Medical premiums and the public system

Most of you will have seen the notices advising increased premiums in the last month, ranging from 16% to 22%.

Tuesday, April 1st 2025, 6:55AM

by Jon-Paul Hale

Most of you will have seen the notices advising increased premiums in the last month, ranging from 16% to 22%.

It's been commented for a long time that medical inflation increases at roughly double the inflation rate, but this year, it's significantly more painful. Why?

It's mainly due to market conditions; however, the drivers of premiums aren't always transparent.

The first significant indicator was the public system's failure in 2022 to address the basic requirements of emergency medicine. People were being assessed in ED / A&E and told, "We can't do your tests, so here's the referral." For those with medical insurance, this created a storm of claims for basic diagnostic testing that the public system would typically take care of.

Since then, it has settled, but the number of claims in the last three years has been consistent, meaning that we have adjusted to the new activity level more than it has dropped off.

If you take three years of 2-3 times the usual claims, you'll see significant pressure on premiums.

Year 1, you'll get a bump, but it's also couched from the insurer as we need to increase, but it will settle down.
Year 2, you'll get we need to increase it; it looks like it's starting to settle.
Year 3, you're getting nope; this is the new normal, and we must account for it.

The reality isn't just the volume of more claims; it is also the additional people and resources insurers have had to hire to cope with them.

Some of it will be claims approved because teams are under pressure that shouldn't have been approved, increasing costs.

While most of this is reasonably easy to quantify, when you get into the medical services, you start to see where a lot of the cost pressure is coming from, namely, the increased value of claims being paid.

Private medical services are swamped too. As the lack of response from the public system drives people to private medical services as insured and out-of-pocket patients, they find they have to add resources. More admin people and clinicians equals more space, which also costs money to move and fit out.

Then there is the cost of clinicians; when we hear that going to Aussie doubles or triples clinician wages, that impacts our ability to retain the people we have.

Add to that new technologies and tools to help improve the efficiency of our clinicians, who have to upgrade to cope with the increased volume, and you get a better picture of why we have such significant premium increases.

The other aspect is that we have reasonably cheap premiums here in NZ. Past comparisons for clients I have done have shown that Aussie medical premiums (apples for apples) are 2-3 times more expensive than here.

Having a quick look at iSelect for a 35-year-old, comparable coverage hospital with specialists and tests with a $500 excess. The premiums range between $250 and $330 AUD per month. For a 21-year-old, it's $225 to $270 AUD, and as a 60-year-old, you can't buy comparable coverage!

The comparable NZ premiums for that 35-year-old are $120 to $150 NZD per month.

Are premiums getting painful compared to what we have seen? Yes.

Are they painful relative to what's going on across the ditch? Not so much. This also explains why the Aussies are paying clinicians 2-3 times what they do in NZ.

The big difference is that in Australia, their public medical system tends to be better than here in NZ, but that, too, is changing, and they are experiencing similar pressure and impacted services.

The present government's actions haven't helped things either, as we need more money spent on healthcare, not less. All but two of our major hospitals need to be replaced, as they are past their planned end of life, and we're patching them up to keep them going.

Not to mention that we have a whole 2 million more people than they were originally designed for!

Like most advisers, I'm the meat in the sandwich here; we provide advice and wear the complaints about premiums. Unfortunately, with this trip through the weeds looking at pressure points, I'm not seeing any mitigating factors to more increases coming.

When we have a clear 50% of the Aussie premium for similar products, we have a gap that will always drive increasing premiums here.

So what's the answer?

Frankly, it's more medical insurance, with more people insured, spreading the cost across a much wider pool of people.

This addresses the premium income piece that insurers need to maintain premium rates where they are.

But that comes with more people needed to manage it and more claims due to having a wider pool of people.

The key point here is to reduce the anti-selection aspect of purchasing medical insurance; healthy people who have no expectation of needing medical services don't buy medical insurance.

While the public system continues to be perceived as being there if they need it, without any exposure to how bad it actually is, they will continue to view medical insurance as a waste of time.

This means that we need other incentives to help. Yes, I'm talking about tax deductions for medical premiums.

I've argued in the past that this is a difficult issue for the government, as they already don't have enough money for health care, and giving it away to those with medical insurance doesn't help.

There is the argument that people with medical insurance are less of a burden on the health system; this is generally true.

However, that argument is significantly challenged when considering the older end of the spectrum when applying tax deductions.

The reasonable answer here is that the person/company paying the premium gets the deduction. This would drive more workplace group schemes and reduce the burden on the health system during people's working lives.

However, this approach has a challenge: take someone who is generally healthy and has had medical insurance for most of their working life. When they retire, they cancel their medical insurance because it's too expensive.

What then? We now have the government footing the bill on what is usually significantly higher medical costs. At the same time, that individual has not contributed to the public medical tax pool at the same rate as someone without medical insurance.

Another aspect of this is managing the response from the public system better; if you have medical insurance and you're not an emergency case, then you go private and don't have access to elective public services where private services are available. (private medical cover excluded conditions would remain with public health services)

This would drive more activity in the private space, help mitigate costs with more private competition, and expand our medical services without the government footing the bill.

More confidence with private demand drives investment in building hospitals and clinical services.

Schemes like Southern Cross' Affiliated Provider and nib's 1st Provider Network only manage costs where the clinicians involved toe the line, with unique specialists able to push up prices when there is not enough competition.

Reduced lifetime impact on the public system also means the system has more capacity, and our system for 3.5 million people has a better chance of responding and remaining relevant for the services needed.

This results in the quite reasonable approach of older people without insurance receiving appropriate levels of care, too, regardless of their prior medical insurance coverage.

Those with medical insurance contribute to the growth of our private medical infrastructure, while those without pay taxes and contribute to services for public health.

Also, keep in mind that ACC also contributes to costs where the cause is an accident, which is already a significant part of the delivery of emergency medicine. They have upwards of 2 million new claims per year!

In summary:

Medical premiums will continue to increase if we don't change how we do things.
There are lots of ideas that could be reasonably cost-neutral for the government to drive investment in medical infrastructure
We can still provide excellent services to our older people while supporting those who can't afford medical insurance.

All of this suggests more, not less, medical insurance. As an adviser who insures people, medical insurance must be part of your discussion.

Caveat emptor that the law of unintended consequences applies. What I have suggested could result in perverted policies put into the market by insurers that cover everything except hips, hearts and cancer on the basis that the tax deduction applies and the public system still picks up these bills or some variation from there.

The reality of any change will come with distortions and management costs that need to be considered.

End of the day, we need to start having better conversations about this area of our society.

Tags: insurance Insurance Advisers Jon-Paul Hale Life insurance medical insurance