The health costs Medicare doesn't cover: planning for the out-of-pocket gaps in retirement

Ask most people what they'll spend on health in retirement and you'll often get a shrug and "well, Medicare covers it." Medicare covers a great deal — and we're lucky to have it — but it does not make health free, and the gaps it leaves are big, predictable, and rise as you age. The standout is dental, which Medicare essentially doesn't cover at all, but the list runs on: glasses, hearing aids, most physiotherapy and podiatry, the gap fees specialists charge above the Medicare rebate, increasingly a gap at the GP as bulk-billing thins out, and ambulance cover in some states. Budget nothing for all this and you're budgeting wrong. The better news is that Australia also has a web of safety nets and concessions that can cut these costs dramatically — if you know to use them. This article maps what Medicare covers and doesn't, the real out-of-pocket gaps, the safety nets that blunt them, and how to plan for health as a genuine retirement cost. It is general information only, not personal or medical advice.

Why does this matter — does health cost rise with age?

Most retirement spending follows a gentle downward curve — travel and lifestyle costs ease as the years pass (the "go-go, slow-go, no-go" pattern). Health and care costs do the opposite: they climb. A budget that assumes flat or falling expenses can be blindsided by the late-life health bill. So the first principle is simple: put a real, meaningful health line in your retirement budget, and let it grow as you get older, with a buffer for the big one-off items.

What do Medicare and the PBS actually cover?

Credit where it's due: Medicare covers GP visits (free where bulk-billed, or with a gap where not), public hospital treatment as a public patient (free), part of specialist fees via a rebate (you pay the gap), many diagnostic tests, and — through the Pharmaceutical Benefits Scheme (PBS) — subsidised medicines, where you pay a co-payment of up to $25.00 a script as a general patient, or up to $7.70 if you hold a concession card (Services Australia). That's a strong safety net. The problem is everything sitting outside it.

What are the gaps, starting with the big one?

Dental is the largest hole in the system. Medicare generally does not cover adult dental care — check-ups, fillings, extractions, dentures, crowns and implants are all out-of-pocket (or partly covered by private health "extras"). Major dental work can run into the thousands, and it's the cost retirees most often forget to plan for; there is public dental for concession-card holders, but typically with long waiting lists. Beyond dental, glasses are out-of-pocket (eye tests are often rebated); hearing aids and audiology are largely out-of-pocket privately, though pensioners can access the Hearing Services Program for free or subsidised devices, which we'll come back to because too few people claim it. Allied health — physio, podiatry, dietetics — is mostly out-of-pocket, with only a limited number of Medicare-subsidised visits a year available through a GP care plan for eligible chronic conditions. Specialist gap fees can be substantial, since specialists set their own fees well above the rebate. Ambulance cover depends on your state. And choosing private hospital or elective procedures brings out-of-pocket costs unless private health insurance covers them.

What are the safety nets and concessions?

The system gives a lot back to those who use it. The Medicare Safety Net means that once your out-of-hospital out-of-pocket costs (GP and specialist gaps, diagnostics) reach an annual threshold, Medicare rebates rise for the rest of the calendar year — and because the count runs 1 January to 31 December, a couple can register as a family to combine their costs and reach the threshold sooner (Services Australia). The PBS Safety Net works the same way for medicines: once your PBS spending for the calendar year reaches $277.20 as a concession-card holder, your medicines are free for the rest of the year, and once a general patient reaches $1,748.20 (the 2026 thresholds), further medicines drop to the concession co-payment of $7.70 (Services Australia) — so it's worth tracking your spending toward it. Concession cards (the Pensioner Concession Card and the Commonwealth Seniors Health Card) cut the price of PBS medicines, give you the lower Safety Net threshold, and open the door to bulk-billing and state concessions. State schemes provide public dental for cardholders and optical or spectacle help. The Hearing Services Program gives eligible pensioners subsidised or free hearing care and aids — a major, under-claimed benefit. And veterans with a DVA Gold or White Card get broad DVA-funded treatment, including dental and allied health, with no means test. Claiming what you're entitled to here can save thousands a year.

Is private health insurance part of the picture?

Hospital cover buys choice (private hospital, your own surgeon, shorter elective waits) and, for higher earners, avoids the Medicare Levy Surcharge; extras cover helps with dental, optical and allied health, within annual limits. In effect, extras cover is one way of pre-funding the very gaps this article is about — but it only saves money if your claims exceed your premiums, so it's a per-person calculation, not an automatic yes. Whether to keep or drop cover in retirement is a genuine cost-benefit decision (with the Lifetime Health Cover loading and the rebate in the mix), and there's a dedicated article on it; the key point here is to make the choice deliberately, not on autopilot.

How do the costs move across retirement?

Early on, in the "go-go" years, health costs are usually modest — preventive and elective. Through mid-retirement, the "slow-go" years, chronic-condition management, more specialists, more medicines and dental work push them up. In later years, the "no-go" phase, health and care costs are highest, and aged care becomes a separate, large, separately means-tested consideration of its own. The planning implication is to not model a flat health cost: escalate it with age, and keep a buffer or sinking fund for the lumpy items — major dental, hearing aids, an unexpected hospital episode.

What do worked examples look like?

These show the two halves of the issue — the gaps, and the concessions that close them. They are illustrative only, not personal or medical advice, and figures and eligibility change.

Margaret, 72, is a full Age Pensioner who's been putting off seeing a dentist because she "can't afford it," and assumes nothing is covered. She also wears hearing aids she bought privately years ago that are now failing, and she's been managing without because new ones seemed impossibly expensive. On these facts Margaret is missing concessions that exist precisely for her. As a Pensioner Concession Card holder she's eligible for public dental — there may be a waitlist, but for non-urgent work the cost difference versus private is enormous, and urgent issues are often prioritised. For her hearing aids, the Hearing Services Program provides free or heavily subsidised devices and audiology to pensioners, which she didn't know existed and has been going without for no reason. Her medicines are already at the $7.70 concession co-payment, and once her PBS spending for the year crosses the $277.20 concession Safety Net threshold, they become free for the rest of the year (Services Australia). On these facts the lesson isn't to spend more — it's that she's been doing without care she's entitled to because nobody told her the concessions were there, and a quick entitlements check changes her year. The broader warning, too, is that deferring the dental work to "save money" risks a bigger, more painful, more expensive problem later; budgeting for care beats skipping it.

Ron, 68, is a self-funded retiree who doesn't hold a concession card. Over the past year he's had a run of specialist appointments for a heart issue, each with a sizeable gap fee on top of the Medicare rebate, plus several expensive medicines, and the out-of-pocket total has been a nasty surprise. On these facts Ron should be using the safety nets he may not realise apply to him regardless of his wealth. The Medicare Safety Net isn't means-tested — once his out-of-hospital gap costs for the calendar year reach the threshold his rebates increase for the rest of the year, softening further specialist gaps, and if he's married, registering as a family could get him there faster (Services Australia). Likewise, once his medicine spending crosses the $1,748.20 general PBS Safety Net threshold, his medicines drop to the $7.70 concession rate for the remainder of the year (Services Australia), provided he's tracking it. Where his specialist appointments and procedures are predictable, on these facts there may even be value in clustering elective costs within one calendar year to cross the thresholds and get the back half of the year at the higher rebate. And it's worth Ron checking whether, despite being self-funded, he qualifies for the Commonwealth Seniors Health Card (income-tested, not assets-tested), which would cut his medicine costs further. His surprise bill is partly just the reality of a heavy health year, but the safety nets exist to cap exactly that, and they reward a bit of administration.

The thread through both is the same: Medicare is a strong foundation, but it leaves real out-of-pocket gaps — dental above all — that grow with age, and the retirees who cope best are the ones who budget for health honestly and claim every concession and safety net they're entitled to. The practical steps are to put a realistic, age-escalating health line in your plan with a buffer for big-ticket items; check your entitlements (concession cards, the Hearing Services Program, public dental, state schemes, and DVA cover for veterans); use the safety nets (register your family for the Medicare net, track your PBS spending, and time predictable costs within a calendar year); decide on private health deliberately as a cost-benefit; and don't skip needed care to save money, because deferred dental and specialist care usually costs more later. Because co-payments, safety-net thresholds and state schemes all change and vary by location, confirm the current figures and your eligibility with Services Australia and your state health department, and get personal advice to fit it into your overall plan. "Medicare covers it" is comforting — but planning for the gaps it doesn't cover is what keeps a health scare from becoming a financial one.

Sources

• Services Australia — PBS Safety Net thresholds
• Services Australia — When you spend a lot on PBS medicines
• Services Australia — Medicare Safety Nets