Restricted health funds vs open: What’s the difference?
- Restricted health funds are only open to members of a specific group or industry. In many cases, family members are also eligible to join.
- You are usually able to stay in a restricted fund even if your situation changes; for example, if you or your family member changes industries.
- Restricted health funds have many positive features, but that doesn’t mean they’re automatically the best choice.
Restricted health funds vs open health funds
Health funds in Australia must be registered under the Private Health Insurance Act 2007 as either an ‘Open’ or ‘Restricted’ organisation.
There are 38 registered health funds. Of these, 26 are open and 12 are restricted. Both types of funds are subject to the same regulations under the 2007 Act.
Before we look at the pros and cons of each type, let’s take a detailed look at what they are.
What is a restricted health fund?
A restricted health fund is a fund that only provides cover to members of a specific group or industry. You will have to meet certain eligibility criteria to qualify for membership to the fund.
In some cases, cover is also offered to family members of the eligible person.
Restricted health funds are typically operated by industry groups as a not-for-profit enterprise.
While these funds are considered to be restricted, entry requirements are often quite flexible. Most funds allow you to join even if you are no longer a part of the industry.
For example, if you worked for the Reserve Bank in the past but have since left the industry, you are still eligible to join the TUH fund. In this case, the same is true for your family.
Family memberships usually extend to the following:
- Children (including adult children)
- Children’s partners
- Siblings’ partners
- Siblings’ children
With these kinds of connections, it’s easy to see how you might be eligible to join a restricted fund without even realising it!
If you join a restricted health fund and your situation changes, you are usually permitted to remain in the fund. You won’t be asked to leave if your brother leaves the police force, or if you leave your position with the Seventh-Day Adventist Church.
However, you should always check the rules of a specific fund before making any assumptions.
Open health funds
An open health fund offers memberships to the general public. You do not have to be a member of a specific organisation or work in any particular industry to qualify.
Open health funds are typically for-profit organisations, with profits going towards company shareholders.
You are probably familiar with many open health funds, like Bupa, cua, and Australian Unity.
Are restricted health funds better?
On the whole, restricted health funds appear to have the edge over open health funds. The Ombudsman’s 2017 State of the Health Funds Report found that they have higher member retention.
Because restricted funds are run as not-for-profit, a high percentage of contributions are returned as benefits with restricted health funds. This figure shouldn’t be taken in isolation as it could mean that the fund is making a loss.
Restricted funds tend to have lower management expenses in proportion to benefits paid, but this is sometimes because they receive free or subsidised services.
However, benefits returned to members usually translates to lower premiums and higher benefits, which is attractive to consumers.
The below table gives an overview on the average annual rate rise for individual restricted funds compared to the industry average. As you can see, the figures fluctuate so it is difficult to predict future trends.
Choosing between restricted and open health funds
If you have access to a restricted health fund, you should certainly consider it as an option. However, don’t assume that it is automatically the better option.
Although restricted health funds have many advantages, it’s still important to look into the finer details. Price is not the only feature to take into account, though it something to keep in mind.
Here are some of the questions to ask yourself when choosing between restricted and open health funds:
- Does it offer the type of coverage I’m looking for?
- Does it have a member network? If so, which providers are included?
- What will my out-of-pocket costs be?
- Am I likely to use the features I’m paying for?
- What are my monthly premiums?
- What are the eligibility requirements?
- Will I still be eligible if my circumstances change?
Compare policies to determine whether or not a restricted fund offers you the most value. If you do decide to join, remember to review your policy at least every 12 months.
Competition in the health insurance industry is fierce, which means that great new deals often become available. Comparing policies is quick and easy. It only takes a few minutes to find out if your policy is still competitive, or if it’s time to switch to a better one.
Disclaimer: The above information is correct and current at the time of publication
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