The Short Version
- While large health funds dominate the market, they don’t necessarily have the best value or the most satisfied customers.
- Not-for-profit health funds could return more to you in terms of benefits. They also tend to have higher retention and satisfaction rates than for-profit funds.
- Smaller funds can outperform bigger names in customer service, benefit payouts and affordable premiums, so make sure you compare before choosing one.
Size doesn’t always matter when it comes to health funds
With nearly 40 private health funds operating in Australia, most people assume the biggest ones – like Medibank, Bupa, HCF, nib and HBF – must have the best value. After all, there must be a reason why these funds hold the lion’s share of the market, with Medibank and Bupa alone insuring more than half of all privately insured Australians.
But does size really translate to more cover or better returns for policyholders? The answer isn’t as straightforward as you might think. While larger funds do have more brand recognition and widespread hospital agreements, they don’t always deliver the best value for money. In fact, smaller member-focused funds – in many cases – return more in benefits, have better customer satisfaction rates and charge lower premiums.
Let’s look at exactly what you should be considering when you’re in the middle of choosing a private health insurance provider.
Is market share vs performance a misleading metric?
The five largest funds – Medibank, Bupa, HCF, nib and HBF – dominate the world of private health insurance here in Australia. But their market share doesn’t necessarily reflect better service or affordability.
The reality is that large funds are able to allocate huge resources towards their advertising and sponsorship deals. While this helps keep their brand dominance front-of-mind for everyday Aussies, it doesn’t directly translate into better benefits for policyholders.
On the other hand, smaller health funds get to operate with lower overheads, which means they can give customers more benefits paid out per premium dollar. The Commonwealth Ombudsman’s latest State of the Health Funds Report reveals that some of the best-performing funds in terms of member benefits are not-for-profit or industry funds, rather than the large commercial players.
For-profit vs not-for-profit health funds
When you start to compare private health funds, you’ll see that there are those that operate under a for-profit model and those that are not-for-profits.
For-profit health funds prioritise shareholders
For-profit health funds like Medibank and Bupa operate to generate returns for their shareholders. This can have a few implications that might impact your decision to go with them:
- A portion of member premiums is allocated to corporate dividends rather than reinvested in member benefits.
- There is usually pressure to increase premiums every year to raise profits.
- In some cases, policy exclusions and restrictions are introduced to contain costs.
Not-for-profit health funds have lots of member benefits
Not-for-profit health funds like HCF and GMHBA prioritise their members over profits. Their biggest goal is to reinvest revenue into better cover and fewer out-of-pocket costs.
According to the Members Health Fund Alliance, a coalition of not-for-profit funds, their members enjoy better claim payouts and have an average score of 95% customer satisfaction across the board.
Top benefits of smaller health funds
Despite large funds being more dominant in general, smaller health insurers have carved out their own niches by focusing on being able to deliver superior member experiences, competitive premiums and more tailored policies.
- Higher member benefits: Smaller health funds tend to return a greater percentage of premiums back to their members in the form of claims and benefits. Some niche funds – like Nurses & Midwives Health – return up to 98.5% of premiums paid back to members.
- Great customer service: With fewer members to manage, smaller funds can deliver a more personal and responsive customer service experience. Unlike the major providers, where members will have to deal with long wait times and bureaucratic red tape, smaller funds are usually more accessible and flexible.
- Competitive on premiums and fewer annual increases: Premium increases are a big concern for Australians, especially given the cost of living crisis. While large insurers are pretty much guaranteed to roll out premium hikes every year, some smaller funds have been able to keep their price increases to a minimum comparatively.
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”
Myth: Bigger funds have better hospital agreements
You might assume that larger health funds have the ability to lock in more comprehensive hospital agreements and cover, but that’s not necessarily the case. Smaller funds can negotiate competitive agreements with private hospitals and can provide similar or even better no-gap coverage.
Before picking a health fund, make sure you do your research and find out:
- Which hospitals and specialists are covered under your preferred policy.
- How many hospitals and providers have no-gap agreements with the insurer.
- The extent of cover for major procedures and potential out-of-pocket costs.
Larger funds aren’t always the cheapest
Contrary to popular belief, larger funds don’t always charge the cheapest premiums.
In fact, their pricing structures can be more expensive thanks to massive administrative overheads and the need to pay out dividends to shareholders.
Smaller funds, particularly industry-specific ones (e.g. Police Health, Teachers Health, Defence Health), can have lower-cost but still high-value policies that have been customised to meet their members’ needs. There are also regional health funds with competitive pricing models to attract members in specific parts of the country.
What NOT to do when choosing a health fund
While affordability is a big deal, going for the cheapest policy can very quickly backfire if it excludes services that are essential to you. Always compare inclusions and out-of-pocket costs before making a decision.
Also realise that big-name recognition doesn’t always mean better benefits. Many lesser-known funds have better extras cover and other perks like gym memberships.
Next, check the history of premium hikes for your preferred fund. How much have they gone up in the past few years? Be careful about providers who lock in big yearly increases, as it might make your policy unaffordable in the long run.
Finally, if you’re switching health funds or taking out a new policy, be aware of waiting periods for certain benefits, especially if you have a pre-existing condition or want pregnancy and obstetrics cover.
So does bigger = better?
- Not necessarily. While large funds do own the biggest slice of the market, they don’t always deliver the best value.
- Not-for-profit funds tend to return more for their members in terms of benefits and customer satisfaction.
- Comparing policies is a must – bigger doesn’t mean better, and a lesser-known fund could give you the superior value you’ve been searching for.
Should you choose a big health fund?
If you’re ready to commit to private health insurance, don’t assume that a bigger fund will always be better. Yes, larger funds have wider hospital agreements and plenty of brand recognition, but smaller funds can give you more benefits and cheaper premiums – with much better customer service in many cases.
The best approach? Compare different funds based on your personal and family healthcare needs, not just which brand is most familiar to you. When you need help finding the best value private health insurance, you can compare health insurance with Fair Health Care Alliance and get matched with a fund that meets your needs and your monthly budget.
FAQ's
Not necessarily. Many smaller funds have competitively priced policies with added value, as they don’t have the same overheads or shareholder profits to pay for.
It depends on the fund, but many smaller funds do have broad agreements with private hospitals.
In many cases, yes. Not-for-profit funds reinvest their profits into member benefits rather than shareholder dividends, which can mean higher payouts and lower premium increases.
Compare policies based on cover, premiums, exclusions and benefits rather than just the brand name. Speaking to a health insurance expert can help you spot the best value for money.
