What are out-of-pocket expenses for health insurance?

When you think about health insurance, you probably picture having financial support when you need it. After all, having health insurance means you won’t get stuck with a big bill if something goes wrong, right? Well…mostly.

While private health insurance can help take the edge off, it doesn’t cover every single cost. Even with top hospital or extras cover, you might still have to pay for some things yourself.

These are what the industry calls “out-of-pocket expenses” — and they can catch plenty of people off guard. But understanding how they work can save you from unwanted surprises, so let’s break it down.

In this guide, we’ll unpack what out-of-pocket costs are, where they often pop up, and how you can plan for them.

What is an out-of-pocket cost?

Out-of-pocket costs are any expenses that your health insurance or Medicare doesn’t cover.

You’ll sometimes hear them called gap payments because they’re the “gap” between what Medicare pays, what your private health insurance pays, and what your medical practitioner or hospital charges.

Here’s an example: Say you see a specialist who charges $250 for a consultation. Medicare might cover $80 of that, and your private health insurance could cover another $120. That still leaves $50 — and that’s what you’ll need to pay out of your own pocket.

It’s worth remembering that premiums and excesses aren’t the same thing as out-of-pocket costs:

• Premiums are the regular payments you make to keep your policy active
• An excess is a set amount you agree to pay when you go to the hospital
• Out-of-pocket costs are the extra expenses that pop up along the way

Common healthcare expenses that are not covered

Even with solid hospital or extras cover, there are times when you’ll still need to chip in. Here are a few of the most common health-related-out-of-pocket costs in Australia.

Private specialist fees

One of the biggest culprits for out-of-pocket costs is private specialist fees, which mainly applies when you're not a private patient in hospital, and more so for routine consultations, although there may sometimes be a gap, even for their services when admitted to hospital.

When you're admitted to hospital as a private patient for surgery or a procedure, you can choose your own doctor or surgeon. However, they generally aren't required to stick to the Medicare Benefits Schedule (MBS), which is the government's guide to how much a service should cost. If they decide to charge more than that amount, you'll have to pay the difference — aka the out-of-pocket cost.

It's worth noting that private health insurance typically won't cover the costs of seeing a specialist in their office or practice for consultations (whether before or after surgery). These appointment fees are generally your responsibility.

This can be frustrating, we know, but one of the key advantages of being a private patient in hospital is that you get to choose your own surgeon and often get seen faster.

The disadvantage could be that you might face bigger out-of-pocket bills if your doctor's fees during your hospital admission are higher than what Medicare, and your policy will cover, and potentially if you need to see them before or after your surgery in their consultation rooms.

Diagnostic tests and imaging

Think scans, blood tests, or pathology work.

Some of these are entirely covered by Medicare, while others are only partially covered — or not at all. That means you could be left paying for part of a CT scan, MRI, or other specialist test.

If you’re treated in a private hospital, your insurer might cover some of these costs, but it may not always be the full amount.

And if you go through a private specialist outside of the hospital, you’ll almost certainly have a gap to pay.

Hospital excesses

A hospital excess is your “upfront contribution” when you go into the hospital — the amount you agree to pay yourself before your health insurance starts covering the rest.

It's important to note that your hospital excess only covers your hospital accommodation costs (like your bed and the number of nights you stay). It doesn't cover your surgeon's, anaesthetists’, or other specialists' fees; those are billed separately.

For example:

• Your policy has a $500 hospital excess
• Your hospital accommodation costs $3,000
• You pay your $500 excess, and your health insurance covers the remaining $2,500
• Separately, your surgeon, anaesthetist, and any specialists involved in your hospital stay will bill you directly for their professional services. These are not part of the hospital excess and may have their own Medicare and private insurance rebates or out-of-pocket costs.

Some policies also have co-payments, a small daily fee for each day you’re in the hospital. The amount you pay depends on your policy, so be sure to check the details in your Policy Booklet before signing up.

Both excesses and co-payments are out-of-pocket costs — money coming straight from your pocket, on top of your regular premiums. Knowing these costs upfront helps you avoid surprises and plan your budget for any upcoming hospital stay.

How to plan for and reduce these costs

The good news? With a bit of planning, you can reduce how much you spend on out-of-pocket costs.

Here are some practical tips:

• Compare policies carefully. Don’t just look at the headline benefits. Ask: What level of private health insurance covers what, and where are the gaps? And also, what is important to me?
• Choose doctors and hospitals in your insurer’s network. They have agreements with insurers, so you often pay less. Most health insurers provide a list of doctors, specialists, and hospitals that have these agreements.
• Get a written quote. Before any procedure or specialist appointment, ask for a breakdown of fees and check what costs Medicare and your health insurance will cover.
• Know your excess. Choose a policy with an excess you’re comfortable paying. A higher excess usually means lower premiums, but you should be sure you could cover it when needed.
• Budget for extras. Even the best policy won’t cover every single test, scan, or treatment. Having a savings buffer helps manage any surprise bills — whether you’re an individual or juggling a family of kids.

It’s also worth noting that some health insurance policies, or higher levels of cover, might require a few extra steps before claims can be approved. This can include waiting periods, signing forms or declarations and providing documents like identification or medical records.

It’s nothing complicated, but checking what’s needed upfront or how long you need to wait, means you won’t run into delays or surprises later on. Taking a few minutes to sort this out now can save a lot of stress when it’s time to make a claim.

Consider your options with Choosi

The advantages of private health insurance are clear: quicker access to treatment, more choice of doctors and hospitals, and the comfort of private care.

But knowing that private health insurance can still come with some out-of-pocket costs like excesses, co-payments, and gap payments is just as important.

Knowing both sides helps you make an informed choice, avoid surprises, and take control of your healthcare budget.

Health insurance doesn’t have to feel like a mystery. At Choosi, we help you compare options from our Approved Product List so you can see what’s covered and find a policy that fits your needs — so you can focus on your health and enjoy life with peace of mind. Compare available health insurance policies with Choosi today.