Western Australia's largest heath insurer, HBF, says a planned merger with a big not-for-profit health fund on the east coast of Australia will make the company one of the nation's biggest health funds.

HBF is planning to merge with Sydney-based HCF which would give the combined companies more than 2.5 million customers and total assets of $4 billion.

The merger, if successful, will make the combined HBF and HCF the nation's third biggest health insurer, behind Bupa and Medibank Private.

HBF and HCF said they would retain their individual identities and continue to be run by their own management under a new umbrella company guided by a common board of 10 directors.

HBF chief executive officer John Van Der Wielen said his company had been reviewing its strategy to ensure it could continue to provide policyholders with the best possible health cover in a competitive market.

HBF CEO John Van Der Wielen speaks to the media about the announced merger with HCF. ( ABC News: Marcus Alborn )

"HBF is one of Western Australia's best loved brands but is much less recognised in other states," he said. "The merger would give us a truly national presence.

"This merger has not cost the members any money.

"It's a big deal where it's a merger of equals. HBF and HCF have the same aim in mind and that's to maintain their brands, look after members and reduce premiums.

"Putting two not-for-profit [health funds] together really makes us far larger, gives us better scale and will deliver better benefits to members in the future.

"Our premiums, we believe, will be more competitive than anyone else in Australia."

HCF is one of Australia's biggest health funds. ( Giulio Saggin, file photo: ABC News )

HBF Chairman, Tony Crawford said that the board believed the case for the merger with HCF was compelling.

"In combining Australia's two largest not-for-profit health funds, this merger would bring together two companies with common values and a shared commitment to put members first," he said.

"We wanted to be sure that under the terms of any merger the iconic HBF brand would be retained in WA.

"We also wanted to ensure our employees would be looked after and, crucially, HBF's not-for-profit status would remain, meaning we continue to put members first, not shareholders."

The proposed merger, if successful, is expected to be bedded down by the middle of 2018.