When It Comes to Health Funds, Bigger Doesn’t Mean Better
Published March 17, 2026
With nearly 35+ private health funds currently operating in Australia, it’s a common assumption that the larger health funds must have better value for money. However, this is just not the case, as while it’s true that the larger health funds have more recognition and more hospital arrangements, this does not mean that they have better value for money or more satisfied customers.
But does size really mean more cover and better returns for members? The answer is not as straight as you might expect. Although it is true that larger health funds have more recognition and more hospital arrangements, this does not necessarily mean that they have better value for money or more satisfied customers. In fact, smaller health funds often return more to their members in terms of benefits, have higher rates of satisfied customers, and also offer lower premium rates.
Now, let’s examine exactly what it is that you should be taking into account as you’re in the midst of selecting a private health provider.
What is the Reality
The reality here is that the bigger the fund, the more they are able to pour into advertising and sponsorship deals. This may help the average Aussie remember the dominance of the brand but doesn’t necessarily equate to more benefits for the policyholders. On the other hand, the smaller health funds benefit by having fewer overheads and thus more benefits paid out per dollar of premium paid. The latest State of the Health Funds report by the Commonwealth Ombudsman finds that the top-performing health funds in terms of benefits paid out to members are not the commercial players but the not-for-profit and industry-based health funds.
For-profit vs not-for-profit health funds
Once you begin to research health funds, you will notice that they are either for-profit or not-for-profit health funds.
For-profit health funds are focused on their shareholders
Profit health funds are designed to deliver returns for their shareholders. This may have a number of consequences that may affect your decision to use them:
- A share of the premiums paid by members is paid to corporate dividends.
- There is a need to increase premiums every year in order to increase profits.
- In some cases, exclusions and restrictions may be added to policies in an effort to control costs.
Not-for-profit health funds have lots of member benefits
Not-for-profit health funds are focused on their members and not on making a profit. Their biggest focus is to deliver benefits to their members and keep costs low.
Top benefits of smaller health funds
With large funds gaining dominance, some smaller health insurers have developed their own niches by focusing on their ability to deliver superior memmer experience, competitive premium and custom policies.
- Higher member benefits: Smaller health funds tend to return a greater percentage of premiums back to their members in the form of claims and benefits. Some niche funds – like Nurses & Midwives Health – return up to 98.5% of premiums paid back to members.
- Great customer service: With little or fewer members to manage, smaller funds go the extra mile in delivering a more personal and responsive customer service experience. Unlike the major providers, where members will have to deal with long wait times and bureaucratic red tape, smaller funds are usually more accessible and flexible.
- Competitive on premiums and fewer annual increases: Premium increases are a big concern for Australians, especially given the cost of living crisis.
What NOT to do when choosing a health fund
While price is an important factor, it is also one of the areas where cheaper is certainly not always better. What if the cheaper policy does not cover one of the areas that is vital for you? It is always important to compare what is included in each policy before making a final decision.
The next factor is the history of premium increases for the health fund of your choice. What are the premium increases over the last few years? Be wary of health funds that lock in large premium increases, as it may become unaffordable for you in the long run.
Finally, if you are considering a change of health funds or a new policy, be aware of the waiting periods for certain benefits, especially if you have a pre-existing condition or want obstetrics coverage.
To summarise,
If you are ready to commit to a private health insurance policy, it is also a mistake to assume that a large health fund is better. Large health funds may have more hospital coverage and brand recognition, but a small health fund may provide better benefits, cheaper premiums, and better customer service.
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