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How do health funds work?

Not sure how health funds in Australia work? Find out more about the different types of cover, structures, how to claim and more.

Health care and medical treatment in Australia is covered by the public health system, Medicare, and a number of for- and not-for-profit private health funds.

Private health funds compliment Medicare by paying a benefit for procedures and treatments outside the scope of cover of the public health system, such as dental and optical treatments. Keep reading to find out more about how health funds works.

What are the different types of cover available?

There are four types of health cover available in Australia: hospital, extras, combined hospital and extras and ambulance-only cover.

Compare health insurance online or with help from an adviser

How are health funds structured?

Health funds can be either for-profit or not-for-profit.

Not-for-profit health funds are run to benefit members rather than shareholders. These types of private funds claim to provide their members with a wider scope of cover, lower premiums and greater benefits for covered items.

One way this can be achieved is through tax exemptions. For-profit funds are not eligible for the income tax assessment exemptions that not-for-profit funds are.

GMHBA and HIF are two of the many not-for-profit health funds available to the Australian public.

Typically, the differences between not-for-profit and for-profit health funds can include:

  • Ownership structure. For-profit health funds are owned by an institution such as a corporation or a union.
  • Size. Not-for-profit health funds generally operate on a national basis whereas for-profit health funds tend to be localised.
  • Membership. Not-for-profit funds are open to the general public.

How can you claim a benefit?

There are different processes to follow for claiming a hospital treatment or an extras treatment.

The way you make a hospital claim will depend on whether or not you’re being treated at one of your fund’s member hospitals.

If you’re in a member hospital, the bill will be sent straight through to your health fund. If you’re in a non-member hospital, you may get the bill sent to you, which you will then need to forward onto your fund. Your claim will also depend on whether or not your treating doctor is a part of your fund’s gap cover agreement.

This agreement between the doctor and your health fund ensures that your fund will cover any extra costs charged by your doctor above the Medicare Benefits Schedule (MBS). If your doctor is not part of this agreement, you will need to cover any out-of-pocket expenses.

You can view a list of member hospitals and gap-cover doctors specific to your health fund on your provider’s website. The biggest health funds have the largest number of member hospitals and gap-cover doctors in each state.

If you’re claiming for extras, most eligible providers will allow you to claim on the spot with HICAPS. If your provider does not support HICAPS you may be able to:

  • Claim online. Head to your fund’s website and submit your claim online.
  • Claim in person. Go into your fund’s local branch.
  • Claim by post, email or fax. Fill out the claim form and send it, along with the relevant documentation, to your health fund.

What are the membership requirements for Australian health funds?

Membership requirements vary amongst different health funds. Under the Private Health Insurance Act (2007), a health fund can register as an open or restricted fund.

Not-for-profit health funds offer open membership, meaning Australian citizens, permanent residents and temporary residents are eligible to apply to become a member and get cover.

For-profit health funds offer restricted membership, meaning only some people can become members. Membership may be restricted to a company or a union, for example, Commonwealth Bank operates a health fund for employees called CBHS and Teachers Health Fund provides health insurance for members of the education industry.

Membership is often extended to family members of eligible applicants as well as people who were previously a member of the company, union or group.

How do Australian health funds operate nationwide?

Health funds operate similarly on a national basis, however, there are slight differences in the cost of cover and access to facilities between states. For example, you’ll find residents in Victoria pay higher premiums than residents in other parts of the country.

The largest health funds in Australia by market share

On average, restricted member funds have a high member retention rate. However, this indicator is likely to be attributed to workplace arrangements.

Open Member Funds Restricted Member Funds

Source: ombudsman.gov.au

Frequently asked questions

Can a health fund refuse to give me private health insurance?

  • If you’re an Australian citizen, a health fund can’t refuse to give you insurance on account of your health or whether you’re likely to make a claim or not.
    It’s important to note that there’s a distinction between private health insurance and life, trauma and total and permanent disability (TPD) insurance. Private health insurance is community rated, the other types of insurance are risk rated.
    A community rated policy means you’re entitled to buy the same product as someone else, at the same price, and you’re guaranteed the right to have your policy renewed if you wish.

Can a fund change their premiums or policy rules?

  • Yes, your health fund can change the terms and conditions of your private health insurance policy, but they have to tell you first. Any changes must also be reflected in the Standard Information Statement.

Do I have to purchase private health insurance before my 31st birthday?

  • You don’t have to purchase private health insurance if you don’t want to. If you do purchase private cover after 1 July after your 31st birthday, you’ll pay the Life Health Cover loading fee. This is an additional fee on top of your health insurance premium of 2% for every year after your 30th birthday for the next ten years. This fee is capped at 70%.

Do I get a rebate if I take out private health cover?

  • The Australian Government Private Health Insurance Rebate makes private health insurance cheaper for everyday Australians. The government will help contribute to the cost of your private health insurance premiums by offering a tax rebate based on your income and your age. You can claim the rebate back at the end of the financial year or you can have the rebate deducted from your premiums upfront.

Compare your health insurance options online

Picture: Shutterstock

Richard Laycock

Richard is the Insurance Editor at finder, and has been wrangling insurance Product Disclosure Statements for the last 4 years. When he’s not helping Aussies make sense of the fine print, he can be found testing the quality of Aperol Spritzes in his new found home of New York. Richard studied Journalism at Macquarie University and The Missouri School of Journalism, and has a Tier 1 certification in General Advice for Life Insurance. He has also been published in CSO Australia and Dynamic Business.

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