Health insurance becoming more necessary
Philip Macalister looks at trends within health insurance and explains why New Zealanders are moving away from comprehensive policies.
Saturday, February 20th 1999, 12:00AM
You'd expect, considering what's happening to New Zealand's health system, that health insurance would be an area for huge growth in the risk sector - but that's not so.
The number of people with health insurance is declining and there is a move away from comprehensive policies to hospital-only policies.
In this special report, sponsored by Bank of New Zealand, the trends in health insurance are examined, as are the reasons for having health insurance.
Health insurance is becoming more important for New Zealanders as the public health sector becomes increasingly stretched. While the public system still does some elective surgery the general view is that in the not too distant future that will be like free school milk. Just a pleasant memory from the good old days.
At the same time advances in medical technology are providing a greater range of treatment for more conditions, while at the same time pushing up operation costs.
This trend has seen health insurance premiums rise, thus triggering a mass exit from health insurance policies.
According to BNZ Financial Services head of marketing Nigel Fairless 51 per cent of New Zealanders had health insurance at the start of the decade, but that figure has dropped to about 38 per cent now.
These trends have seen a shift away from the traditional comprehensive policies which cover everything from doctor visits, physiotherapy and x-rays through to major surgery to medical, or hospital policies which only cover the costs of operations.
National Mutual Health's Jeff Bailey says changing to a surgical policy is one way people can keep their health insurance premiums down yet remain covered for the big ticket items.
He says people should only cover for the major components, namely surgery, and pay for the smaller items such as doctor visits out of their usual budget.
He compares insuring our bodies to car insurance.
"Do we insure our cars for the oil change (doctor visits) and new wiper blades (prescriptions), or do we insure them for the big accident/theft?
The answer, as we all know, is that we pay the general, small item running costs, and the big ticket, accidental, or unexpected costs are covered by insurance.
Strategy Financial Services director Graeme Lindsay says considerable savings can be made by just insuring for hospital costs.
He says the current monthly premium for a Southern Cross regular care policy is $111 a month. This policy aims to refund about 80 per cent of medical costs up to prescribed refund maximums and a maximum aggregate refund of nearly $15,000 for a surgical operation.
Under a policy such as BNZ Premier Health Care a comparable family premium would be around $68 a month for a 40 year old. This policy refunds 100 per cent of actual costs up to a maximum of $60,000 per operation or procedure, and there are no annual limits to the number of operations done each year on the policyholder.
There are two significant differences though.
First up is the fact that the Southern Cross premium remains unchanged up to 65, while the medical insurance policies offered by other companies increase within age brackets. A suitable comparison is whole of life policies versus term life. The former has a flat premium for a fixed amount of cover throughout the duration of the policy, while the latter increases each year.
The other difference is the level of cover provided. While $15,000 for an operation sounds quite generous there are an increasing number of cases where operations cost significantly more and the policyholder has to foot the difference.
A heart by-pass operation (which we tend to hear so much about when waiting lists are mentioned) costs around the vicinity of $20,000 to $25,000 as long as nothing goes wrong to extend the time in theatre.
The more traditional 80 per cent plans can leave people short by more than $10,000. Even so-called 100 per cent plans can leave a policyholder short by between $8,000 and $10,000. Essentially there are limits on each part of the actual operation costs, and these limits maybe exceeded as technology improves forcing up actual operation costs.
Other operations such as hip and knee replacement can also be found wanting by several thousand dollars.
Additionally waiting lists within the public system are growing and an increasing number of conditions are being treated non-surgically by the private sector. This means people wanting specific treatment may need to have insurance to go to a private provider.
Lindsay, currently is putting together a software package which compares premiums and features of various health insurance policies (he does a similar comparison of term life insurance).
He says two key points in assessing policies is to make sure they will cope with the changes taking place in the health system, and it is important to find out which policies are cancellable.
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