Medical premiums and the public system

It's been commented for a long time that medical inflation increases at roughly double the inflation rate, but this year, it's significantly more painful. Why?

It's mainly due to market conditions; however, the drivers of premiums aren't always transparent.

The first significant indicator was the public system's failure in 2022 to address the basic requirements of emergency medicine. People were being assessed in ED / A&E and told, "We can't do your tests, so here's the referral." For those with medical insurance, this created a storm of claims for basic diagnostic testing that the public system would typically take care of.

Since then, it has settled, but the number of claims in the last three years has been consistent, meaning that we have adjusted to the new activity level more than it has dropped off.

If you take three years of 2-3 times the usual claims, you'll see significant pressure on premiums.

• Year 1, you'll get a bump, but it's also couched from the insurer as we need to increase, but it will settle down.
• Year 2, you'll get we need to increase it; it looks like it's starting to settle.
• Year 3, you're getting nope; this is the new normal, and we must account for it.

The reality isn't just the volume of more claims; it is also the additional people and resources insurers have had to hire to cope with them.

Some of it will be claims approved because teams are under pressure that shouldn't have been approved, increasing costs.

While most of this is reasonably easy to quantify, when you get into the medical services, you start to see where a lot of the cost pressure is coming from, namely, the increased value of claims being paid.

Private medical services are swamped too. As the lack of response from the public system drives people to private medical services as insured and out-of-pocket patients, they find they have to add resources. More admin people and clinicians equals more space, which also costs money to move and fit out.

Then there is the cost of clinicians; when we hear that going to Aussie doubles or triples clinician wages, that impacts our ability to retain the people we have.

Add to that new technologies and tools to help improve the efficiency of our clinicians, who have to upgrade to cope with the increased volume, and you get a better picture of why we have such significant premium increases.

The other aspect is that we have reasonably cheap premiums here in NZ. Past comparisons for clients I have done have shown that Aussie medical premiums (apples for apples) are 2-3 times more expensive than here.

Having a quick look at iSelect for a 35-year-old, comparable coverage hospital with specialists and tests with a $500 excess. The premiums range between $250 and $330 AUD per month. For a 21-year-old, it's $225 to $270 AUD, and as a 60-year-old, you can't buy comparable coverage!

The comparable NZ premiums for that 35-year-old are $120 to $150 NZD per month.

Are premiums getting painful compared to what we have seen? Yes.

Are they painful relative to what's going on across the ditch? Not so much. This also explains why the Aussies are paying clinicians 2-3 times what they do in NZ.

The big difference is that in Australia, their public medical system tends to be better than here in NZ, but that, too, is changing, and they are experiencing similar pressure and impacted services.

The present government's actions haven't helped things either, as we need more money spent on healthcare, not less. All but two of our major hospitals need to be replaced, as they are past their planned end of life, and we're patching them up to keep them going.

Not to mention that we have a whole 2 million more people than they were originally designed for!

Like most advisers, I'm the meat in the sandwich here; we provide advice and wear the complaints about premiums. Unfortunately, with this trip through the weeds looking at pressure points, I'm not seeing any mitigating factors to more increases coming.

When we have a clear 50% of the Aussie premium for similar products, we have a gap that will always drive increasing premiums here.

So what's the answer?

Frankly, it's more medical insurance, with more people insured, spreading the cost across a much wider pool of people.