting an anaesthetist’s bill after choosing a no gap surgeon is the most common surprise in Australian private hospital bills. People check that their surgeon bills no gap, then receive a separate account from the anaesthetist. Each doctor involved in an admission bills on their own and decides on their own whether to use the insurer’s arrangement. The Department of Health, Disability and Ageing lists surgeons, assistant surgeons, anaesthetists, other specialists, imaging and pathology as separate providers who may charge a private patient (read 8 November 2026).

Anaesthesia is a large part of the medical bill. APRA reports that anaesthetics was the medical service with the largest benefits in the June 2026 quarter: 25.1% of all medical benefits paid by insurers, or A$122.81 million (APRA, June 2026 edition, published 27 August 2026).

Three other charges catch people out:

• Booking or administration fees. These cannot be claimed from Medicare or the insurer, according to the Department of Health.
• Split bills. One account goes to Medicare and the insurer, a second goes to you. The Department notes this is sometimes used “to work around gap cover agreements”.
• Consultations before admission. Specialist visits in rooms attract an 85% Medicare benefit and no insurance benefit at all.

The fix is to ask every doctor, not only the surgeon, before the admission.

How much do insured patients pay out of pocket in Australia?

APRA’s quarterly statistics are the only national measure of what insured Australians pay out of pocket. The table sets the June 2026 quarter, the last quarter of the 2025–26 financial year, against the June 2025 quarter, the last of 2024–25.

Source: APRA Quarterly Private Health Insurance Statistics, June 2026 edition (27 August 2026) and June 2025 edition (27 August 2025). Last verified 8 November 2026.

The A$513.24 figure is per hospital episode and includes the excess and co-payments, which is why it is larger than the medical gap. APRA counted 1,347,202 insured hospital episodes and 11,094,144 medical services in the June 2026 quarter. APRA revises back quarters, so a figure from an older edition can differ slightly from a newer one. The next edition, covering September 2026, is due in November 2026 according to APRA’s release schedule (read 8 November 2026). For the public patient comparison, see our guide to public vs private hospital costs.

Which operations most often leave a gap?

How often an Australian private patient pays a gap depends heavily on the procedure. The Medical Costs Finder, run by the Department of Health, Disability and Ageing, publishes what insured private patients across Australia typically paid. Its latest figures cover 2023–24 (read 8 November 2026).

Source: Medical Costs Finder, national figures, 2023–24 data. Typical values are medians and do not add up to the fee. Last verified 8 November 2026.

Hospital fees are counted separately: typically A$18,000 for a knee replacement, A$20,000 for a hip replacement and A$750 for a colonoscopy. The Medical Costs Finder notes that these may be covered “all or part” by insurance.

The pattern matters for anyone weighing cover. A gap is the norm for a joint replacement and the exception for a colonoscopy. A joint replacement is also a Gold-tier category, as our list of all 38 clinical categories shows, so the policy must cover the category before any of these insurer amounts are paid.

Do hospital charges leave a gap as well as doctors’ fees?

Yes. Hospital charges can leave a gap too, but they work differently from doctors’ gaps. Hospital charges for an Australian private patient include accommodation, operating theatre fees, medical devices such as artificial joints, medicines and dressings, and therapy in hospital. Medicare pays none of these. What the insurer pays depends on the policy and on whether the insurer has an agreement with the hospital (Department of Health, Disability and Ageing, read 8 November 2026).

At an agreement hospital, the patient pays either nothing for hospital charges or an amount set by the policy, such as the excess or a daily co-payment up to a cap. At a hospital with no agreement, the bill can be much larger. The Department warns that some policies pay only the government minimum for hospital charges, which “could mean you pay high out of pocket costs”.

There is a floor for some hospitals without an agreement. If the Department has assessed the hospital as eligible for second-tier default benefits, the insurer’s benefit “must be no less than 85% of the average charge for similar treatment” in a hospital of the same category.

The tier sets which treatments are covered, not these amounts. A Gold policy at a hospital with no agreement can still leave a large hospital gap, as our guide to whether Gold cover is worth it explains.

How do you find out your gap before an operation?

Ask before you agree to treatment. In Australia this is called informed financial consent. The Department of Health, Disability and Ageing calls it your right “to get an estimate of costs from your doctor or hospital before you agree to have treatment”, although it may not be possible in an emergency (read 8 November 2026).

PrivateHealth.gov.au sets out the questions to ask each doctor (read 8 November 2026):

1. Which MBS item numbers will you bill, and what will you charge for each?
2. Will you treat me under my insurer’s gap cover scheme?
3. Who else will treat me, such as the anaesthetist or assistant surgeon, and how do I get their estimates?
4. Will you put the estimate in writing?

Then take the item numbers to the insurer. The insurer can say whether the policy covers the treatment, which clinical category it falls in and what benefit it will pay on each item. Finally, check the typical cost for the same procedure on the Medical Costs Finder. It shows what insured patients in your area typically paid, which gives a benchmark for the quote. If the treatment is not on the MBS at all, PrivateHealth.gov.au warns that the insurer may pay no benefit. To see policies and their hospital agreements for your state, compare hospital cover.

What can you do about an unexpected gap bill?

Start with the doctor’s practice and the insurer. Many unexpected gap bills in Australia come down to an item number that does not match the estimate, or a doctor who did not bill under the gap scheme as expected. The insurer can confirm what it paid and on which items.

If that fails, the Commonwealth Ombudsman, acting as the Private Health Insurance Ombudsman, takes complaints about “doctors, hospitals and healthcare providers if it involves a private health insurance arrangement such as gap fees” (ombudsman.gov.au, read 8 November 2026). The service is free. It also takes complaints about insurers’ benefits and information.

Complaints about doctors are a small share of the total. The Ombudsman received 853 private health insurance complaints from 1 January to 31 March 2026, 3.7% fewer than in the same quarter a year earlier. Of these, 741 were about health insurers and 2 about doctors, dentists and other medical providers. That is the quarterly update read on 8 November 2026. No later quarterly update had been published on the Ombudsman’s site that day.

A written estimate is what makes a complaint workable. Without one, there is little to compare the final bill against.

Worked example: one knee replacement, three ways the surgeon can bill

Here is one Australian case with the arithmetic shown. The surgeon’s fee and the excess are illustrative and stated. The MBS fee is real.

Anne is 67 and lives in Adelaide. Her hospital policy covers joint replacements and has a A$500 excess. Her surgeon will bill MBS item 49518, total knee replacement: schedule fee A$1,577.30 from 1 July 2026, Medicare benefit A$1,183.00. The surgeon’s fee is A$4,000.

• No gap arrangement. Insurer pays the 25% remainder, A$394.30. Surgeon’s gap = A$4,000 − A$1,183.00 − A$394.30 = A$2,422.70.
• Known gap capped at A$500, as Bupa and HCF publish. Anne pays at most A$500 to the surgeon. The insurer pays the rest, A$4,000 − A$1,183.00 − A$500 = A$2,317.00, provided the fee is within its known gap limit.
• No gap. Anne pays A$0 to the surgeon.

Her A$500 excess applies to the hospital charges in each case. The anaesthetist and any assistant surgeon bill separately and choose separately. For comparison, the Medical Costs Finder shows that insured knee replacement patients who paid a gap typically paid A$1,000 in total in 2023–24.

So one surgeon’s billing choice moves Anne’s bill between A$500 and A$2,922.70 before the anaesthetist, from the same policy. People in Anne’s position typically ask each doctor for a written estimate under the fund’s scheme before booking.