The chief operating officer of member-owned insurer Westfund, Phillip Berner, said Medibank's 3.8 million customers should have received free shares, or a payout, to recognise their contribution in building the government-owned fund into the market leader.

"I, and I'm sure others, would have liked to have seen Medibank policyholders receive a significant compensation for their loyalty given the projected $4 billion windfall," he said.

Mr Berner said the Coalition's stance that Medibank members are simply customers, and not entitled to any stake in the business, is probably "perfectly legitimate" in a technical sense.

But he said the decision may cause some of the 55 per cent of the population with private health insurance, not just those with Medibank, to reconsider their choice of health fund.

"Consumers are entitled to consider not only where their premiums go in terms of funding healthcare, but in the event of a sale or some other structural ownership change, whether they are entitled to some of the value they've contributed over time," he said. "I dare say a number of them will reconsider where the right place is to invest their health insurance premiums."

The Coalition kicked off a period of pre-registration for the Medibank float, which could be the biggest initial public offering since the $4.6 billion listing of rail freight business QR National in 2010.

The government said Medibank members who pre-register to reserve a copy of the prospectus will receive priority in the distribution of shares, in the event the IPO is oversubscribed.

Medibank managing director George Savvides said this week he was happy that members were being rewarded for "loyalty".

But Mr Berner said he also wanted to highlight the "bigger picture" issue, that profit insurers had to balance the demands of shareholders against using their profits to keep customers' premiums low. "If you're a policyholder do you want your healthcare ... to be assessed by what's best for you as a policyholder or what is best by the shareholders," he said.

Westfund returned $10 million to its 103,000 members as premium discounts in the past three years, he said. While Medibank controls just under 30 per cent of the $21 billion health insurance market, Westfund is one of the country's 26 non-profit funds that account for less than 2 per cent of the market each.

A survey of 3202 Medibank members by Roy Morgan Research suggested the cohort may be well placed to buy into the float. Just over a quarter of Medibank's adult members own shares in other listed companies and the combined portfolio is worth $50 billion. The entire membership has $94 billion in the bank, according to the survey.

Mr Berner said he was open to criticism that he had a vested interest in encouraging Medibank customers to reconsider their insurance provider.

"My motivation is about the policyholder so then if that can be wrong, I'm happy to put my hand up," he said. "It's about making people aware of the situation. There are options and other considerations beyond the price you pay and the [healthcare] benefit you get."