Health insurance – Who is Covered ?

12/07/2019

In an earlier blog, talking about self-funding retirement income, I added insurance to cover medical costs to the ways in which individuals, rather than governments, could contribute to income adequacy. It is estimated that 1.34 million New Zealanders have health insurance – around a third of the population. We have a public health system and ACC, so what part does health insurance play? This is a question especially applicable to older people who often call on health services but who may be living on lower incomes than they previously enjoyed.

Estimating coverage with age

I set off to see how health insurance cover varied by age. And found information from the New Zealand Health Survey[1] and from the 2018 Annual Report of NZ Health Funds (health insurance providers).  These figures should be seen as tentative but give us some idea of coverage.

Health Survey Data – This recorded 35% of adults as having private health insurance, a figure which decreased from 40% in 1996/97. Coverage was highest for the age groups 35 and 64 (41-42%), and lowest for people 75 years and over (16%). And for the total aged 65 plus – 23%. After examining a range of demographic and socio-economic factors, household income was found to have the strongest association with private health insurance coverage.

Health Funds report – Coverage of the population aged 15 plus was 34.4%, similar to the Ministry of Health figure and the figure for 75 plus was the same – 16%. This source has a breakdown for the older population, which allowed me to estimate what percent of each age group was covered from age 60 onwards. As the diagram shows, this fell steadily from 30% at age 65-69 to 17% at age 80-84, 15% at 85-89 and 12% at 90-94.

Why the drop-off by age?

The main issue seems to be cost. There have been many recent media reports of substantial rises in health insurance premiums for older people, often amounting to 20%, based on the presumed higher risk of making claims.  For one couple in their sixties (quoted in a Stuff article by Rob Stock) their annual premium rose from $3,022 to $3,617. As a result, many retired people are opting out of health insurance –

If we ask around our circle of friends, none of them poor, I think we are the only ones with health insurance.

In another Sorted quote, a couple reported that they were paying $4800 a year for hospital/surgery cover, with an excess of $2000.

We are struggling to accept this cost, even though we can afford it. We paid for private health insurance for 20 years, only ever making very small claims. Now in our 70’s, we decided that the cost is not worth it, so we have cancelled it.

Could the costs be evened out?

House, contents and other insurances do not differentiate by age (although we all know about travel insurances), but one way to reduce health insurance costs for older people would be to even out the premiums between the age groups as is done in Australia under the “community rating” scheme. Of course, the young would pay more than they do now, but the old would pay less.[2] Could a government intervene to make the young subsidise health insurance for older people? Community rating is not unknown in New Zealand, ACC does not base levies on people’s ages.  But health insurance is driven by commercial rather than equity goals.

Weighing up the need for health insurance

Medical insurance has its advantages. A quote by an individual, from Sorted.co.nz –

You don’t have to wait for public services, and you can select who you want to see if you’ve got a preference for a specialist or a surgeon. The waiting lists are so long, so you are able to have surgery done right away. And you’re not going to be waiting around in pain.

It is a question of weighing up likely risks and the costs of using medical services, where full or part costs have to be paid. We do have the public health system, and ACC for accidents. There are subsidies for GP consultations. Acute treatment and surgery will always be taken care of. But for ‘elective’ procedures, which are not deemed as urgent (and these will include joint replacement surgery and non-urgent screening), that’s where having health insurance can make a difference.

People could self-insure. Instead of paying an insurance company, health costs can be covered if and as they arise, from personal savings. Sorted recommends setting aside three months’ of expenses for an emergency fund. If saving is possible and very high cost procedures are avoided this may be a cheaper alternative to commercial insurance.

There may also be ways of saving on health insurance –

• Opting for a higher excess
• Comparing insurance companies for discount rates (e.g. for non-smokers)
• Reducing the amount of coverage, say $100,000 instead of $300,000 for surgery
• Skipping comprehensive coverage and choosing ‘hospital-only’ or ‘hospital and specialist’ policies
• Using workplace-based health insurance plans. Some employers offer health insurance schemes to their staff. These are usually cheaper to join because employers can negotiate better group rates and offer subsidies. And rates are not based on age.

Doing my research for this post, I looked at websites of health insurance companies. They all offered free quotes. But when I put in my particulars – just to see what it might cost – I found that no new clients would be accepted beyond age 75!

 

[1] The New Zealand Health Survey used data collected between 2011 and 2015, covering people in New Zealand who reported having private health insurance, by age, sex, ethnicity, household income and other variables.

 

[2] Rob Stock article in Stuff, January 27, 2019.