How Medicare Works
Medicare is Australia's universal health insurance system, funded by the 2% Medicare Levy on taxable income. It covers medically necessary services listed on the Medicare Benefits Schedule (MBS) - rebating a specified percentage of the schedule fee.
- Medicare rebate: For most GP services, Medicare rebates 100% of the MBS schedule fee. For specialist services, Medicare rebates 85% of the MBS fee (75% for in-hospital services). The MBS fee is set by the federal government
- Schedule fee vs actual fee: GPs and specialists are free to charge more than the MBS schedule fee. The gap between the MBS rebate and what the doctor charges is the 'out-of-pocket' or 'gap' cost - paid by the patient
- Bulk billing: When a doctor accepts the Medicare rebate as full payment with no out-of-pocket cost to the patient. The doctor receives only the MBS rebate - no gap. Bulk billing was the norm for GPs for decades but rates have been declining
- Bulk billing rates in 2024-25: Nationally, approximately 75-80% of GP services are bulk billed - down from 88% in 2021-22. In metropolitan areas and for specialist services, bulk billing rates are significantly lower. Rural and outer suburban areas have the worst access to bulk billing
- GP bulk billing incentive: The federal government increased incentives for GPs to bulk bill children under 16 and concession card holders from 2023 - partially reversing the trend for these groups
- What Medicare does NOT cover: Dental (except children's dental benefit scheme and DVA), optometry (some), physiotherapy (only in specific programs), psychology (limited through MHTP - 10 sessions/year at a partial rebate), private hospital accommodation, ambulance (state schemes or private cover required)
Out-of-Pocket Costs: Gap Fees Explained
As bulk billing declines, understanding and managing gap fees becomes essential. Out-of-pocket costs for specialist care in Australia can be significant - particularly for complex medical needs.
- GP gap fee range: Non-bulk-billing GPs typically charge $90-$120 for a standard consultation. The MBS rebate is approximately $42.85 (standard consultation, 2025-26). Gap: $47-$77 per visit
- Specialist gap fees: Specialist fees vary enormously. A dermatologist consultation may cost $200-$400 vs MBS rebate of ~$80-$160. A specialist procedure can carry gaps of $500-$5,000+ depending on the type of service
- No-gap and known-gap private hospital: Private hospitals operate 'no-gap' and 'known-gap' schemes in conjunction with private health insurers. Under no-gap, the doctor agrees to charge no more than the combined Medicare + insurer benefit. Under known-gap, an agreed out-of-pocket is communicated upfront (capped at $500 under most schemes)
- Pathology and radiology: Most standard pathology (blood tests, swabs) and diagnostic imaging (X-rays, ultrasound) is bulk billed. MRI bulk billing has improved but still limited - expect a gap of $0-$150 for MRI depending on the provider
- Emergency department: Public ED visits are covered by Medicare/state health system at no cost. Private hospital ED visits attract fees - ensure your private health insurance covers the relevant procedures
- Ask before the appointment: You have the right to ask any doctor 'do you bulk bill?' or 'what is your out-of-pocket fee?' before attending. This is entirely appropriate and should be standard practice
Medicare Safety Nets: Capping Your Annual Out-of-Pocket
The Medicare Safety Net and Extended Medicare Safety Net cap the out-of-pocket costs for families and individuals who have high Medicare-covered expenses in a calendar year.
- Original Medicare Safety Net threshold (2025): Once your family/individual out-of-pocket costs for out-of-hospital MBS services exceed $560.40, Medicare pays 100% of the MBS schedule fee for the rest of the calendar year (rather than 85%)
- Extended Medicare Safety Net (EMSN): Once out-of-pocket expenses (the gap between what doctors charge and the Medicare rebate) exceed $770.30 (concessional/family) or $2,249.30 (general), Medicare pays an additional benefit - 80% of further out-of-pocket costs (subject to EMSN benefit caps per item)
- Calendar year reset: Both safety nets reset on 1 January each year. If you expect high medical expenses, cluster non-urgent specialist appointments before year-end to maximise within-year safety net benefits
- Registering as a family: Couples and families can register to pool safety net thresholds - meaning one family member's high medical costs contribute to the threshold for all registered family members. Register at Medicare (myGov)
- EMSN benefit caps: Some MBS items have caps on the EMSN benefit - limiting the additional Medicare rebate even after the threshold is reached. Check the MBS online for caps on specific items before assuming full coverage
- Concession card holders: Commonwealth Concession Card holders (Health Care Card, Pension Concession Card) have lower EMSN thresholds - $770.30 vs $2,249.30 for general patients. A significant financial advantage for eligible Australians
Medicare Levy and Medicare Levy Surcharge
The Medicare Levy funds Medicare - and the Medicare Levy Surcharge is an additional tax designed to encourage higher-income earners to take out private hospital cover.
- Medicare Levy: 2% of taxable income for most Australians. On $80,000 income: $1,600/year. Individuals earning below ~$26,000 (singles) receive a full reduction; partial reduction between $26,000 and $32,500
- Medicare Levy Surcharge (MLS): An additional levy of 1.0%, 1.25%, or 1.5% applies to singles earning $93,000+ and families earning $186,000+ who do NOT hold an eligible hospital cover private health insurance policy
- MLS income tiers (2025-26): $93,000-$108,000: 1.0% ($930-$1,080 extra). $108,001-$144,000: 1.25% ($1,350-$1,800 extra). $144,001+: 1.5% ($2,160+). These are significant amounts that make private hospital cover cost-effective purely on tax grounds
- MLS income definition: Includes taxable income + reportable fringe benefits (RFBA) + total net investment loss + reportable employer super contributions. Salary packaging increases effective MLS income - even though it reduces taxable income
- Breakeven calculation: At $100,000 income, MLS = $1,000/year. A basic hospital-only private health insurance policy costs $900-$1,400/year. Many policies are available under $1,200 - making it tax-neutral or better to hold PHI above the $93,000 threshold
- Lifetime Health Cover (LHC) interaction: If you reach 31 without taking out private hospital cover, LHC loading of 2% per year applies when you do take it out (max 70% loading after 35 years). For those earning above $93,000, taking out hospital cover before 31 is strongly advisable
Medicare and Private Health Insurance: Complementary, Not Interchangeable
Private health insurance does not replace Medicare - it supplements it, covering gaps that Medicare does not, providing access to private hospitals, and enabling choice of treating doctor.
- Hospital cover: Private hospital insurance covers private hospital admission costs - private room, private surgeon and anaesthetist fees (subject to gap), rehabilitation, elective surgery with shorter waiting times. Medicare covers public hospital care
- Extras cover: Covers non-Medicare services - dental, optical, physiotherapy, chiro, psychology (above Medicare MHTP sessions), hearing aids. Extras cover is optional and separate from hospital cover
- Medicare for hospital services: Even in a private hospital, Medicare pays its 75% contribution of the MBS fee for services rendered. The private insurer covers the remaining 25% (if participating doctor) - this is the 'no-gap' mechanism
- Mental Health Treatment Plan (MHTP): Through your GP, you can access 10 Medicare-subsidised psychology sessions per calendar year. Rebate per session: approximately $137.05 (psychologist) or $84.80 (social worker). Most psychologists charge $180-$250 - gaps of $43-$113 per session apply
- DVA and NDIS: Veterans holding DVA Gold or White cards receive additional Medicare-like coverage. NDIS participants may have therapy costs funded through their plan - Medicare and NDIS services can be coordinated for eligible participants
- Finding a bulk-billing doctor: healthdirect.gov.au and healthengine.com.au list practices and indicate bulk billing availability. GP Management Plans and team care arrangements under the GP can extend bulk-billed allied health access for patients with chronic conditions
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