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
- The Australian Government legislates what private health insurance is allowed to pay benefits towards
- 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?
Hospital cover 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.
Ambulance transport can also result in out-of-pocket costs if you don’t have ambulance cover through a state scheme, subscription service or private health insurance.
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.
Why can specialist fees create large out-of-pocket costs?
Doctors and specialists are able to set their own fees for consultations, procedures and medical treatment.
Medicare and your health fund pay benefits towards the treatment, however these benefits are based on the Medicare Benefits Schedule (MBS) fee, which is the fee set by the government for medical services. If a specialist charges above the combined Medicare and health fund benefit, the remaining difference becomes your out-of-pocket cost.
For example, if Medicare and your health fund together pay $2,000 towards a procedure, but the specialist charges $3,500, you would need to pay the remaining $1,500 out of pocket.
This means out-of-pocket costs can vary significantly depending on the specialist you see, the treatment you receive and where the treatment takes place.
Where out-of-pocket costs can appear throughout a healthcare journey
The example below shows how Medicare, your health fund and out-of-pocket costs can apply at different stages of a healthcare journey.
The Australian Government legislates what private health insurance is allowed to pay benefits towards.
Click the image to view it full-size.
What is Informed Financial Consent?
Before receiving treatment, your doctor or specialist should discuss any expected out-of-pocket costs with you. This is known as Informed Financial Consent.
Informed Financial Consent helps you understand the likely costs associated with your treatment before it takes place, including any costs not fully covered by Medicare or your health fund.
If you’re unsure about any costs, it’s important to ask your doctor, specialist or hospital for a written estimate before proceeding with treatment.
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.
You can also use the Australian Government’s Medical Costs Finder to better understand the typical costs of some specialist services and medical procedures across Australia.
