How health funds work

Private health insurance is provided through organisations registered under the Private Health Insurance Act 2007. The financial performance of registered health funds is monitored by the Australian Prudential Regulation Authority (APRA), an independent Australian Government body, to ensure solvency and capital adequacy requirements are met.

A health fund can:

Have different business structures - if a health fund is listed as 'not-for-profit', this means it is a mutual organisation, with the premiums paid into the fund used to operate the business and cover benefits for members. 'For-profit' funds aim to return a profit to their owners (which may be another health fund or corporation) or shareholders. They are still required to maintain sufficient funds to operate the company and pay benefits to their members.

Only offer membership to certain individuals -  a health fund 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.

Offer corporate policies - some health funds provide health cover policies tailored for specific companies or organisations, which may be part of the company's benefits package.

Operate in one, some or all states or territories - many funds operate mainly in a particular state or regional market. This means they may have a wider network of Agreement hospitals and health providers within that state or region. This is very important, because you are more likely to be covered for hospital fees if your hospital has an agreement with your fund.

Most larger funds will offer different policies for different states, or the same policies at different premiums. Differences in price are based on the variations in cost and benefit between states, and in some cases state government health arrangements.

Not refuse you health insurance - private health insurance is 'community-rated'. This means that everyone is entitled to buy the same product, at the same price (except for Lifetime Health Cover - see below), and is guaranteed the right to renew their policy. A health fund cannot refuse to insure you or refuse to sell you any policy you want to buy on the basis of your health or how likely you are to claim.

Lifetime Health Cover (LHC) 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 funds.

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.

Change their premiums and rules - if your health fund changes your policy, they are required to tell you about any change that might be detrimental to the interests of an insured person; and they must update the policy's Standard Information Statement.