During a cost-of-living crisis, many Australians may be wondering if their private health insurance policy actually delivers.<\/p>\n
Rising premiums<\/a>, the high costs of specialists\u2019 fees, large out-of-pocket costs<\/a> and bill shock<\/a> are some common concerns.<\/p>\n So it might be tempting to look for a \u201cno gap\u201d and \u201cknown gap\u201d arrangement. These are in the news this week<\/a> due to concerns about how health insurer Bupa is negotiating with hospitals to provide this type of care.<\/p>\n But when it comes to hospital care more broadly, what do the terms \u201cno gap\u201d and \u201cknown gap\u201d really mean? And how do these options affect your choice of doctor?<\/p>\n Out-of-pocket costs are high<\/p>\n Australians spent A$44 billion<\/a> out-of-pocket on health in 2023-24. Per person<\/a>, that\u2019s $1,636 a year<\/a>.<\/p>\n But averages mask the real problem. Costs are concentrated among people who use the private system, where a single hospital admission with multiple specialists can easily generate thousands of dollars in gap payments, many unexpected.<\/p>\n Examples include a bill from:<\/p>\n an anaesthetist who charges well above the Medicare schedule fee (patients rarely choose their own anaesthetist so this bill often comes as a surprise)<\/p>\n a surgical assistant whose fees the insurer does not cover<\/p>\n consulting specialists seen during an admission who charge more than the Medicare rebate and do not participate in your insurer\u2019s \u201cno gap\u201d arrangement.<\/p>\n The underlying problem is specialist fees in Australia are unregulated<\/a>. This means doctors can charge what they like.<\/p>\n No wonder privately insured Australians are looking at cheaper, or more predictable, options.<\/p>\n What is a \u2018no gap\u2019 arrangement?<\/p>\n \u201cNo gap\u201d means you pay nothing out-of-pocket for your doctor\u2019s fees. But that\u2019s only if your doctor has agreed to participate in your insurer\u2019s scheme.<\/p>\n Here\u2019s how it works. Usually, for private patients (in private hospitals or as private patients in public hospitals), Medicare pays 75% of the Medicare schedule fee (the fee the Australian government sets for providing certain services). Your insurer covers the remaining 25%. If your doctor charges above that combined amount, you pay the difference.<\/p>\n Sometimes patients pay for their hospital admission first, then their private health insurer reimburses them later.<\/p>\n Under a \u201cno gap\u201d arrangement, your insurer pays participating doctors an agreed rate in exchange for them charging patients nothing extra.<\/p>\n This means no surprise bills for that service. For a planned procedure with a surgeon you can choose in advance, this matters.<\/p>\n But you\u2019re limited to doctors in your insurer\u2019s preferred network. If your preferred surgeon isn\u2019t in the scheme \u2013 or the anaesthetist assigned on the day isn\u2019t \u2013 you\u2019re back to paying out-of-pocket.<\/p>\n \u201cNo gap\u201d also only covers doctors\u2019 fees. Hospital room charges, theatre fees and prostheses may still generate gap fees depending on your plan.<\/p>\n There is also an important distinction for outpatient care \u2013 the specialist consultation you have before or after a procedure, in the specialist\u2019s private rooms. <\/p>\n Private insurers are legally prevented from covering these visits. For outpatient consultations, Medicare pays 85% of the schedule fee. If your specialist charges above the schedule fee \u2013 which most do \u2013 you pay the full gap out-of-pocket, with no insurance coverage at all. That can easily run to a few hundred dollars per visit, and adds up quickly if you need ongoing specialist care.<\/p>\n What is a \u2018known gap\u2019 arrangement?<\/p>\n \u201cKnown gap\u201d is a middle ground. The doctor charges above the schedule fee, but the insurer caps how much you pay \u2013 typically up to $500 per service \u2013 and you\u2019re told the amount before the procedure.<\/p>\n More doctors participate under \u201cknown gap\u201d than \u201cno gap\u201d schemes because they can still charge above the schedule fee. That means more choice for consumers, who also know what they\u2019ll pay upfront.<\/p>\n But when multiple specialists are involved \u2013 surgeon, anaesthetist, assistant \u2013 those capped gaps add up. Having a \u201cknown gap\u201d arrangement reduces the surprise, but it doesn\u2019t eliminate the cost.<\/p>\n What\u2019s in it for insurers?<\/p>\n Insurers have a clear financial interest in such arrangements. By negotiating agreed rates with doctors, insurers limit their liability and have predictable costs. <\/p>\n Large insurers \u2013 those with millions of members \u2013 have real bargaining power. Doctors who want access to their patients have an incentive to join the scheme, even at rates below what they\u2019d otherwise charge. <\/p>\n This shifts pricing power from individual specialists toward large insurers. For patients of participating doctors, that can mean lower costs. <\/p>\n But it also means insurers have growing influence over which doctors patients can see without a financial penalty.<\/p>\n Is it like US health care?<\/p>\n