The New Zealand Health Insurance industry provides a valued and necessary backstop for New Zealand families. page two

Transcription

1 2001

2 Introduction The NZ Health Insurance industry provides a much valued backstop for NZ families, ensuring coverage and early access to healthcare when the public system doesn t. Health Insurance also provides people with alternative healthcare options to the public system, so that they can access treatment and advice when they need it. This document has been prepared to improve public understanding of the Industry. It seeks to profile the Health Insurance market, and issues facing the industry. s are the agents for the people making the real investment - those who buy Health Insurance. The people most affected by the issues in this document are therefore the New Zealanders who insure their health and their families health. NZ Health Insurance Industry The New Zealand Health Insurance industry contributed around $561 million towards the healthcare costs of New Zealanders in the year 1999/2000. Over 1.35 million New Zealanders have Health Insurance which represents a significant saving for the public health system. There is however insufficient recognition of the role and importance of Health Insurance. NZ Health Expenditure New Zealand s total spending on health can be split into public and private expenditure. The last decade has seen the ratio of public to private spending alter significantly. Table 1 Expenditure Years 1979/ /1999 Publicly Funded 88.1% 77.5% Privately Funded 11.9% 22.5% Private funding is made up of Health Insurance and out of pocket expenses. Data in these areas is limited, but the Ministry of Health s Expenditure Trends suggests the following spends: The New Zealand Health Insurance industry provides a valued and necessary backstop for New Zealand families. Table 2 Expenditure Years 1979/ /1999 Private funding as a proportion of total spend 11.9% 22.5% comprising: Health Insurance 1.1% 6.2% Out of Pocket expenses 10.4% 15.9% Not-for-Profit organisations 0.4% 0.4% While personal out of pocket expenses have increased by 53%, s contribution has increased by almost 464%. Importantly, this increase coincides with decreasing numbers of New Zealanders having Health Insurance. Why Purchase Health Insurance? Gap Coverage: The public health system has never funded all the health needs of New Zealanders. This is true for many areas of health, such as doctors visits, prescription costs, and non-urgent surgery where people have queued on waiting lists, often for operations they were never going to receive. The public health system s waiting lists have been replaced by a new booking system which makes it clearer that there are surgical needs which will not be met from the public purse. Many people who were on surgical waiting lists have been told that their problems do not meet the qualifying criteria for surgery in the public system. These people will have to either pay for surgery themselves, or go without surgery, if they do not have Health Insurance to cover the procedure. Certainty: Health Insurance provides a much greater degree of certainty than the public health system alone can. None of us knows which health problems will affect us, or how they will impact our lifestyles and earning abilities. Access to treatment: With Health Insurance, New Zealanders can be confident of getting appropriate treatment, in a timeframe of their choice, from a wide range of healthcare providers. Insurance protects people against unpredictable variations in their health costs. page two

3 Types of Health Insurance Policy There are two main types of Health Insurance policy. Comprehensive Care policies cover primary care costs such as GP visits, physiotherapy costs, prescription charges, and many other everyday medical bills. It also provides cover for surgical and hospital costs - often up to a pre-set limit. Major Medical/Surgical Care policies cover only major health problems requiring hospitalisation. Again, there may be a pre-set limit on the amount the insurer will cover. Additional coverage can be purchased with either type of policy, for such extras as dental cover or diagnostic and screening cover. Comprehensive Care policies are more expensive than Major Medical/Surgical Care policies. Both types of policy usually exclude certain specified conditions or treatments such as cosmetic surgery and fertility treatments. Applicants may find that health problems they already have at the time of applying for insurance are excluded under their policy, or lead to higher premiums, or are covered only after they have had the insurance for a specified number of years. These pre-existing conditions are treated in this manner out of fairness to other policyholders, so that people cannot join a scheme with a known problem, get coverage for treatment and leave, without making a fair contribution towards their costs. It is for this reason that we strongly promote purchasing Health Insurance at an early age, before medical conditions develop which may be excluded from cover. Premium Pricing Health Insurance policies are priced either by individual risk rating or by community rating, or sometimes a combination of both methods will be used. Community rated schemes do not adjust their premiums according to the insured person s age or medical condition. People between the ages of, for example, 19 and 65 typically all pay the same premium for coverage. On average, people claim less when they are younger and healthier, and claim more in sickness and in later life. In community rated schemes, premiums are set at the average cost of the broader age group. The benefit of this approach is that the premium amount will not greatly increase as the insured ages. However, younger people are becoming less willing to stay in community rated schemes, and some are leaving for cheaper options. Individually risk rated schemes charge premiums based on age, and sometimes on gender and other characteristics. Five year age bands are commonly used to group together people of a similar age, so that they pay the same premiums. Individuals may be charged extra premiums to reflect their individual risk if they have certain medical conditions at the time they take out insurance. Alternatively, some insurers may choose to charge ordinary premiums but to exclude specific medical conditions from coverage, based on the individual s medical history. Individually risk rated schemes are becoming more popular particularly with younger people who usually pay smaller premiums than they would under a community rated scheme. However, their premiums will increase regularly as they move through the age bands with premium costs more accurately reflecting the true health costs of each age band. This means that Health Insurance premiums for persons aged over 50 years are usually more expensive in risk rated schemes in comparison to community rated type schemes. Why are Premiums Rising? Rising Medical Costs: Costs in the medical sector are rising much faster than in other sectors of the economy. This is particularly true of specialist and hospital charges. Medical costs have outstripped the CPI for many years. s are endeavouring to control medical costs by using limits and preferred provider arrangements. Medical Technology: When new medical technology becomes available, people naturally want to make use of it. This can significantly affect the expected costs of treatment. page three

4 What Influences the Purchase of Health Insurance CPI Trends All Groups GPs Specialists Hospital Room Prescriptions Dec-93 Mar-94 Jun-94 Sep-94 Dec-94 Mar-95 Jun-95 Sep-95 Dec-95 Mar-96 Jun-96 Sep-96 Dec-96 Mar-97 Jun-97 Sep-97 Dec-97 Mar-98 Jun-98 Sep-98 Dec-98 Mar-99 Jun-99 Sep-99 Dec-99 Mar-00 Jun-00 Sep-00 Dec-00 Mar-01 Increased demand for elective surgery and diagnostic screening: Southern Cross has calculated that their rate of surgical incidents has more than doubled in the last ten years, despite a decline in membership. Members of HFANZ recently reported that the following procedures were the most common causes of surgical claims (in alphabetical order only): Angiogram Arthroscopy Cataract surgery and lens implant Colonoscopy/sigmoidoscopy Gastroscopy/duodenoscopy Grommet insertion Gynaecological procedures (e.g. dilation & curettage, hysterectomy) Hernia repair Hip replacement Knee replacement Laparoscopy Removal of cysts, tumours or scars Removal of teeth Septoplasty Tonsillectomy Varicose veins Vasectomy A perception that the public health system will meet all your health needs: Unfortunately it is only in recent times that the Government has endeavoured to tell the New Zealand public what treatment they can expect to receive from the public health system. The booking system is an attempt to do this, however the booking system fails to achieve the required level of certainty as it tells people what services they cannot access when they need treatment for a given condition - such advice is too late! Those advised that their condition does not qualify for surgery cannot then purchase Health Insurance to pay for the required surgery as preexisting conditions are usually excluded. Until the public are told what treatment they can access through the public systems, many will continue to make uninformed decisions about the need to purchase Health Insurance. A perception that Health Insurance is expensive: Many New Zealanders consider Health Insurance to be expensive as premiums have risen in recent years. Whilst it is true that premiums have risen, this is due to considerable increases in costs as evidenced by the number of surgical procedures paid for by s. In fact Health Insurance is very affordable in New Zealand compared with other countries, and a range of policies and premiums is available to suit the needs of all New Zealanders. Differences in policy structures and health systems make it hard to compare insurance costs in different countries, but as a rough guideline, the following table shows the average premium for health insurance policies in New Zealand, Australia, and in Britain. Note that recent Australian Government tax incentives mean that Australians can claim a 30% rebate on their private Health Insurance costs. Orthopaedic and gynaecological procedures are the most common surgical causes of claim. What Influences the Purchase of Health Insurance? Although the percentage of New Zealanders with Health Insurance has declined in the last decade, from around 51% coverage in 1990/91, data over recent years shows that the number of people with Health Insurance is on the rise again. In March 1999 approximately 34.4% of New Zealanders had Health Insurance, with coverage increasing to nearly 35% by June There are many factors which influence the purchase of Health Insurance. The most significant are: Table 3 Country New Zealand Australia Britain Average Premium NZ$ A$1, GB 1, page four

5 Issues facing the Industry Limited understanding of the value of Health Insurance: People insure their houses against damage by fire, yet few expect this catastrophe to eventuate. Whilst it is likely that all New Zealanders will require hospitalisation and surgical intervention at some point in their lives, few people fully understand the restrictions around access to public treatment and the real cost of paying for that treatment. We believe this is a reason why many people do not take out Health Insurance, and view it as a luxury rather than a necessity like fire insurance. Individual procedures can vary in complexity and cost. The following table gives approximate costs of common procedures, derived from the experience of HFANZ members. Table 4 Costs of Common Procedures Covered By Health Insurance Procedure Average cost Cardiac bypass (heart surgery) $25,600 Angiogram (diagnostic test) $2,800 Angioplasty (heart surgery) $12,000 Total hysterectomy (surgery) $5,500 Prostate removal (cancer surgery) $4,500 Excision of cancerous tumour $700 Colonoscopy (diagnostic test) $900 Radical mastectomy (breast cancer surgery) $4,700 Gastroscopy (diagnostic test) $500 Laparoscopic cholecystectomy (gall bladder surgery) $5,000 Total hip replacement (surgery) $11,400 Total knee replacement (surgery) $12,400 Cataract removal (eye surgery) $2,400 The Introduction of Fringe Benefit Tax: Employer paidhealth Insurance attracts FBT at a rate of 49% or 64%. Although employers can elect to pay a lower FBT rate of 27% for employees who earn under $38,000, they have to overpay the FBT at the higher rates of 49% or 64% and then claim a refund through a square up process at the year end. Many employers find this regime too onerous and complex and have moved to cash up non-cash employee remunerations. We believe that Health Insurance should not be regarded on the same basis as other employment perks such as a car. Instead, employers should be encouraged to care about the health and wellbeing of their staff. Regrettably the introduction of FBT has contributed to the significant decline in the number of employers providing Health Insurance for their employees. Issues Facing the Industry Mental Illness s have traditionally restricted coverage for mental illness in their policies. One difficulty for Insurers lies in calculating the likely levels of usage and costs of treatment for mental illness. This information is essential for setting appropriate premiums. Increasing cover for mental illness would inevitably mean increases in premiums, for those policies including such coverage. s are considering options for increasing coverage of mental illness. HIV/AIDS Insurers face problems determining the current and future incidence of HIV infection and the associated costs of treatment. As a result, HIV infection and AIDS related conditions are usually excluded from Health Insurance products. Information has improved and some Insurers may review this area of coverage. Genetic Testing Advances in the understanding of the role genes play in disease is being driven by the work being done by the Human Genome project. For the Health Insurance industry, the impact of this work is being felt by the gradual increase in the number of genetic tests being introduced into routine clinical medicine. s routinely request the results of all medical tests, including genetic tests, as part of the information gathered on the application to assess pre-existing conditions. The results of genetic tests, like other medical tests, are then used to assess the likelihood of future medical costs and to set the premiums accordingly. Access to all known test results ensures that s have the ability to accurately underwrite policies and to provide fair premiums to all policyholders. Genetic testing is an emerging technology and one which is providing us with an increased knowledge of many diseases. Some genetic tests are able to diagnose a certain disease state or predict that it will occur in the future (e.g. Huntington s disease, haemochromatosis or cystic fibrosis). Other genetic test results indicate a predisposition to a certain disease state (e.g. breast cancer or Alzheimer s disease) but do not necessarily imply that the person will get that particular disease. The breadth and complexity of genetic test results means that the use and relative weighting of such results needs careful consideration by Insurers and consumers. The HFANZ has developed genetic testing policy which states that insurers will not ask applicants to undergo genetic tests, and will not use genetic test information obtained from one person to assess another person s risk. Genetic test results will only be available to the insurer s underwriters and reinsurers, and the results will only be given to other parties with written authorization. The HFANZ is currently working with other interested parties to further our collective understanding of these complex issues. page five

6 Ageing Population By 2025 there are projected to be more New Zealanders aged 75 or over than teenagers. As the population ages there may be less taxable income and less money for Vote Health. This has obvious implications for access to the public health system. Retirement income is perhaps the biggest issue facing NZ. As people age, there is an increasing likelihood that they will require medical and surgical treatment. However, many older people have not adequately provided for their retirement and are not in a financial position to pay for Health Insurance. It is important that all New Zealanders take the cost of their future health needs into account when assessing their retirement income needs. The Human Rights Act: Insurers cannot discriminate on the basis of age, but people can be charged more or less if their premiums are based on statistical data and are reasonably applied. Older people on average claim more and cost more, and as a consequence their premiums are higher. This comes at a time when incomes are usually fixed. The graph below shows the average claim per life insured for the 12 months ending 30 June The data has been derived across the industry and includes data from both comprehensive and major medical policies. Average Claim Per Life Insured for the 12 months ending 30 June 2001 New Technology Much of the increase in age related expenditure is attributable to technological changes. New medical technology often raises the cost of diagnosis and treatment, and increases demand. The following table outlines costs of improvements in the field of imaging: Table 5 Type of Imaging Typical Cost per Scan X-ray $100 CAT (Computerised Axial Tomography) $500 MRI (Magnetic Resonance Imaging) $1000 PET (Positron Emission Tomography)* $2500 * Not yet available in NZ - nearest is currently in Melbourne Insurers have noted increasing utilisation of newer imaging technologies, with Insurers reporting increases up to 172% in the number of MRI s performed over the last 2 years. As surgeons and society become more comfortable with new technology, more and more procedures are performed. This is clearly evidenced by the experience of Health Insurers who are paying for more surgical interventions than ever before, especially for late middle aged and older people. Demand for Elective Procedures Many District Health Boards are struggling to provide the required range and volume of elective surgery procedures in accordance with the waiting criteria in the booking system. Demand for public hospital services continues to grow, and it is unlikely that there will be any significant easing of waiting lists in the near future. $ age bands With more than 60,000 people on waiting lists for more than six months at 31 March 2001, a shortage of skilled medical staff, and no prospect of improved treatment under existing funding limits public hospitals are experiencing a time of crisis. Recent figures indicate that the private sector is undertaking more and more elective surgery due to this funding squeeze in the public health sector. This is good evidence of the need for health insurance. Between 1990/1991 and 1999/2000, one experienced the increases in elective surgery demonstrated in this table. page six page six

7 Table 7 Cataract procedures Angioplastry 1990/ / / / / / Hip operations Knee operations 1990/ / / / / / Cataract procedures increased by 219%, hip surgery by 56%, knee surgery by 131% while membership numbers declined over this period. The same has experienced a 36% increase in the number of Angioplasty operations performed over the last 3 years. Adverse Selection Pooling risk across groups of people, some of whom will claim while others don t, is a method used by Insurers to enable stable premium structures across an age group. Young, healthy people can usually change Health Insurance schemes without loss of entitlement. Older and less healthy people often do not have this choice, because they may have developed medical conditions which a new Insurer will not provide cover for. If young healthy people leave an insurance scheme, then the average age of scheme members rises, and the average level of healthiness deteriorates. This means more claims, and higher costs per person. As a result, premiums increase, and more of the healthier people leave, while the older and sicker remain - and again, premiums will rise to cover increasing average costs. This trend, which insurers call adverse selection, can continue to the point where the only the unwell are still in the scheme, and premiums continue to increase because there is no-one left to cross-subsidise these individuals. Cost Shifting to the Private Sector The Health Insurance industry has experienced significant cost shifting in recent years primarily from the Public Health System, adding to the already increasing costs facing the sector. Tax Treatment The tax system is in need of revision for the following reasons: ACC levies can be treated as an ordinary expense, whereas employer paid Health Insurance is liable for FBT. Employers should be encouraged to care for the total health and wellbeing of their staff - including both accidents and illnesses. However at present employers are discouraged from providing employer subsidised Health Insurance as contributions attract FBT. There are no tax rebates or incentives for Health Insurance premiums, despite the savings to the public health system. Support for a Tax Credit for Health Insurance Premiums The New Zealand Institute of Economic Research report The Tax Treatment of Health Insurance Premiums (March 2001) recommends that a refundable tax credit be introduced as it is considered to be the most effective, equitable and efficient method of encouraging households to take out private health insurance, rather than rely on the public system. The benefits of a price subsidy for private healthcare can be divided into four broad categories : 1. The benefit to the health system that would result from leveraging additional private spending on health. 2. The benefit to the economy that would result from a reduction in the number of working days lost, as a result of improving the timeliness of health service delivery. 3. The improvement in personal welfare. 4. The improvement in equity that may result from better access to private care. The average claim against health insurance in 2000 was $ If the Government offered a price incentive equivalent to one third of the average premium, it would cost $ per life insured. This illustrates the amount of additional private funding that could be leveraged by a publicly funded price incentive for $1 spent by the Government subsidising private Health Insurance around $3 would be returned in healthcare. page seven

8 What will enable the Industry to add value into the future? Certainty around what health services the public sector will provide. The public will then be in a position to make an informed choice about the need for private Health Insurance. Tax Amendment: The introduction of a tax rebate or incentive for private contributions to Health Insurance would increase the overall level of resources devoted to health care. Health Insurance should be exempted from the FBT regime and employers incentivised to subsidise employee health insurance to benefit the health and wellbeing of their staff. Public awareness of the value and need for Health Insurance. A vibrant, respected, and valued Health Insurance market: without the private Health Insurance market the strain on the public health system would greatly exacerbate current access problems. New Zealand s s fully support the public health system and are committed to providing quality alternative and complementary health services for their customers. With increased public and political understanding of the value of Health Insurance, the health and wellbeing of all New Zealanders can be greatly enhanced. New Zealand s The Health Funds Association of New Zealand is the industry body representing s in New Zealand. Membership of HFANZ currently includes 14 s, and 1 Accident Insurer. Organisational Structures: s range in organisational structures from Mutuals, Friendly Societies, and Not for Profits, through to Companies. Members of the HFANZ Organisation Southern Cross Healthcare Aetna Health (NZ)Ltd Tower Health & Life UNIMED Police Health Plan Ltd Sovereign Assurance Company Limited PSIS Health Care Health Service Welfare Society AA GIO Insurance Ltd EBS Health Care Manchester Unity Friendly Society Ltd State Insurance Limited American International Assurance IOOF Friendly Society ACC Type of Insurer Accident Insurer HEALTH FUNDS ASSOCIATION OF NEW ZEALAND INC. PO Box 339, Wellington Telephone: (04) Facsimile: (04) Health Funds Asssociation of New Zealand Inc.