What are out-of-pocket costs?

Ben Thomas
Written by Ben Thomas
Ben Thomas
Written by Ben Thomas Chief Experience Officer (CXO)

Ben has over 17 years of experience in Private Health Insurance across Customer Experience, Marketing and Sales. His work focuses on transforming member journeys, strengthening digital and marketing performance, and creating clearer, more personal interactions across the entire lifecycle. With deep expertise in acquisition, retention and product strategy, Ben draws on his marketing and product experience to support smarter, member-focused design. He also developed a comprehensive Product Landscape Analysis tool used to understand market competitiveness and enable experience-led product development.

Read More
Published: May 12, 2026
Last checked: May 12, 2026

Out-of-pocket costs are one of the most misunderstood parts of private health insurance.

An out-of-pocket cost is an expense you need to pay yourself because it isn’t fully covered by Medicare, your health fund or both.

Out-of-pocket costs can still apply even if you have private health insurance and may include things like medical gaps, excesses or costs that aren’t fully covered under your Hospital or Extras cover.

Key Points

  • Out-of-pocket costs are expenses not fully covered by Medicare, your health fund or both
  • Out-of-pocket costs can still apply even if you have private health insurance
  • Hospital excesses, medical gaps and Extras shortfalls are common types of out-of-pocket costs
  • Understanding what is included, restricted or excluded under your cover can help reduce unexpected costs

What are out-of-pocket costs?

Out-of-pocket costs are the difference between what Medicare and your health fund pay and the cost you have been charged for your treatment.

Even with private health insurance, there can still be additional costs associated with medical treatment, hospital admissions or Extras services.

Out-of-pocket costs can include things like hospital excesses, medical gaps, provider charges above your benefit limits or treatments that aren’t fully covered under your policy.

Why do out-of-pocket costs happen?

Private health insurance doesn’t always cover the full cost of treatment or services.

Out-of-pocket costs happen when a doctor, specialist or provider charges more than the benefit paid by Medicare or your health fund.

Doctors, specialists and providers set their own fees, which means costs and your out-of-pocket expenses can vary depending on who you choose to see and where you receive treatment.

Out-of-pocket costs can also occur if you receive treatment during a waiting period, as benefits aren’t payable under your policy.

What types of out-of-pocket costs can apply?

This can include things like hospital excesses, specialist gap fees, scans, pathology, prostheses, pharmacy items or provider charges above the benefit paid by your health fund.

With Extras cover, out-of-pocket costs can apply if your provider charges more than the benefit available under your policy or you have reached your annual limits.

For example, if your dental provider charges $250 for treatment and your Extras cover pays a benefit of $180, you will need to pay the remaining $70 out of pocket.

What is the difference between an excess and an out-of-pocket cost?

An excess is a fixed amount you agree to pay towards a hospital admission under your policy. Choosing a higher excess can reduce the cost of your hospital premiums, however you may need to pay the excess if you’re admitted to hospital.

An out-of-pocket cost is any additional expense you need to pay yourself because the treatment or service isn’t fully covered by Medicare, your health fund or both.

Depending on your treatment and cover, you may have both an excess and other out-of-pocket costs associated with your care.

Do Agreement Hospitals reduce out-of-pocket costs?

Agreement Hospitals are private hospitals that have an agreement in place with your health fund for hospital accommodation and theatre fees.

These costs are covered by your health fund when you’re treated at an Agreement Hospital for a service included under your policy, minus any excess payable under your cover.

Using an Agreement Hospital can help reduce or avoid some hospital related out-of-pocket costs, however other costs such as medical gaps from doctors or specialists may still apply.

Can you have out-of-pocket costs with Extras cover?

Yes. Out-of-pocket costs can still apply with Extras cover if your provider charges more than the benefit available under your policy.

For example, if your filling at the dentist costs $150 and your health fund pays a benefit of $80, you will need to pay the remaining $70 out of pocket.

Out-of-pocket costs can also apply if you have reached your annual limits or are using a service that isn’t included under your Extras cover.

How can you reduce out-of-pocket costs?

While out-of-pocket costs can still apply with private health insurance, there are steps you can take to help reduce unexpected expenses.

Understanding what is included, restricted or excluded under your policy, choosing providers that participate in gap arrangements and using Agreement Hospitals can all help reduce the amount you may need to pay yourself.

Before receiving treatment, it’s also important to ask your doctor, specialist or provider about any costs you may need to pay out of pocket.