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Three things you might not know about small health insurers

Why it can pay to go with the fund you've never heard of.

Last updated: 01 March 2022


Checked for accuracy by our qualified fact-checkers and verifiers. Find out more about fact-checking at CHOICE.

The health insurance market is dominated by the big two funds, Bupa and Medibank, who each make up a quarter of the market . Most people have heard of these, and maybe also a couple of other medium-sized funds like HBF, HCF and NIB. Eighty percent of people with health insurance are with one of those five funds.

But did you know there are 36 health insurers to choose from? Some of those are restricted-membership funds, but even those are worth a closer look – they aren't as restricted as you think. It's worthwhile to compare health insurance to see if you can get a better deal. 

1. Small funds must meet same standards as large funds

All health funds, big and small, have to adhere to a set of rules that ensure they can continue operating. These rules are set down in legislation, and regulated by the Australian Prudential Regulation Authority (APRA).

Insurers must:

  • keep the money for running their health insurance business in a separate fund to any other assets
  • keep enough cash on hand to pay any claims for the next month
  • have enough assets to be able to pay out any liabilities for the next year.

All health funds are also answerable to the Commonwealth Ombudsman, the independent government body which adjudicates complaints from customers about private health insurance. The Ombudsman regularly publishes complaints figures for each fund and compares them against the insurer's market share. 

If a health fund has a higher share of complaints than it does customers, that's a good indication its internal customer service processes might not be the best. Consider HCF, which insures 12% of the market, and was the subject of almost 18% of the complaints investigated by the Ombudsman in 2019-2020.

2. It's cheaper to go with a small fund

When we review Gold hospital policies – where it's easiest to compare because cover is almost identical between funds – small funds are usually the cheaper option.

In fact, the five largest funds all have Silver Plus policies that are more expensive than Gold policies sold by smaller funds.

If a health fund has a higher share of complaints than it does customers, that's a good indication its customer service processes might not be the best

Of course, you need to consider potential out-of-pocket expenses too. Insurers make agreements with hospitals and doctors about how much you'll have to pay for treatment and accommodation. The more agreements a fund has, the better chance your insurer will pick up more of the bill.

Many small- and medium-sized health funds are part of a group called the Australian Health Service Alliance (AHSA). Insurers pool their resources into the AHSA, which negotiates agreements with hospitals and doctors that cover customers of all funds. Called Access Gap Cover, this scheme provides as good (in some cases better) protection against out-of-pocket costs as the large funds.

3. Small funds give you just as much choice in who treats you

When it comes to extras, large funds like to spruik the extra benefits their customers get by going to practitioners in their agreement networks – higher rebates on glasses, no gap dental care, and so on. Some funds even operate their own dental and optometry clinics, although professional bodies like the Australian Dental Association have pretty strong views against the merits of "preferred provider" schemes.

Professional bodies like the Australian Dental Association have pretty strong views against the merits of 'preferred provider' schemes

These networks aren't restricted to the big funds: many smaller funds also do deals with individual dentists, physiotherapists and optometry chains. And even if they don't, every fund will still pay normal benefits for services provided by qualified professionals – you can still go to your preferred provider and be sure your extras will give you cover.

We aren't saying you shouldn't consider the big funds. CHOICE recommends some of their policies. All we're saying is you should consider all the options on offer. The range of policies out there is bigger than most people realise, and it definitely pays to shop around.

We care about accuracy. See something that's not quite right in this article? Let us know or read more about fact-checking at CHOICE.

Stock images: Getty, unless otherwise stated.