Health insurance is a big carrot for employees says the Southern Cross Health Society. Photo / File
New Zealand’s biggest health insurer says it has experienced a 170 per cent increase in business join-ups in the past year, reflecting the tight labour market and the strain on the public health system.
Southern Cross says the “psychological” impact of the Covid-19 pandemic is another factor fuelling general membership growth, with businesses, in particular, keen to offer subsidised premium payments as a staff recruitment and retention inducement, and to get employees faster access to medical procedures and back to work.
Southern Cross Health Society chief executive Nick Astwick says that by the end of May, gains by the not-for-profit this financial year had taken membership to 939,000. Of this, 3500 were businesses and other organisations covering 503,000 employees all up, meaning businesses accounted for about half the total membership.
In the 2022 financial year, the society reported a net increase of 20,000 members, which at the time took its membership to a 30-year high of 908,000.
The society has 62 per cent of the health insurance market but says it funds 74 per cent of all private health insurance claims in New Zealand.
It fields 4 million health claims a year or 14,000 per day, and partners with 2500 healthcare providers, through specialists at Southern Cross Healthcare and other specialist providers to deliver access to private health care.
Southern Cross’ shareholder is its collective membership, unlike for-profit insurers. But its major point of difference, says Astwick, is that it pays out close to 90c of every premium dollar it receives, while its competitors pay an average 65c. This meant that last financial year it paid $314 million more to its healthcare partners out of premiums received than competitors would have.
While the insurer has a positive story to tell on growing business-sector interest, what happens to membership numbers in an economic crunch, like today’s?
And how is it responding to a common complaint from older members in an ageing population that at an age when they most need access to medical care, they can’t afford it because the premiums have become prohibitive?
To the first question, Astwick says “prudent” cost-cutting by Kiwis and businesses isn’t fundamentally affecting the business at this point, but it is preparing for a slowdown in growth due to the economic environment.
“A lot of our contact [with members] at the moment is discussing their plans, whether they are on the right one, can they consider excess [plans] or downgrade a plan.”
As for the irony of loyal members being priced out of coverage, Astwick offers some surprising data.
“When we look at the churn rate, how much do we lose each year and in which banding, the only band close to 10 per cent - that’s one out of 10 members - is the 20-29-year age group. They’re the ones that think they’re bullet-proof and [reckon] they don’t require elective surgery.
“We lose one out of 10 from 80 years onwards, and we are only losing one out of 20 from the 55-85-year band so attrition is very small.
“The best way to keep premiums as low as possible is having younger, healthier new members join.”
The stats confirm why premiums tend to rise eye-wateringly at the age when medical procedures are most needed.
Astwick says 65-year-olds and over are about 12 per cent of the membership and claim 33 per cent of the total annual claim. In the 2022 financial year that total claim was $1.08 billion - $1.35b was received in premiums.
Over-65s claim three times the average because when they require treatment “it’s the big stuff”, he says.
“When we price [premiums] we take every age group and look out the next few months and ask what are they likely to claim. We set our premium based on that claim and a bit for our overhead and a little bit for our services, but that’s it. There’s no other pricing.”
His recommendation for older members struggling with premium costs is to explore excess options with Southern Cross staff.
“You can have a $1000 excess, a $2000 excess, a $4000 excess. When you get a bit older, your claim is going to be large. An excess [payment arrangement] of $4000 can halve a premium so it’s quite meaningful. Say you had to have a $25,000 surgery, you would pay the first $4000 and that’s for the year. Excess really helps keep you in health insurance when it comes to the big stuff.”
Astwick rates medical insurance “affordability” and the strategies to achieve it as the number one challenge for the society’s leaders.
Asked if he believed medical insurance should be compulsory for working people as it is in some European countries, he gives an emphatic “no”.
“If you look across the world, the magic lies in having a good public system and a good private system working in concert together. No public system can do everything, and no private system can.
“The private system is complementary, not supplementary, to the public system. We do not do emergency, we do not do deep chronic care.
“My view is that New Zealand really does need to deeply think about both systems working together rather than competing. It is immature to say the public system is public - it uses a large amount of private care, GPs for example, and it does use private hospital facilities.”
Restructuring the public health system is going to take a long time, says Astwick.
“It’s the biggest employer in New Zealand.
“There are some fantastic people in that system who are under duress at the frontline. The system does need to listen to the frontline and respond. It’s not easy, but we need it to sort itself out.”
A big gripe for business members is having to pay fringe benefit tax (FBT) on top of their co-funding of employee insurance, says Astwick.
“They are frustrated about that. That’s one challenge we would like to see resolved ... they believe they are getting penalised while investing their hard-earned cash in getting insurance for their staff to keep them out of the public system.
“It’s still a real niggle.”
“We do think if FBT was removed, a lot more businesses in New Zealand would invest in health insurance. A lot more people would be covered and there’d be a lot less duress on the public system as it relates to elective surgery.”
Fringe benefit tax was introduced in the late 1980s and discussions with Governments over an exemption have been fruitless.
“But they are listening. There is a thawing there. There’s now recognition that the private system working with the public system is a solution for the future. But it’s not a priority [for the Government].
“What people don’t remember is that Southern Cross membership is a lot more representative of New Zealand than it may have been back then - 50-55 per cent of our membership is now paid by business.”
Meanwhile, with three out of every 10 New Zealanders holding health insurance, Astwick says the hunt is on for the fourth Kiwi in 10.
In December 2016, he says, 1.36 million New Zealanders had health insurance. Today it is about 1.51 million.
“We’re not trying to get more market share. It’s about growing the category in what we see as the collective interest of everyone.
“Everyone has access to the public system. Knee surgery or a pacemaker can be done in both systems. Our promise is trying to secure access for people when they need it as fast as possible and to get employees back to work as fast as possible.
“We have to do a better job, I think, of making people aware of the health proposition, a better job of affordability. Ultimately, the secret to the fourth New Zealander is keeping our members longer, hence our attention to affordability.”
Andrea Fox joined the Herald as a senior business journalist six years ago and specialises in writing about the dairy industry, agribusiness, exporting and the logistics sector and supply chains.