What is a not-for-profit insurer?

About not-for-profit insurers 

A not-for-profit health insurer uses its revenue to:

• cover operating costs
• pay benefits to members
• set aside additional capital to ensure a very high likelihood of being able to pay future benefits to members.

In Australia, not-for-profit health insurers are mutual organisations rather than corporations.

Most not-for-profits claim to be focused on people rather than profits.

Most of the restricted insurers are not-for-profit insurers.

How many not-for-profit health insurers are there in Australia? 

In Australia, 22 private health insurers operate on a not-for-profit basis.

Most of these insurers are members of the Members Health Fund Alliance.

Are not-for-profit insurers cheaper than for-profit insurers? 

Not-for-profit insurers are not always cheaper than for-profit insurers even if their focus is on returning insurance premiums to members rather than profits to shareholders.

This is because prices are affected by:

• the level of cover you choose
• how well the insurer is managed
• how well capitalised the insurer is
• how competitive the insurer’s policies are in the market, for example, a large for-profit insurer with many members and a streamlined corporate structure may offer cheaper policies than a not-for-profit insurer.

Most not-for-profit insurers claim to reinvest any profits made into benefits for members, including:

• giving more back on claims 
• lower premiums
• more choice of Extras Cover because you do not have to go to a preferred provider
• new benefits
• better service for customers.

What are some of the benefits of joining a not-for-profit insurer? 

Some of the benefits of joining a not-for-profit insurer are:

• Supporting their practice of returning premiums to members in the form of benefits rather than returning profits to shareholders.
• They often have a strong community focus. 
• They often have higher rates of customer satisfaction and retention than for-profit health insurers.

What are some of the problems with not-for-profit health insurers?

Not-for-profit health insurers have a few limitations:

• They tend to be small and do not control as much of the market as for-profit insurers, which narrows their range of products.
• They generally have lower revenues and lack access to alternative capital so some risk becoming unsustainable.

Why are there so many not-for-profit insurers in Australia?

The large number of not-for-profit health insurers is closely related to the history of private health insurance in Australia.

In the 19^th century, government support for social welfare (including hospital and medical care) was extremely limited.

Private health insurance emerged when not-for-profit ‘self help’ financial organisations, friendly societies and mutuals set up hospital and medical funds. Members, often drawn from a workplace, profession or local community, made small weekly contributions to these funds in exchange for hospital treatment or doctor consultations. If a member needed medical or hospital care, these funds would help cover medical and hospital costs from their pool of funds.