Southern Cross plans to curb premium hikes

Southern Cross Health reports record membership number, uses surplus to curb premium hikes

Thursday, September 15th 2022, 10:07AM

by Jenni McManus

An overwhelmed public healthcare system in the wake of Covid-19 is likely behind a big uptick in membership for the Southern Cross Health Society, according to its chief executive, Nick Astwick.

In releasing the not-for-profit’s annual financial results, Astwick reported a 20,000 net increase in membership over the past year, bringing total member numbers to 908,000.

Astwick said it was the insurer’s seventh straight year of growth and the largest membership number in 30 years. Half of the new members joined in the final quarter of the past year.

Astwick says membership growth shows New Zealanders place great value on health insurance, meaning they can access healthcare whenever they need it.

“It is also very pleasing to see more business customers investing in health insurance for their people this year. Employees consistently rate health insurance as one of the most highly valued workplace benefits in an increasingly tight labour market.”

The group also said it would use its higher-than-expected surplus of $90 million for the year to help curb premium hikes.

Astwick said the high surplus was due to a much lower volume of health insurance claims during the past year because of lockdowns, illness in the community and lower capacity by providers.

“We’re expecting to see much higher claims costs and volumes next year, as those who delayed seeking treatment will now seek to access healthcare. This, combined with a challenging high inflation environment, would usually indicate a need to adjust premiums upwards at a sharp rate,” he said.

“We’re seeking to avoid significant premium volatility for our members, so we will apply a large portion of the surplus towards keeping premium increases as low as possible.”

The five-year average group surplus is $34.5 million.

Despite ongoing fluctuations in claims due to Covid-19, Southern Cross said a five-year average of 86% of premiums was paid out in claims. Last year it paid $1.08 billion in claims out of $1.35 billion received in premiums. Over the past five years, $5.03 billion was returned in claims out of $5.85 billion received in premiums.

The New Zealand industry average (excluding Southern Cross) is 65% of premiums returned in claims. Astwick says Southern Cross does better because it’s a not-for-profit friendly society, without overseas shareholders or investors who would demand dividends.

The $108 million operating surplus this year was offset by a $17 million loss in the insurer’s investment portfolio, which sat at $716.3 million at the end of the year. Astwick says the loss came on the back of strong gains in previous years.

Five years ago, the insurer adopted what it calls a “new strategic asset allocation program” and its investment portfolio has since grown an addition 1% a year over and above the “very conservative” portfolio it replaced, Astwick said.

Chairman Murray Jordan said this year’s surplus has bolstered the group’s reserves which now total $619.8 million and has helped Southern Cross retain it’s A+ S&P financial strength rating.

In a webinar earlier this year which discussed the government’s then-upcoming health reforms, Astwick said it was “not unrealistic” to say that both the public and private systems in New Zealand were unsustainable in their current form. He said 80% of future health costs would be incurred by 20% of the population, not all of whom would necessarily be taxpayers.

“A large part of that demand is driven by social determinants – housing, lifestyle and financial wellbeing,” he said. “In the private system, the price is increasing, largely because the system is geared to efficiency. Efficiency and utilisation drive premium price.”

In the public health system, demand was overwhelming a fixed supply. The workforce is excellent and highly capable, Astwick said, but the system is unsustainable.

New Zealand is not alone. “A lot of public and private systems are really struggling to make their systems more sustainable,” Astwick said.

In his view, successful health systems overseas have three things in common:

They are customer-driven and very clear about the outcomes they must deliver. “The New Zealand system isn’t a healthcare system, it’s a sickcare system,” Astwick said. “It processes sickness under a capitated system.”
The incentives for outcomes are clear and the funding is aligned with these outcomes.
They innovate. “The only way through an unsustainable position where demand overwhelms supply is where you can [find a way to] scale innovation.”

Tags: Southern Cross