Health cover a heavy claim on the budget

Following reports of big Southern Cross premium rises, Rob Stock looks at why policyholders cut health insurance just when it’s needed most.

It’s not just older health insurance policyholders getting big premium rises.

One young policyholder has just had a jump of 26 per cent in his premium on Southern Cross Ultracare policy.

‘‘I’m 30, and mine went from $96 per month to $121 per month, a $35 increase,’’ he said.

He was reacting to a nearly 20 per cent increase in the premiums not-for-profit insurer Southern Cross was charging a couple in their mid-60s for their Kiwicare policies.

‘‘There was no real explanation other than my previous employer group policy had its annual review which caused an increase to $120,’’ he said.

‘‘I then told them I had recently left that employer but that I wanted to continue my policy, they came back with the $121 figure,’’ said the policyholder, who described himself as an ‘‘average user’’ of his health insurance.

Southern Cross is a friendly society which provides health insurance.

Unlike NIB and AIA, which also sell health insurance, Southern Cross is not a for-profit company owned by shareholders.

It makes no profits, and pays out around 90 cents in every dollar collected in premiums, which is higher than its private, for-profit rivals.

But it needs to make a surplus to stay solvent, and so resets its premiums every year.

Its annual reports (available online for anyone to read) show that means annual rises in premiums because every year the number of claims rises, and the cost of paying those claims rises too.

In the 12 months to the end of June 2018, it paid out $906.6 million in claims.

In the previous 12-month period it paid out $830.3m.

As a result, Southern Cross’ 867,000 policyholders faced average premium rises of around 6 per cent in the past year.

The average, it says, is similar this year. But it prices by age, so while some got very small rises, older people got large ones.

Will the premiums rises ever end?

Only if claims stop rising, the costs of medical treatments stop increasing, and people stop ageing.

What has Southern Cross been doing about it?

Southern Cross was founded by doctors and surgeons looking for a way of retaining private business after the advent of free public healthcare.

But as claims costs increased relentlessly, the friendly society grew concerned about affordability, and asserted its independence from the private medical industry.

In the latest annual report, chief executive Nick Astwick said: ‘‘Like every other health insurer, we are dealing with health inflation consistently outstripping the general inflation rate. We know premium increases are a concern and we work hard to contain growth in costs.’’

It has invested in digital claims handling to cut costs, and for some years has been getting private health providers (surgeons, specialists, private hospitals, etc) to sign up to an ‘‘Affiliated Provider’’ programme, using its massive muscle to keep a lid on medical inflation.

‘‘The Affiliated Provider programme has helped in moderating costs, saving an estimated $91m over the past five years, as well as making claiming easier,’’ Astwick said.

Is it just Southern Cross?

No, private for-profit health insurers also lift premiums every year.

‘‘Six per cent isn’t too bad. Our medical policy annual renewal increased around 16 per cent with Sovereign,’’ one Stuff reader commented.

Sovereign has been sold to AIA Insurance.

As people age, and their list of preexisting medical conditions increases, it gets hard to switch health insurer.

Do you even need health insurance?

Many people describe health insurance as a ‘‘luxury’’, though for some, cancelling their cover also means cancelling their children’s cover too.

Everyone can get treatment through the state healthcare system, even if that can mean enduring lengthy waiting lists.

For some, health insurance is affordable only until they stop work, or as one reader put it: ‘‘Come retirement when the need for health care increases, the premiums escalate beyond what is possible for many.

‘‘I retire soon and am keeping my KiwiSaver for any medical requirements,’’ said another Stuff reader. ‘‘I did have subsidised health insurance through my employer but could not afford to pay the premiums for the 65+ age group on a pension.’’

Another cited the story of his parents: ‘‘Premiums became so stupidly inflated by the time they reached their mid-sixties (circa 2000) that they simply cancelled their health insurance and paid for the operations themselves when not acute enough to warrant emergency department admission. My Mum’s broken hip and ankle plus her pacemaker were acute enough to avoid any public hospital waiting lists, my Dad’s prostate (2x) ops and heart bypass came out of savings. All up Dad (who died at 78) broke even, we think, while Mum’s well ahead (and still kicking at 85).’’

So, he said: ‘‘My wife and I cottoned on and canned private health insurance in our 30s (when we personally experienced the complete lack of mental health condition cover), backing ourselves to be disciplined enough to save (and build) the premiums in order to have a war fund when we need it.’’

But having insurance is not about paying for smaller claims that can be covered from savings. It’s about covering catastrophically expensive treatments.

One reader put it like this: ‘‘Had Southern Cross insurance for four years, then contracted cancer . . . So far SC has payed out in excess of $150,000, and I haven’t had to pay a cent.’’