What is a restricted health insurance fund?

Have you been investigating the private health insurance scene here in Australia and wondering why things are complex at times? You’re not alone – especially when you come across terms like ‘restricted health fund’. However, restricted health funds are actually quite easy to explain, as well as how they compare to open health funds.

To help you make the most informed decision about your health coverage, here’s what you need to know about restricted health funds, the wealth of options available to you, the cost comparison between both types of health funds, and more.

Think of a restricted health fund as a type of private health insurer that limits its members to specific groups, professions, industries or any other number of specific ‘groups’. Unlike regular health funds, which are open to the general public, restricted health funds require their members to meet certain criteria – usually related to their employment or membership with a particular association or organisation.

Some restricted health funds have long histories with certain industries or jobs (e.g. teachers) and are usually not-for-profit entities. This means that any surplus funds are reinvested back into the fund to improve their member services, rather than being distributed as profits to their many shareholders. Bear in mind that these insurers are governed by the same regulations as open health funds under the Private Health Insurance Act 2007.

If you’re looking to join a ‘restricted’ health fund, you’ll need to be part of the specified group or industry – or at least have a tangible connection to someone who is part of that network already. As such, family members of eligible people can usually join. This could include partners, kids, parents and even siblings in some cases. Another big attraction for restricted health funds is that you can maintain your membership even if your circumstances change (in most cases – not all!). If, for example, you change jobs or retire, you and your family could still be able to hang on to your restricted membership.

It might not be important to everyone, but many restricted health funds have a strong sense of community among their members. Because they serve select groups, they can customise their services and benefits to meet the needs of their members. The result? Potentially higher levels of customer service and better care overall.

There are actually a lot of different restricted health funds in Australia, many of which cater to specific professions or groups or industries. Here are just a few of the most prominent restricted health funds you might come across:

Unless you are comparing two specific funds, it’s impossible to say whether restricted funds are cheaper or more expensive than regular health funds. That’s because it ultimately depends on things like the provider, the level of cover you’re after, your healthcare needs, your eligibility for a certain fund, as well as your individual circumstances. Here are some factors that might help you decide which is the most cost-effective option:

• Premiums: Generally, restricted health funds can advertise modestly lower premiums compared to open health funds. This is often because they are not-for-profit and they have a smaller member base.
• Policy options: Restricted health funds usually have a smaller choice of policy options compared to larger open health funds. While this can limit your choices, it also means the policies they offer are specifically targeted to the needs of their members.
• Out-of-pocket costs: Some restricted health funds have agreements with providers to reduce gap fees, which can lower the costs their members have to pay.
• Market vulnerability: Due to being smaller in size, restricted health funds can be more vulnerable to market changes and regulatory reforms. This can sometimes mean higher premium increases compared to larger, more diversified open health funds.
• Member benefits: Also bear in mind that some restricted health funds have benefits like wellness programs, health checks and broad support services that could add much more value than basic insurance cover.

Depending on your own circumstances, choosing a restricted health fund might have a few advantages, making them the most attractive option:

• Custom cover: Restricted health funds design their policies to cater to their members’ needs, taking into account their professions and the industry at large.
• Community and support: These funds tend to focus on serving their members’ specific needs first and foremost, which can mean better customer service overall.
• Not-for-profit: Many restricted health funds operate on a not-for-profit model, meaning any extra funds are reinvested into improving member services.
• Continuity of cover: Once you’re a member of a restricted health fund, you might be able to stay with them even if you change jobs or retire.
• Extra benefits: Some restricted health funds include benefits and services that are specifically built-in for their member base, whether that’s mental health support for emergency services workers or wellness programs for teachers.

• Limited options: Restricted health funds are obviously not required to have a huge range of policies – especially when compared to open health funds.
• Smaller provider networks: Some restricted health funds can have smaller pools of providers in their networks. In some cases, this might mean you’ll face higher out-of-pocket costs if you need to see a provider outside of their network.
• Market issues: Due to being smaller in size, restricted health funds can be more susceptible to market fluctuations.
• Eligibility: The eligibility criteria for joining a restricted health fund can be – as the name suggests – restrictive! If you don’t meet their requirements then you won’t be able to join – no matter how much you love their benefits!

First, figure out if you are eligible to join a restricted health fund in the first place. If not, your path is clear: walk away and look at open health funds instead. If you are eligible, then you’ll want to consider your current healthcare needs and compare the policies offered by both restricted and open health funds. Pay attention to the types of services covered, the tier you’re after, as well as any extras that might be important to you.

It's also a good idea to compare the premiums and out-of-pocket costs of both types of funds. Remember to factor in any premium increases in future, as well as any additional costs related to provider networks (i.e. gap fees). Also use this time to evaluate the benefits and services offered by each type of fund. Restricted health funds might be more specialised, for example, but open health funds will usually have a wider range of options in most departments.

Depending on your needs, the flexibility (or inflexibility) of different funds might be the deciding factor for you – this includes things like the terms of policy changes, provider networks and membership continuity. Finally, make sure you research the reputation of each fund. In other words, read a few reviews, ask for recommendations from family and friends, and take into account how much (or how little) support and personalised service you actually need.

Restricted health funds can provide you with some amazing benefits and lower premiums – if you’re an eligible member. Just make sure you take some time to compare them with open health funds to see whether you’re getting the best cover for your needs.

Whether you go for a restricted or open health fund, your main goal should be to sign up for the most affordable health insurance that meets your needs.