In addition to the premium a fund charges and the level of cover it offers, another point of difference which may matter to some consumers is what funds do with their revenue after operating costs have been met. This is the difference between for-profit and not-for-profit funds.
This article covers:
- What is a not-for-profit health fund?
- What is the difference between for-profit and not-for-profit health funds?
- Are not-for-profit health funds cheaper?
- Which Australian health funds are not-for-profit?
- What are the potential benefits of being a member of a not-for-profit health fund?
- What are the potential drawbacks of being a member of a not-for-profit health fund?
What is a not-for-profit health fund?
A not-for-profit health fund is a health insurance provider that uses its revenue only to pay benefits to members and to cover operating costs, such as marketing, paying staff, rent and other overheads. Membership of a not-for-profit fund may either be available to anyone, or only to individuals in a certain industry or association.
Many of Australia’s not-for-profit health funds are part of the Members Health Fund Alliance – the peak industry body for 26 health funds that are not-for-profit or part of a not-for-profit group, member owned, regional and community based. It says that more than three million Australians are with one of its funds.
What is the difference between for-profit and not-for-profit health funds?
The main difference is that for-profit funds aim to make a profit from the premiums paid by their members, after benefit payments and operating costs are taken into account. On the other hand, not-for-profit funds typically only need enough revenue to cover costs. As a result, some not-for-profit funds say they reinvest surplus revenue, which enables them to lower their premiums, have wider or more comprehensive feature and service on offer, or return a greater percentage of premiums to members in the form of benefits.
However, it’s worth noting that in its 2020 State of the Health Funds Report, the Private Health Insurance Ombudsman warned that a fund returning a higher percentage of contributions as benefits may not necessarily be a good thing if it means the fund could be losing money on some or all of its health insurance policies.
Are not-for-profit health funds cheaper?
Whether a fund is for-profit or not can influence how much it charges its members in premiums, but it doesn’t necessarily mean that not-for-profit funds are cheaper. Ultimately your premiums will be influenced by the level of cover you want, and how competitive the fund’s products are generally. As we’ll see below, whether it’s cheaper to be with a for-profit or not-for-profit funds could also potentially be influenced by the range of providers that operate in your state or territory.
For example, the table below displays the average premiums for not-for-profit and for-profit health funds in different states and territories. These averages are based on a couple with a Gold hospital insurance policy and an excess of $750.
Average annual Gold hospital insurance premiums
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|New South Wales||$4,115||$4,597|
Source: www.canstar.com.au – 13/07/2021. Based on Gold Hospital insurance policies for a couple, with an excess of $750, from unrestricted health funds. Not-for-profit funds classified according to the Private Health Insurance Ombudsman State of the Health Funds Report 2020. The Australian Government Private Health Insurance Rebate, Base Tier for under 65s, of 24.608% has been applied to premiums.
Which Australian health funds are not-for-profit?
The following health funds operate in Australia on a not-for-profit basis, according to the Private Health Insurance Ombudsman State of the Health Funds Report 2020. ‘Not-for-profit’ means it is a mutual organisation, with the premiums paid into the fund used to operate the business and cover benefits for members. Funds are noted as ‘restricted’ if membership is limited to certain groups or industries.
- ACA (restricted)
- CBHS Health Fund (restricted)
- Defence Health (restricted)
- Health Partners
- Mildura Health Fund
- Navy Health (restricted)
- Nurses & Midwives Health (restricted)
- Phoenix Health Fund
- Police Health (restricted)
- Reserve Bank Health Society (restricted)
- RT Health (restricted)
- St Lukes
- Teachers Health (restricted)
- TUH (restricted)
If you’re interested in taking a look at some policies offered by Australia’s not-for-profit health funds, the table below shows a snapshot of policies from these providers. You can also use our health insurance comparison tool to generate a bespoke comparison of products which may be better suited to your specific needs and circumstances.
The table below displays a snapshot of hospital & extras policies offered by not-for-profit funds on Canstar’s database, sorted by Star Rating. Before committing to any policy, check upfront with your insurer and read the PDS to confirm whether it meets your needs. Please note the results are based on a couple born in 1980 in NSW.
What are the potential benefits of being a member of a not-for-profit health fund?
According to the Members Health Fund Alliance, the potential benefits of being a member of one of its funds include:
- High insurance premium returns. Members Health funds return close to 90% of all insurance premiums to consumers as benefits.
- High customer satisfaction. Customer satisfaction rates among members are 96% or higher, on average.
It’s worth noting, however, that for-profit funds return a similar percentage of premiums as benefits, according to the Private Health Insurance Ombudsman State of the Health Funds Report 2020.
What are the potential drawbacks of being a member of a not-for-profit health fund?
Some of the possible drawbacks of being with a not-for-profit health fund include:
- Smaller selection of providers: Because not-for-profit funds constitute a smaller proportion of the health insurance market than their for-profit counterparts, those wanting to join may end up with a narrower range of policies and products to choose from.
- Concerns over sustainability of some of these funds: APRA has in the past warned that the business model of not-for-profit health funds may prove unsustainable, due to their generally lower revenues and lack of access to alternative capital.
Whenever you’re choosing a health insurance policy, it may prove beneficial to consider a variety of factors – like the value it offers you and its suitability to your circumstances – and not just the fund’s business structure.
Original author: James Hurwood. Cover image source: Billion Photos/Shutterstock.com