Private providers adapt to changing market

Friday 7th April 2000

PAUL REGTIEN: The industry has stabilised after a period of decline

Further reorganisation of the public health system is unlikely to have much impact on the various forms of private health insurance available from specialist suppliers and the traditional life insurance companies.

That is the consensus of industry representatives in an NBR Personal Investor survey.

The government's core commitment on Labour's pledge card was to focus on patients, not profit, and to cut waiting times for surgery. Paradoxically, that is what private sector health insurance programmes were designed to do when they started and what they continued to promote in the ensuing years.

The industry has become a relatively large business, although well behind the dollars involved in the public health sector. A profile statement for the Health Funds Association says private insurers contributed $495 million toward healthcare costs in 1997/98 and that more than one million New Zealanders had health insurance of various types.

The figure now is about 1.3 million but, impressive as that may seem, it is a substantially lower proportion of the population than a few years ago. About a third of the population has some form of health insurance, or income protection insurance connected to health, compared with 41-43% in 1997 and 45% in 1992.

The decline occurred during a period when the government's share of total health costs dropped from 82% 10 years ago to 78% in 1993 and 76% in 1997.

Southern Cross Healthcare group marketing manager Paul Regtien said the industry had stabilised after a recent period of decline. Southern Cross is the biggest provider, with about two-thirds of the market, covering 800,000 people as individuals, in family groups and in employment groups.

Southern Cross' market share has been constant for several years, give a percentage point or so, but the coverage of 800,000 people is down on the 900,000 recorded in 1997.

Aetna Health (NZ) ranks second in market share with about 150,000 policies but those cover a higher number of people, given the company's business is split about 50-50 between individuals' and group employment schemes.

The group employment schemes were about 40% of Aetna's business in 1997. Aetna chief executive Steve Goldberg said the health insurance market had yet to establish true value for the policyholder and the establishment of true value was a function of industry maturity.

Industry executives had a clear view private health insurance was not competing with the public health sector. "We are here to really support the public health sector and not to replace it," Mr Goldberg said.

Mr Regtien said there was an important role for private health insurance in New Zealand. "It is unlikely any government is going to be able to fully fund the needs of the population for elective surgery, for example." ("Elective" surgery is non-urgent operations.)

He said it was too early to tell how the new government's policies would affect the industry, if at all. "The whole health strategy is being formulated as we speak."

Mr Goldberg considered there would be no change to the industry's outlook as a result of a new government but thought the public and private sectors should sit down and talk about the issues.

It seems a taskforce will be appointed soon to look at funding for health services over the next few years and it may contain representatives from both sectors.

There are several suppliers of health insurance but Southern Cross, Aetna and Axa New Zealand Health (National Mutual) account for more than 90% of the market.

The main providers (and probably many of the others, particularly those with broader insurance links) have seen a switch over the years from blanket medical coverage to specialised options, particularly those that deal with "big ticket" items of major surgery and medical procedures.

Many people treat routine visits to the doctor and other relatively small payments as part of their regular outgoings, in the same way as they accept small losses on chattels and so on rather than claim on general insurance policies and lose no-claims bonuses and other benefits.

A survey such as this is not the place to examine in detail each of the different health insurance policies available. Anyone who has a policy, or policies, will have examined the range and chosen the option best-suited to the particular age, marital and family status, lifestyle, occupation and current health.

People who are not privately insured but who may be thinking of cover know they should assess the large number of plans before selecting one appropriate to their circumstances.

Any attempt to summarise all the available plans would be futile, given the many plans and medical procedures involved. It is also possible in some cases to "unbundle" parts of particular plans and effectively tailor one's own policy.

That is part of a trend to widen the product range. Southern Cross' Mr Regtien said his organisation had "a lot under wraps."

"We have a number of new product initiatives we will be launching into the market in the coming months to capitalise on opportunities to stimulate growth."

No matter what products Southern Cross and other insurers bring to the market, customers and potential customers focus on the cost.

There seems to be growing awareness you get what you pay for. People cannot expect Rolls-Royce cover if they are paying Mini rates but the actual level of premiums and how they rise with different starting ages, or after reaching the magic 65, always concern people.

The public was unhappy some years ago when premiums rose dramatically but the situation has become more stable. Mr Regtien said Southern Cross' premiums had been the same since July 1997 and Aetna's Mr Goldberg reported stable premiums, with no increases seen over the next year or so at least.

The jump in premiums when people reach their mid-60s is more contentious. Higher premiums are based on the undeniable fact that healthcare costs increase disproportionately with age and policyholders should be paying for that.

It seems unfortunate that people who may have been in schemes for years can face a premium hike when they hit 65. Mr Goldberg referred to the Australian situation as an example of how premium increases can be cushioned.

A person who took out insurance in Australia before age 35 had a guaranteed premium for life. The government subsidised the premium if that became necessary in the policyholder's later life.

Table I (above) shows what can happen with premiums depending on age. The fact that the data refers to State Insurance's Surgical Plus plan must not be taken as comment on, or criticism of, State.

Other insurers have similar premium patterns and State's figures were used because they were both simple and brief.

Whatever people think about the public health versus private health debate, health insurance comes within the ambit of personal investment, because individuals are investing in their most important asset: themselves.

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