Key Takeaways
- Not-for-profit funds reinvest surplus money for their members, whereas for-profits distribute their returns back to shareholders.
- Value varies from fund to fund, so always compare benefits paid, complaints, gap agreements and cover – don’t assume one model is always better.
- The Australian private health insurance sector is highly regulated. Both models must meet the same prudential and consumer rules.
Not-for-profit vs for-profit health insurance in Australia
Private health insurance in Australia is provided by registered insurers that are either not-for-profit – mutual or member-owned – or for-profit companies that return profits to their shareholders. Both operate under the same federal rules, but they differ in how any surplus earnings are used, how they’re governed and, sometimes, how they set their pricing and benefits.
For the average consumer, the smartest move is to compare the actual performance of different funds – things like benefits paid as a percentage of contributions, complaints, gap cover and hospital agreements – rather than just assuming that one model will always deliver better value than the other.
Quick definitions
- Not-for-profit (mutual or member-owned) funds: No shareholders. Any surplus after claims and operating costs is retained to build up reserves or is reinvested to improve member benefits and services. Many of these are community- or industry-based, while some have restricted eligibility (e.g. defence, education).
- For-profit funds: Shareholder owned. They are built to generate a return for investors in addition to paying members’ claims and running the business. They might still give you plenty of value and service – profit status alone doesn’t determine outcomes.
All registered insurers – both not-for-profit and for-profit – have to comply with the same prudential standards (APRA) and consumer rules (ACCC, Ombudsman). That means capital requirements, data reporting, consumer protections and other factors all apply the same way.
At a glance: How the models differ
| Not-for-profit | For-profit | |
|---|---|---|
| Ownership | Member owned or mutual | Shareholder owned |
| Use of surplus | Reinvested into benefits; service;reserves; etc. | Available for dividends/returns to shareholders |
| Eligibility | Some restricted industry/community funds | Open to anyone |
| Regulatory rules | Same APRA/ACCC/Ombudsman framework for both | Same rules |
| Pricing set-up | Positioned on ‘member value’. Can be competitive; but not inherently the cheapest | Competes on price; network; features; etc. and can be very competitive |
| Transparency tools for consumers | Same public data to compare: benefits as a percentage of contributions; complaints; gap outcomes; hospital agreements; etc. | Same public data to compare |
| Networks and gap schemes | Negotiated per fund | Negotiated per fund |
| Examples of structure | HCF; HBF; GMHBA; Peoplecare; Teachers Health | Medibank; Bupa; nib |
Source: State of the Health Funds report
Where the money really goes
During and after COVID, the industry’s profits and investment income fluctuated, and many funds issued member givebacks or deferred premiums to return value when claims activity dipped, according to the ACCC’s report on the matter. Speaking of the ACCC, their private health insurance reports track these trends and show that industry profit rose mostly due to investment returns in some periods – while regulators examined how funds returned value to policyholders.
The most important takeaway from all of this? Both not-for-profit and for-profit funds have to demonstrate fair value. That’s why regulators scrutinise their practices across the board.
Does not-for-profit give you more value, or is it just cheaper?
You might’ve heard that NFPs return more to members. And while it’s generally true that many not-for-profit groups promote higher average benefits-paid ratios compared with the broader market, those averages obscure some important differences between products within each fund. The State of the Health Funds report is a much better way to compare value – because it shows, by fund, metrics like:
- Benefits as a percentage of contributions (how much value is paid out relative to premiums).
- Medical gap outcomes (‘no-gap’ and ‘known-gap’ rates)
- Complaints and service measures
All of these metrics differ by fund and product, regardless of profit status. In short, you need to compare the numbers for the exact funds you’re considering.
APRA’s quarterly statistics also show the scale of benefits paid industry-wide (e.g. hospital, medical devices and extras benefits), which reinforces that all funds carry material claims obligations and operate in the same cost environment. Pricing is affected by the cost of claims, as well as things like hospital/device contracts, age mix and more – not just the profit model.
Networks, gap cover and hospital agreements
One of the biggest drivers of your out-of-pocket costs – especially when it comes to surgery – is whether your fund has agreements with your hospital and participating no-gap/known-gap doctors. Agreements are commercial and can change, so whenever a hospital and fund dispute payments, members could (temporarily) be dealt with higher gaps until a deal is struck. For example, recent disputes between large hospital groups and insurers were resolved in some cases while others took longer – it’s why we always recommend you check the current agreements before getting treatment.
The latest State of the Health Funds report reveals all the no-gap and known-gap rates by fund, which is super helpful when you want to estimate your likely out-of-pocket costs. Again, this differs by fund and where you live around the country.
Portability
Don’t re-serve waiting periods when you switch to a new health fund or policy
“John was immediately covered for a hip replacement in private hospital because he had already served his waiting periods for joint replacements on his old policy”
Restricted and community-based funds
Some not-for-profits are restricted (i.e. their membership is limited to certain employers or industries or their families) while lots of others are fully open. Restricted funds can be very competitive for eligible members because their risk pool and service model are build to meet the needs of their community. But whether you go restricted or open, all registered funds must meet the same regulatory standards.
Pros and cons: Not-for-profit (member-owned)
Pros
- Surplus funds are reinvested for value to members (benefits, service, reserves).
- Plenty of these funds have strong community ties and good retention rates.
- Set up to deliver much more competitive benefits and personalised customer service.
Cons
- Some are restricted to certain groups, so eligibility limits your options.
- Smaller funds can have smaller hospital networks in some parts of the country.
- A not-for-profit always being the cheaper option isn’t guaranteed, as pricing will vary by product.
Pros and cons: For-profit (shareholder-owned)
Pros
- They tend to have much larger national networks, multiple brands, digital tools, etc.
- Scale can support extensive provider agreements and choice of products.
- Can be price-competitive – especially for low-tier or promotional offerings.
Cons
- Profits must fund shareholder returns (in addition to member value).
- Outcomes differ between policies. Look at the benefits-paid ratio, complaints, gap outcomes, etc.
- Larger market share doesn’t equate to top performance across every metric.
How to compare funds
When you’re weighing up your not-for-profit or for-profit options, pay special attention to the evidence that matters to your healthcare needs and budget.
- Find cover that matches your life stage: Check the tier (Basic/Bronze/Silver/Gold) and inclusive clinical categories (e.g., pregnancy, joint replacements).
- Benefits-paid and complaints: Use the Ombudsman’s report to see each fund’s benefits as percentage of contributions, no-gap/known-gap rates and total complaints and enquiries over the year. Solid performance is always a good sign.
- Hospital and provider agreements: Check that your local private hospitals and doctors participate with your fund. Agreements can change, so check at quote time as well as before treatment.
- Out-of-pocket expectations: Ask for written informed financial consent (IFC) from your surgeon or clinic and double-check your fund’s gap cover rules.
- Extras you’ll actually use: Compare annual limits, sub-limits, waiting periods, etc. for dental, optical, physio and mental health – don’t overpay for extras you’ll never actually claim on.
- Stability and oversight: All funds report to APRA and are subject to ACCC consumer law. The Ombudsman handles complaints, which is an important reassurance across both models.
When an NFP might suit you better
Maybe you value member-centric governance and like the idea of surplus cash being reinvested into benefits and services for you. Or perhaps you qualify for a restricted fund with strong outcomes for your community (e.g. defence, education).
For others, the biggest factor is that the fund they’re eyeing off shows consistently high no-gap/known-gap rates and has a strong benefits-paid ratio.
When a for-profit might suit you better
In this case, you want broad national networks, multiple product lines and solid digital tools for handling claims. Others like a specific for-profit product because it hits their price-to-benefit sweet spot – for example, an entry-level Bronze product for Medicare Levy Surcharge purposes or a Silver Plus policy that includes exactly the services they need covered.
For other people, they just like the fact that the fund’s performance metrics look good for their expected procedures and preferred providers. There are lots of different reasons, and no one particular model is entirely better than the other.
Myth-busting a few misconceptions
- “NFPs always pay more”: Some do, some don’t. Check the current benefits-paid figures and gap outcomes by fund. That’s the fairest comparison.
- “Big funds are automatically better”: The ACCC shows large funds dominate benefits paid due to market share, not necessarily per-member value across every metric.
- “Networks never change”: They can and do. Contract disputes can heighten your temporary out-of-pocket exposure. Most get resolved, but always check before having treatment.
How Fair Health Care Alliance can help
Choosing between not-for-profit and for-profit is less about ideology and more about the right fit. That includes everything from your life stage and hospital preferences, to expected procedures, how you’ll use extras and of course your budget.
The team at Fair Health Care Alliance can walk you through everything – across both not-for-profit and for-profit funds – so you can pick a policy that’s fit for purpose (and price) today, with options for upgrading in the near future.
FAQ's
No. Some NFPs are cheaper for some products while others aren’t. Compare pricing by the tier of product, as well as benefits paid, gaps and networks – before deciding.
Yes, everything from APRA prudential standards to ACCC consumer rights and guarantees to the Ombudsman for handling complaints. All of these and more apply to every registered fund.
Not necessarily. If you’re eligible, a restricted fund can be great value, but compare their networks like you would any open fund.
Read the State of the Health Funds report for no-gap/known-gap rates by fund, plus complaints, benefits paid, etc.
It happens from time to time. Before any elective treatment, double-check your hospital agreement and request informed financial consent so you aren’t hit with a surprisingly pricey bill.
Not necessarily. Claims depend on the type of membership set-up, how the product has been designed, hospital agreements and more.
