Healthcare made sensible
New Zealander are walking away from traditional comprehensive health insurance policies, but they should not reject health insurance altogether, Nigel Fairless says.
Saturday, February 20th 1999, 12:00AM
The more financially self reliant they become – or are encouraged to become – the more New Zealanders seem to be saying "enough is enough" about comprehensive health insurance.
Ironic? Perhaps not, when you consider that New Zealanders have, following an obviously widespread reassessment of their personal health risk management, decided that the responsible move is to opt for major medical insurance instead.
New Zealanders are walking away from traditional comprehensive policies – covering everything from a doctor’s visit to a new set of glasses – to something far simpler and in most cases, cost-effective. While there are currently no industry figures for the size of this swing, the experience of individual insurers suggests it is profound. The worrying factor is that in their disgruntlement with comprehensive insurance, many New Zealanders are rejecting health insurance altogether.
At the beginning of this decade, 51 percent of New Zealanders had private health insurance. Now, 38 percent have private health cover, placing further pressure on New Zealand’s already stretched public health services.
Some comprehensive health insurance providers are attempting to limit the decline in comprehensive medical insurance by offering new pricing structures for younger, healthier customers and those with a history of low claims.
The problem, of course, is that these are just the people who, generally speaking, have received the least value in the past and for whom the cost of comprehensive health cover is most galling.
At the crux of this issue lies nothing more complex than plain old human nature.
Traditional comprehensive policies, by their very nature, provide an incentive to visit the doctor, optician or other medical professional. It’s a simple case of "wanting to get my money back" or, at the very least "getting my value for money" - and it is perfectly understandable.
However, insurance (by its very definition) is about minimising risk against future unforseen misfortune. This definition is certainly at odds with the way most New Zealanders have used their comprehensive medical insurance, given that their entirely foreseen intention has been to use their entitlement up to the limit, often for services they would not have bothered using if it was "their own" money.
The result, unfortunately, is a ratchet effect where premiums are forced higher and, along with this, policyholders become ever more motivated to increase the amount of medical attention they and their families receive.
In some extreme cases among elderly people there have been reports of premium rises of 600 percent in the space of just 12 months. There has, in recent times, been an additional ratchet effect. The high cost of comprehensive insurance has led to a high degree of policy "churn", or people changing their policies. The average length of tenure of private health insurance policies in New Zealand is thought to be fewer than six years, resulting in high transactional and administrative costs, which inevitably feed through to premiums. Unfortunately this phenomenon has a habit of becoming both self-fulfilling and self-perpetuating.
Finally, there is a natural tendency for those with the greatest need for comprehensive insurance - the least healthy - to take the service while healthier or younger people resist such schemes because of perceived lack of value. Thus you can argue that a person of average health who joins a comprehensive scheme is actually subsidising other members. To be appropriately and competitively priced, membership of comprehensive schemes must reflect a cross-section of society.
As a result of all this, those who really need comprehensive medical insurance ie. those for whom the cost of a visit to the doctor might otherwise constitute a financial struggle, cannot afford the premiums. Meanwhile at the other end of the scale, those for whom it is not – or who believe they are unlikely to make full use of their entitlements – are unwilling to pay large premiums.
Throughout the 1990s the market for comprehensive medical insurance has been eroded from both ends, and is now left a diminishing rump.
This has certainly benefited those organisations, like Bank of New Zealand, which provide major medical insurance rather than comprehensive cover. Bank of New Zealand’s Premier Health Care, for example, has grown rapidly to cover over 10,000 BNZ customers and their families within 18 months of launching.
The concern, though, is that the high cost and widely perceived low value of comprehensive insurance has affected the reputation of health insurance and, by extension, health insurers.
The many tens of thousands of people who have left the health insurance market altogether could have, for a fraction of the cost of their former comprehensive insurance, insured themselves against the major costs of remaining healthy – major medical and surgical procedures.
However, despite not yet matching the level of departures from comprehensive medical schemes, the growth in the number of major medical care policies like Premier Health Care is certainly encouraging.
It is a sign that New Zealanders have done their sums and, in the long shadow of waiting lists at public hospitals, are adopting a more sensible and economically viable approach to personal and family health care.
Nigel Fairless is head of marketing for Bank of New Zealand Financial Services Group
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