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How to avoid out-of-pocket healthcare costs

Tips on how to get cheaper health care and negotiating with your surgeon.

surgeon consulting with patient
Last updated: 28 May 2024


Checked for accuracy by our qualified fact-checkers and verifiers. Find out more about fact-checking at CHOICE.

Need to know

  • Specialists can charge on top of what Medicare covers
  • Where you live may affect how much you're out of pocket for doctor and medical services
  • Health fund gap schemes vary and some funds are better than others at helping their members avoid out-of-pocket costs

It can be a real shock when you use your private health insurance policy and find you're still left facing a hefty medical bill.

"I had triple by-pass surgery [and] my out-of-pocket expenses included $4000 for the heart surgeon and $700 for the anaesthetist," a CHOICE member told us in 2017. "I was lucky enough to have some shares that could be sold at the time to cover the expenses."

There are many extra costs private patients can face in hospital, while treatment for public patients is free. These include:

  • consultations with your doctor­
  • procedures you aren't covered for (always check with your insurer before starting the treatment)
  • excess and co-payments
  • pathology services, such as blood tests
  • prostheses, such as an artificial hip (though there's always one suitable prosthesis that's free)
  • hospital incidentals, such as a TV or medication you take home (though public patients can be charged for these too).

Of course, it's not all bad. As a private patient, you can usually get treatment sooner than public patients can. And there can be long waiting lists in public hospitals if you need elective surgery like a hip or knee replacement or cataract surgery.

Private hospitals are also usually more comfortable, and as a private patient you have your choice of doctor, but that's where the gap payment comes in.

What is a gap payment?

Words like "gap" and "gap payment" are good examples of the jargon that can make health insurance so confusing.

A gap is simply the difference between what Medicare and your private health fund will pay towards your treatment, and what your doctor or hospital charges. 

The Australian government sets a fee for treatments, procedures, tests and more, and these are listed on the Medicare Benefits Schedule (MBS).

  • Medicare will pay 75% of the MBS fee for the treatment of private patients in hospital.
  • Your insurer will pay the remaining 25%.

But doctors aren't bound by the MBS so they often charge more than this fee, and the extra amount they charge is called the gap payment – or your out-of-pocket costs.

Health funds have gap schemes under which your fund pays all, or a portion, of the extra charge.

There are two types of gap schemes for medical services.

No gap: No out-of-pocket costs

The insurer sets an upper limit for how much they'll pay over the MBS fee. If your doctor charges above the MBS but under, or up to, the insurer's 'no gap' threshold, you'll be covered and have no out-of-pocket costs. If they charge more than the 'no gap' threshold, you may be able to take advantage of your insurer's 'known gap' scheme.

Known gap: Known out-of-pocket costs

This gives you a bit of leeway if your doctor charges above the 'no gap' threshold. Usually, if the doctor charges up to $500 more than the no gap amount, you pay the difference between the no gap amount and the doctor's fee. The health fund and Medicare pay the rest. This usually limits your out-of-pocket costs to a maximum of $500.

But beware, if your doctor charges even $1 above the known gap amount, you're no longer eligible to claim anything under the gap scheme, and you're back to paying the difference between the MBS-set fee and what the doctor or surgeon charges.

For example:

  • The MBS fee for your treatment is $800 (Medicare pays 75% of this and your insurer must pay the other 25%).
  • Your health fund's no gap threshold for this treatment is $2000, and the known gap threshold is $2500.
  • If your doctor charges you up to $2000 for the treatment, you won't pay any out-of-pocket costs.
  • If your doctor charges between $2000 and $2500, your health fund and Medicare will pay $2000, and you'll pay the remainder (up to $500).
  • If your doctor charges above $2500, your health fund and Medicare will pay $800, and you'll cover the rest. So if they charge $3000, you'll pay $2200.

Health funds have agreements with particular doctors who've agreed to charge up to the threshold for some or all of their patients. But even if a surgeon has a gap agreement with your health fund, it's up to them if they choose to use it for you.

How much will your surgery cost?

How much you have to pay for surgery as a private patient depends mainly on how much your surgeon, the assistant surgeon and anaesthetist will charge. And how much they charge depends on where you live.

Surgery costs in some states are much cheaper than others and costs vary widely in different regions. So if you live in a region where surgeons charge more, it may make sense to consider having your surgery done in a different area if possible.

To check how much you might have to pay, use the government's Medical Cost Finder.

How much will you pay for surgery?

$880 is the typical amount that private patients pay for knee replacement surgery across Australia (if they have out-of-pocket costs), with 22% of people paying $0 due to the surgery being fully covered.

But if you look at your state, your costs may be very different. Below are some typical surgery costs by state and territory.

  • Australian Capital Territory: $4100
  • New South Wales: $1500
  • Queensland: $1000
  • Victoria: $800
  • South Australia: $390
  • Tasmania: $500
  • Western Australia: $320.

So if you live in the Australian Capital Territory, it looks like you can save a lot of money by travelling to New South Wales for your surgery.

Note: The above are typical costs for the doctor's fee (not including hospital accommodation and other charges) as per Medical Cost Finder for the financial year 2022–2023. Figures for the Northern Territory were unavailable.

stethoscope with clipboard and laptop on desk

Surgery costs can vary widely depending on where you live.

Which health funds rate best for gap cover?

CHOICE rates health funds on the percentage of services for which the member had no or a known (up to $500) gap cover. These are the funds with the best rating for 2022/2023 in each state and territory.

Australian Capital Territory

ACA, Doctors' Health, Onemedifund.

New South Wales

ACA, Australian Unity, Doctors' Health, Peoplecare, Phoenix, Queensland Country, Union Heath, Westfund.

Northern Territory

HIF, Peoplecare, Phoenix, see-u by HBF.


ACA, Australian Unity, Bupa, Defence Health, Doctors' Health, HBF, HCI, Health Partners, Navy Health, Nurses & Midwives, Onemedifund, Peoplecare, Phoenix, Reserve Bank, see-u by HBF, Teachers Health, Union Health.

South Australia

Doctors' Health, Queensland Country, Reserve Bank.


N/A – no health fund scores better than average in this state.


ACA, Australian Unity, Bupa, Doctors' Health, Navy Health, Peoplecare, Westfund.

Western Australia


How can you reduce out-of-pocket healthcare costs?

Outside of hospital

Having private health insurance doesn't help when you visit a GP or specialist outside of a hospital, as their fees can't be claimed through private health cover.

Finding a doctor that charges the same as, or close to, the Medicare Benefits Schedule (MBS) fee is your best bet to reduce the expense to you.

  • Medicare will pay 100% of the MBS fee if you visit a GP and 85% of the MBS fee if you visit a specialist. See our article on what Medicare is and how it works.
  • If your doctor bills Medicare directly (bulk billing), you won't have to pay anything. 

Hospital accommodation costs

If you need to go to hospital and you have private health insurance, call your fund and ask which hospital they have an agreement with so that you're protected from out-of-pocket costs for the hospital accommodation. 

Finding a surgeon at a good price

As specialists can set their own fees for your surgery, you can face large out-of-pocket costs. Your surgeon can also decide on a patient-to-patient basis whether they charge you under your health fund's gap agreement. 

Of course, you want the best surgeon, not just the cheapest, and the good news is they could be one and the same. Some of the best surgeons charge very reasonable costs.

At the GP
  • Ask if there are likely to be any out-of-pocket costs with the surgeon they refer you to.
  • Ask the GP to suggest a number of specialists so you can call and check costs yourself.
  • Get the names of specialists who work in both the public and private systems.
  • Ask for the approximate waiting times in your local public hospitals. Remember, just because you have private health insurance doesn't mean you can't be treated as a public patient to save yourself money. 
Speak to your health fund
  • Ask if your policy covers the treatment you require and if you've served any waiting times. Get the Medicare item number from your GP or specialist and quote it to the health fund to be sure.
  • Ask if you have to pay an excess or co-payment.
  • Get a list of surgeons they have an agreement with.
  • Get a list of hospitals in your area they have an agreement with.
Shop around
  • Ask your friends and family if they can recommend a surgeon.
  • Armed with a list of names, make some calls. Be insistent and ask for a ballpark figure if the receptionist can't give you exact out-of-pocket costs for the surgery. Also check on the out-of-pocket costs for the consultation and any tests or other procedures likely to be done in the surgeon's rooms. 
  • You may also want to ask the receptionist how many surgeries of the type you need your surgeon has done in the last 12 months just to make sure you have someone who is a specialist in this field.
  • One option might be to travel for treatment if you live in a geographical area with high costs, such as a capital city or remote area.
At the specialist
  • Talk about costs early on and explain to the surgeon if the costs aren't affordable for you.
  • If your specialist says they're unable to charge you under your health fund's gap scheme, ask if they would accept another health fund's gap scheme.
  • If you transfer from one health fund to another, they can't apply waiting periods for differences between medical gap schemes. But be careful: you should choose a policy that has the same cover level (e.g. not one with a higher or lower excess) and covers the treatment you're scheduled for. Also, make sure the new fund has an agreement with the hospital your specialist uses.
  • If you don't feel comfortable talking with your specialist about costs, talk to their receptionist. 
  • Ask for the fees of any other doctors involved, such as an assistant surgeon or anaesthetist. If the specialist or receptionist doesn't know, ask for the doctors' contact details and call them to find out.
  • Ask for a quote in writing.
We care about accuracy. See something that's not quite right in this article? Let us know or read more about fact-checking at CHOICE.

Stock images: Getty, unless otherwise stated.