This paper focuses on the exemption mechanism that accompanies patient co‐payments for outpatient and inpatient hospital care in Serbia. The objective was to investigate the level and dynamics of out‐of‐pocket payments for this type of services by exempted groups (older than 65 years, younger than 15 years, unemployed, disabled and individuals with low family income) compared with that by other groups. For this purpose, we use empirical household data collected in the Serbian Living Standards Measurement Study carried out in 2002, 2003 and 2007. These years correspond to the start of the recent reforms in the Serbian healthcare sector and 1 and 5 years after the start of the reform. Our results show that people who belong to exempted groups were paying for healthcare in 2002, 2003 and 2007. They report different types of out‐of‐pocket payments for outpatient and inpatient hospital care. Thus, despite the ambition of the Ministry of Health in Serbia to promote equity in healthcare as a leading aim of the reforms, the implementation of the exemption mechanism fails to protect the targeted groups. Future exemption mechanism should be pro‐poor oriented but should also exempt those whose health status requires a frequent healthcare use. Copyright © 2013 John Wiley & Sons, Ltd.