Gap fees explained, and why complex breast surgery is rarely covered by "known gap" or "medicover" schemes.
January 13, 2023
December 7, 2021
By Dr. Andrew Campbell-Lloyd

Gap fees explained, and why complex breast surgery is rarely covered by "known gap" or "medicover" schemes.

For patients with private health insurance, the degree to which their insurance covers surgery is variable.

This is a tricky topic to navigate because health insurance is poorly understood, and many insurance companies choose to take a somewhat antagonistic approach to their interaction (and hence that of a patient) with surgeons. So I think this is a topic worth revisiting (a lot of this I have covered before in different forums) so that we can be sure that our patients have transparency in how insurance works.

It is worth saying at the outset that not every operation is covered by insurance, even if you have top cover. This is a frequent point of confusion as well, not least because some of the rules and certain item numbers have changed over the years. The short version is this: cosmetic surgery is NOT ever covered by insurance. But, what is defined as cosmetic and what is defined as medical is not always clear either.

In my practice, the procedures that are defined as medical and are therefore covered by insurance include things like: breast reduction (45523); breast reconstruction after cancer, or to address congenital differences (many different item numbers can apply), and breast implant removal with capsulectomy (45551). Medical procedures have an "item number" ascribed to them by Medicare. Only procedures with an item number will ever be covered by private insurance. This item number is the key information that is used when communicating with Medicare, and your private health insurance.

No item number = no Medicare coverage and therefore no insurance coverage.

The procedures that are defined as cosmetic (ie. no item number) include things like: mastopexy/breast lift, cosmetic fat transfer (including fat transfer after explant), and ANY case involving a cosmetic breast implant (even if there has been a complication like rupture and the implant is being replaced). The last one is a bit tricky because there used to be an item number which could be applied for implant replacement but in 2018 that rule was changed (with good reason). Have a read of another article I wrote about this if you are interested which explains this topic in some detail.

It is also possible that a procedure is partially covered by insurance. Because I do so much explant work, this is a classic example of when partial coverage comes into play. Very frequently, when we perform explant surgery, we also perform additional procedures like mastopexy or fat transfer to optimise the cosmetic appearance of the breast after the implants are removed. For a patient with insurance and coverage for item number 45551 (removal of implant + capsulectomy), their insurance kicks in for that portion of their surgery. But as I mentioned above, the mastopexy or fat transfer component of the surgery won't be covered becuase they are considered to be cosmetic. This leads to a situation where the insurance equation gets a little more complex, and the degree to which things like anaesthetic and hospital fees are covered by insurance depend on the time apportioned to the respective medial and cosmetic components of the surgery.

So, with that initial stuff out of the way, let's get on with a bit more detail about gap fees.

There are two parts of this discussion:

1. What are the costs for a given procedure; and
2. How does your insurance come into play.

Every procedure has three basic components to the fee:

  • Hospital costs (including operating theatre fees, cost of overnight or inpatient stays, prostheses etc.)
  • Anaesthetic costs, and
  • The surgeon’s fee

If your procedure is cosmetic, then the ENTIRE cost is yours to pay. Simple.

In the context of a MEDICAL procedure (ie. with an item number) your insurance will (provided you have the correct level of cover) pay for your hospital costs, with most policies attracting an “excess” which you choose (the higher your excess, the lower your premiums), and this excess has to be paid only once in a calendar year. The way that your surgical and anaesthetic fees are covered is a little more complex. And the way insurance works for the anaesthetic and the surgical fees is totally different. Because of course it is.

We all know that if we insure our car, and we are in an accident, then our insurance will either cover the costs of repair or replacement of that car, perhaps with the requirement for an excess payment depending on fault. Simple. That makes sense to most of us, and the same goes for house insurance, contents insurance and so on.

So imagine for a moment that you have car insurance, and you have an accident. Obviously, you expect your insurance to take care of the costs of repair of your car. But when you take your car into be assessed, and he gives you a quote for $10,000, your insurer says “no, sorry mate, we aren’t going to cover that cost. Instead, we’ll give you $1,000 for the body work, $1,000 for the paint job, and $500 for a new set of tyres, but you will have to take care of the rest.” You think to yourself, hang on a second – what has been the point of paying for insurance for all this time only to find that when it comes to the crunch, the insurer decides not to cover your costs?

But of course, that is exactly what happens with health insurance. When you need it, you may find that it comes up (very) short.

When it comes to the surgeon’s fees, your insurer has what is referred to as a “schedule of fees” which is the amount they have decided they’ll cover for a given procedure. The “scheduled fee” for any procedure includes both what Medicare (ie. taxes used by the government to cover health expenditure, via the Medical benefits scheme) pays, as well as what the insurance company will pay. Rather problematically, that scheduled fee doesn’t reflect the actual cost of providing your care.

To complicate matters, all insurance companies (with the exception of NIB) also operate what is called a “Gap Cover”, "Medigap" or “Known Gap” scheme. These schemes, which your surgeon may or may not be part of, are designed to ensure that your out of pocket costs are limited to a “known gap”, typically no more than $500. Many surgeons work under these schemes for smaller procedures: things like skin cancer surgery and hand surgery are often performed as "known gap" procedures because for these shorter, simple cases, the health fund schedule of fees is actually pretty close to what most surgeons charge (see below for examples). But these schemes are completely inadequate for larger procedures, and almost never apply to the long and complex breast surgery that I perform.

"Known gap" - Here is how it works:

You need a procedure (bear in mind this is only an example) – let’s say that the scheduled fee for that procedure is $1000. That scheduled fee might include a Medicare rebate of perhaps $600, and the insurance company pays the other $400. Now, let’s say that the actual cost of that surgery is $1200 (your surgeon’s fee). That leaves a $200 difference which is your out of pocket cost with the remaining $1000 being paid by your insurance. That makes sense, right? $200 out of pocket doesn’t sound too bad at all. And for short, simple procedures that may be exactly how it works…but now it gets complicated.

Let’s say that same procedure actually costs $1,600. Because the difference between the actual cost, and the scheduled fee of $1,000 is $600, this exceeds the $500 “known gap” rule. Now comes the sting. What your insurance company will do when the “known gap” is exceeded, is to refuse to cover their own scheduled fee! Instead, they will now cover no more than the Medicare fee, which in this example is only $600. So the out of pocket cost to you the patient, is now $1,600-$600 = $1,000.

Does that make sense? No, I didn’t think so.

For a surgical fee of $1,200, your out of pocket will be $200.
For a surgical fee of $1,600, your out of pocket will be $1000.
Same level of cover, same insurer, same procedure.

The reality is that surgeons working within those known gap schemes will often take a bit of a hit as the cost of providing a procedure (and the required post-operative care) is not being adequately covered.

So what about longer, more complex surgery?

Well, the issue is this: there is no direct correlation between what the health insurance company might pay for surgery, and the duration or complexity of the surgery. That's a problem. For example, some health insurance will cover costs of around $1200 for something simple like a skin cancer excision and reconstruction. We're talking about 30 minutes of surgery there.

The same insurance company covers costs of just over $2000 for a breast reduction, which takes about 3-3.5 hours and involves a hell of a lot more after care and time spent following up that patient. And let's not even get started on the really tricky stuff like breast reconstruction after cancer.

So you can see the problem. What that means is that most surgeons will set their own fee for a longer procedure like a breast reduction, and as in the above example, because that fee will involve more than a $500 difference, the health fund ends up covering only a small portion of the surgical fee. The good news is that this doesn't impact on the insurance coverage of hospital costs, which still means that insurance for something like a breast reduction or explant surgery is a very worthwhile thing to have.

Having said that, the problem is compounded because when patients contact their health fund to ask about coverage, many of the insurers will say something like "you should ask your surgeon if they perform this *complex* surgery under our known gap/medicover scheme."

Unfortunately, the answer to that question is NO.

We have always advocated strongly for total transparency when it comes to surgical fees. Our philosophy is that our patients should be able to understand exactly what they are paying for, and why. It is a sad fact that health insurers are quite the opposite.