How health insurers work

How health insurers work

You are here: PrivateHealth.gov.au > About health insurers > How insurers work

Regulation

Private health insurance is provided through organisations registered under the Private Health Insurance Act2007 The financial performance of registered health insurers is monitored by the Private Health Insurance Administration Council (PHIAC), an independent Australian Government body, to ensure solvency and capital adequacy requirements are met.

Location

Many insurers operate mainly in a particular state or regional market, though some are national. For a state or regionally based insurer, this generally means that contracting arrangements with hospitals and health providers are more widely developed within that state or region. This is very important, because if you need to go to hospital, you are more likely to have no gaps to pay for your hospital accommodation if your health insurer has a contract with the hospital you go to.

Most larger open membership insurers offer different policies for different states, or the same policies at different premiums. These state differences are based on the different costs of benefits and health services in various states and, in some cases, different state government health arrangements.

You should make sure the health insurer you select provides adequate cover in the state or region where you live. If you are considering moving interstate, you should check with your insurer about your cover in your new area.

Open or restricted?

A health insurer is registered as either an Open or a Restricted membership organisation.

Open membership organisations provide policies to the general public.

A restricted membership organisation provides policies only through specific employment groups, professional associations or unions.

For-profit or not-for-profit?

Most health insurers operate on a not-for-profit basis, with all premiums used to operate the fund and pay benefits to their members.

A few insurers are for-profit organisations. These insurers aim to return a dividend to their owners or shareholders, but they must still maintain a sufficient level of capital reserves to operate and pay benefits to their members as monitored by the Private Health Insurance Administration Council.

Community rating

Private health insurance is 'community-rated'. This means that everyone is entitled to buy the same product, at the same price, and is guaranteed the right to renew their policy. A health insurer cannot refuse to insure you, or refuse to sell you any policy you want to buy. Lifetime Health Cover is an exception to community rating - you will have to pay a higher premium if you have a LHC loading. The cost of premiums for similar cover may vary between insurers.

Private health insurance is different from life, trauma and disability insurance. These insurances are 'risk-rated' rather than 'community-rated' and generally offer lump-sum payments in the event of specific illness or loss. They are not a substitute for private health insurance.

Notifying members of changes to rules

Health insurers change their rules and premium prices from time to time. They are required to tell their members about any change that:

is or might be detrimental to the interests of an insured person; and
requires an update to the Standard Information Statement.