Money: Facing up to the cuts calls for insurance

By Philip Macalister

Health insurance is becoming more important as the public health sector becomes increasingly stretched and the Government "rations" publicly available medical services.

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 the costs of hospital operations.

This trend has seen health insurance premiums rise, thus triggering a mass exit from health insurance policies, and the shift from comprehensive to hospital-only cover.

The chief executive of Southern Cross Healthcare, Roger Bowie, says much of its policyholder base has been participating in a process of "adverse selection."

What he means is that the younger and healthier people, who are less likely to make a claim, are ending their policies or shifting to hospital-only ones, while older policyholders are making more and bigger claims than in the past.

He says that during the past couple of years the claims rate amongst Southern Cross policyholders has almost doubled, to between 10 and 14 per cent.

Such a move forces premiums up.

Mr Bowie blames the shrinking health insurance market on premium rises over recent years.

In some extreme cases among elderly people premium rises have been reported of 600 per cent in the space of just 12 months.

But he believes people are now starting to understand premiums had to increase as the frequency and cost of operations rose.

The marketing manager of the BNZ Financial Services Group, Nigel Fairless, says the high cost and widely perceived low value of comprehensive insurance has affected the reputation of health insurance.

"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."

He says the shift away from comprehensive care 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."

Meanwhile, Mr Bowie believes the market is about to bounce back and start growing again.

He says when people consider buying a health insurance policy they need to look at the trade-off between premiums and benefits.

Also they need to realise that waiting lists in the public system are growing and an increasing number of conditions are being treated non-surgically by the private sector.

This means that if you want a specific treatment you will need to have insurance to go to a private provider.

Mr Bowie says health insurance gives people the choice of doctor, location and time.

* Philip Macalister is the editor of online money management magazine Good Returns www.goodreturns.co.nz. Good Returns provides news on managed funds, mortgages and financial planning.