When patients receive an unexpected medical bill, the natural assumption is that their doctor has charged too much. Sometimes that is true. More often, the AMA's new explainer, Private Health: Uncovering Gaps, suggests that the answer lies in how the bill is funded rather than what is charged.
Its most striking example is a knee replacement. If the surgeon charges the insurer's no-gap rate of $2,529.55, the patient pays nothing. If the surgeon charges $2,892.90 under the insurer's known-gap arrangement, the patient pays $500. If the surgeon charges $2,900 – just $7 more – the insurer's contribution falls from $1,239.85 to $384.34, and the patient's bill rises to $1,362.61.
| Surgeon's fee | Arrangement | Insurer pays | Patient pays |
|---|---|---|---|
| $2,529.55 | No-gap rate | — | $0 |
| $2,892.90 | Known gap | $1,239.85 | $500.00 |
| $2,900.00 | Outside a gap arrangement | $384.34 | $1,362.61 |
Seven dollars more on the fee; $863 more for the patient; $856 less for the insurer. That is the no-gap cliff.
It happens because, outside a gap arrangement, an insurer need only pay 25 per cent of the Medicare Schedule Fee. The known-gap limit that triggers the cliff, generally $500 per episode, has not been indexed in around 25 years. Each insurer also sets its own rates, so a doctor may need dozens of different fees for the same operation. Two policies both labelled "gold" can pay very different benefits for the same procedure, by the same doctor, in the same hospital.
Doctors are, in fact, working hard to stay on the right side of that cliff. In 2024–25, 97.1 per cent of in-hospital services were billed under no-gap or known-gap arrangements, according to APRA data. That is despite Medicare indexation averaging 1.6 per cent a year over the past decade, against 3.1 per cent for wages and inflation.
The explainer also asks where the premium dollar goes. About 12 cents of each dollar funds doctors' care; about 16 cents goes to insurers' management expenses and profits. Between 2019 and 2025, insurers' spending on doctors' care rose 18 per cent, while their net profits rose 49 per cent and management expenses 51 per cent.
None of this excuses genuinely extreme fees. They exist, they are indefensible, and they should be dealt with firmly through independent peer review. But they are a small minority, and they are not what most patients are experiencing.
What most patients are experiencing is a system in which Medicare's share has shrunk, insurers' benefit schedules and gap limits have stood still, and a few dollars can tip a fee over a cliff. Any response to out-of-pocket costs that looks only at doctors' fees will, therefore, miss most of the problem.
Three changes would help
- Index Medicare rebates to the real cost of providing care.
- Index and taper insurers' known-gap limits, so that a small fee difference produces a small change in the patient's bill, not a cliff.
- Let patients pay only the gap upfront, rather than the full fee followed by a wait for the rebate – a simple change the AMA has proposed.
Patients deserve to know what they will pay, and why. The gap is not only the doctor's fee. It is the visible endpoint of the whole funding system.
Read the AMA's full explainer, with its charts and sources, at uncoveringgaps.com.au.
See also: Specialist fees and access and Fees & Accounts.
The views expressed are my own and do not represent Alfred Health, ANZCA or any other organisation with which I am associated. This page is general information and is not financial advice; please discuss your own costs with your treating doctors and your insurer.