Think cover first, health insurer second. Tips on figuring out what’s important to you before you pick a fund [read]
When choosing private health insurance, the business structure of the fund should be one of your top considerations as it could greatly impact what you pay in premiums and the rewards you receive as a member.
With 35 different health insurance providers offering policies in Australia, deciphering what’s different about each fund can be a complicated task. One of the biggest differences between the companies is whether they are structured as a not-for-profit/mutual insurer, or operate to make a profit out of your premiums.
A not-for-profit health fund is an organisation whose premiums are paid into the fund for the sole use of running the business and to pay benefits to their members. These funds are either open to anyone or have restrictions where members must be aligned with a particular industry or association. All the Members Own health funds are not-for-profit/mutual funds.
For-profit funds on the other hand, like NIB, Medibank/ahm and Bupa, exist to make a profit out of your premiums for their investors and/or corporate owners. In order to operate, they still require sufficient income to cover company running costs and to pay their member benefits, but their business operations are structured to generate profits.
The share of the market
Until around 30 years ago, all private health insurance providers in Australia were structured as not-for-profit/mutual organisations. Today, Australia’s largest private health insurer is Medibank representing 3.8 million people and with a 29 percent market share. Bupa closely follows with 27%, and NIB and the ahm brand (a Medibank brand) are increasingly growing their market share. Medibank/ahm, Bupa and NIB are all for-profit businesses.
But as more people discover the benefits of the not-for-profit/mutual health insurance providers in Australia, their popularity is growing. Right now the Members Own funds represent around 21% of market share, meaning that around 21% of all health insurance members in Australia are with one of the Members Own health funds.
What does the not-for-profit difference mean for members?
An analysis conducted by Members Own Health Funds, and audited by DBN Actuaries, discovered that the insurance funds in the Members Own collective had together, over the past five years, returned a higher percentage of premiums to their members than the comparative group of Medibank/ahm, Bupa and NIB.
These results for the Members Own group are positively impacted by the not-for-profit/mutual structure, which centres around not-for-profit funds returning any end of year surplus to their members in the form of lower premiums and additional benefits. Contrast this to the for-profit funds, who answer to their investors who demand a financial return. The financial return has to come from somewhere, and often comes at a cost to the member through higher premiums and reduced policy benefits.
One of the other advantages of joining a not-for-profit/mutual health fund over a for-profit organisation peace of mind about owns the insurer. Bupa is owned by an overseas corporation, so profits end up offshore. Medibank and NIB are based in Australia, but are effectively owned by their investors, not their members.
Not-for-profit/mutual health insurance providers include a number of industry-based funds, which benefit those consumers looking for insurance products and services tailored to their industry. For example, Teachers Health Fund and TUH provide private health insurance policies to people working within the education community and their families. This means rewards to their members are often in the form of higher benefits on the cost of health services which educators maybe likely to incur as a result of their profession, such as chiropractic services or speech therapy.
Choosing the right type of fund
On the whole, not-for-profit/mutual health insurance providers focus their energy and operations on member needs and overall wellbeing, and spend no time at all looking after the financial interests of investors and overseas shareholders – because they don’t have any.
When choosing a private health fund, many people consider the cost of the policy first, then look at the policy benefits. But don’t overlook the business structure of each organisation. It should be one of your top considerations as it could greatly impact you in regards to what you pay in premiums and the rewards you receive as a member.