Industry codes play an important role in ensuring consumers get a fair deal.

The Health Funds Association first adopted an industry code 26 years ago in July 1992, and the Insurance Council also has one of long standing. It is good to see the Financial Services Council adopt its own, so now life insurance will be governed by one, to come into effect on January 1, 2019.

HFANZ members process over a million claims a year from about 500,000 individuals. More than 95 percent are approved and just a tiny fraction of those declined are disputed. Most disputes are sorted ahead of time and do not need to be referred to the Insurance and Financial Services Ombudsman, the principal dispute resolution body to which health insurers in New Zealand belong. IFSO can take into account an industry code in looking at a complaint, and can hear cases up to $200,000.

Latest figures from Ombudsman Karen Stevens show that in the year to the end of June 2018, just 36 of the 320 complaints to her office were regarding health insurance and none was upheld. Health insurance also made up just 153 of the 3357 complaint enquiries received. Most of the 36 complaints were regarding policy exclusions, issues of non-disclosure, the scope of cover, and pre-existing conditions. Twenty-eight were not upheld, seven were settled between the consumer and the insurer, and just one was partially upheld. Arguably, even one out of over one million is one too many. But this shows health insurance is far from the Wild West.

Part of the reason why there is such a low level of complaints going through to the Ombudsman is that our code has been in effect for so long. Its key tenets are that health insurers which are HFANZ members will act in good faith and deal fairly with customers.

Fair treatment encompasses several dimensions, including:

Prompt assessment and processing of claims. Most health insurers have some form of pre-approvals process which confirms the claim for treatment will be paid. The speed of access to health treatment is part of the value proposition of health insurance, so delays in claim processing are rareProvision of clear and accurate information to customers and prospective customersNot engaging in any misleading selling of product – either directly or through intermediariesTreating customers’ personal and health information with care and in accordance with privacy requirementsEnsuring there are adequate internal dispute resolution procedures in the event of a dispute.

HFANZ members monitor customer satisfaction and have noted the experience for most health insurance claimants is very positive. Given the huge number of claims paid annually, the incidence of customer dissatisfaction in relation to health insurance is extremely low.

The Government’s current review of insurance contract law, being conducted by the Ministry of Business, Innovation and Employment, is also considering issues around insurer conduct, treatment of non-disclosure, and unfair contract terms. HFANZ has welcomed this review and is hoping that some of the practices around good faith and dealing fairly with customers are reflected in any proposed changes.

A copy of the HFANZ Health Insurance Industry Code can be found HERE.

Latest figures showing health insurers paid out more than half a billion dollars in claims to New Zealanders aged over 60 in the past year prove the value of retaining health insurance into retirement.

Health Funds Association statistics released last week said total claims paid for the year to the end of September were $1.174 billion, a record $532 million of which was paid out to the over-60s.

Around a quarter of a million New Zealanders aged over 60 have health insurance, and that number continues to rise as baby boomers reach that birthday milestone and new policies continue to be taken out. In the 12 months to the end of September 2017, 5400 more people were in the over-60 age group than in the previous year.

The claims total means an average of more than $2000 paid out to each policyholder over 60 during the year.

Health insurance is funding significant volumes of healthcare for older New Zealanders, particularly for elective surgery, and all indications are pointing to continued increases in coming years.

The growing numbers of over-60s retaining their health insurance, combined with increased volumes of treatments funded, mean health insurance will be funding well in excess of $2 billion in healthcare costs for the over-60s over the next four years.

As the population ages and healthcare costs increase, health insurance is vital in complementing public sector funding so that more New Zealanders are able to access healthcare promptly.

Around half of all elective surgeries performed in this country are privately funded, and this frees up the public sector to focus on acute services and provide elective surgeries for those who cannot afford the alternatives.

The new Labour-led Government has promised to increase public hospital funding, but more innovative thinking is required to tackle what is estimated could be an $8 billion shortfall in health funding by 2060.

Health insurance has the capacity to play a greater role in meeting future healthcare costs and thus relieve pressure on government budgets and the public health system. Private health insurance is able to routinely fund high-cost treatments that user charges cannot. That we can fund $1.174 billion worth of healthcare through less than a third of New Zealanders having health insurance proves there is the potential for the private sector to do more.

So far 2017 has seen some of the strongest annual growth in coverage since 2001. Encouraging more older New Zealanders to take out or retain their health insurance policies will help everyone gain access to treatment when they need it.

A surge in employer interest in creating a healthier workforce is pushing health insurance numbers higher, says Roger Styles, chief executive of the Health Funds Association of New Zealand.

The number of New Zealanders covered by health insurance jumped by 24,000 – or nearly two percent – in the past year, as more employers moved to offer it to their workers as part of group health plans.

The recent strong growth in employment has also played a part, with the ranks of those already in established group health plans swelled by new employees joining. This has been particularly noticeable in hot sectors, such as construction.

Of particular note, however, is the increased level of interest from employers who are new to providing subsidised health insurance for their staff. There appear to be several factors behind this.

Firstly, recent changes to health and safety legislation have seen greater prominence given to the health aspects of the workplace and workforce. In the past, the focus has largely been on safety. Now employers must think more about health. Initiatives focusing on wellness in the workplace are an important part of this, and private health insurance can play a useful role where employers look to include this as part of their overall health and safety policy.

Thinking more about healthcare, employers recognise that it is not just about the impacts of the workplace on employee health. The flip-side to this is thinking about the impacts of employee health on the workplace. Poor health can lead to higher levels of absenteeism and presenteeism – being physically present at work but not actually achieving anything – and lower levels of productivity and profitability.

These problems can be significantly reduced or avoided through a focus on wellness in the workplace, including the role of health insurance. The productivity benefits in particular have been well-documented. Recent research by TDB Advisory estimated a net productivity benefit to New Zealand of around $100 million per annum from health insurance. Repeated research on the impact of health insurance plans in the workplace by Southern Cross and BusinessNZ points to reduced absenteeism, faster access to treatment, and a boost to productivity.

It obviously makes no sense to have employees on sick leave, absent awaiting surgery on public wait lists, or unable to perform their job for long periods. Wellness in the workplace means keeping staff healthy, and if they fall ill or need treatment, helping to get them well again quickly and back into their role.

A further factor is increasing expectations of workers. Worker mobility and globalisation mean many employees have had previous roles where employer-subsidised health insurance was an established and expected part of the job. Many Kiwis returning home in recent years for work have had the benefits of health insurance during their time abroad, and have expectations about seeing that continue on their return to New Zealand.

The tightening labour market and low unemployment levels have also contributed. Those in the job market with skills in demand can more readily choose between employers on the basis of the work environment on offer and overall package – and things like the availability of health insurance for them and their families can be an important consideration.

Clearly, many employers are benefiting from providing health insurance cover for their workers, and choose to do this despite the imposition of fringe benefit tax (FBT). Put simply, it is an investment in their workforce and ongoing productivity. Sure, FBT is a financial imposition on companies, but this does not entirely negate the benefits to employers from investing in the health and wellness of their workforce. In the past some SMEs had considered but rejected providing health insurance for their staff due to the impost of FBT and its complexity. However, FBT compliance has become more simplified and rates have reduced, encouraging more SMEs to take another look. Insurers can also offer assistance and advice in tailoring a package which meets an employer’s needs.

Note: Many NZ health insurers offer tailored wellness packages to employers. These include Southern Cross, Unimed and Accuro.

Prime Minister Bill English last week made a decisive move to raise the superannuation age to 67 from 2040, but the Government also needs to address the issue of future healthcare costs at the same time.

Thanks to an ageing population, healthcare inflation, and the rise of new and costly treatments, New Zealand’s health spending has one of the fastest rates of increase in the OECD. Treasury has repeatedly advised that this unsustainable growth presents a bigger fiscal problem for the Government than the soaring cost of NZ Super.

Super costs had been projected to go from 5 percent of GDP to 7.9 percent by 2060, but with this week’s announcement to raise the entitlement age this may now be closer to 7 percent.

However, the nation’s publicly funded healthcare costs are projected to jump 9.7 percent of GDP over the same period. This represents a 56 percent jump on 2015 funding and about $8 billion in today’s terms, an amount governments will have difficulty coming up with by simply making efficiencies in our public hospitals.

Other policy options such as increased user charges and greater rationing and waiting lists are all likely to be needed in the coming years, although these still are unlikely to match the shortfall.

The vast bulk of the $8 billion gap will likely manifest itself in two ways: people paying a greater share of their own healthcare costs, and growing unmet need.

Currently around 20 percent of healthcare in this country is privately funded, amounting to about $4 billion a year. Just over a quarter of this is funded via health insurance, which is held by about 1.36 million New Zealanders.

Health insurance could be playing a bigger role in meeting future healthcare costs and thereby relieving the pressure on government budgets and the public health system. Private health insurance is ideally placed to be able to routinely fund high-cost treatments, which user charges cannot. We just need to address some of the disincentives currently in place so that more people can take out cover.

Fringe benefit tax (FBT) has been cited as a big impediment for employers taking on workplace health insurance schemes. We currently have about half a million people covered through their workplace, but that number could be much higher if FBT was removed. There are other ways we can encourage employers to fund health insurance for their staff that are worth taking a look at, and the industry is keen to have a dialogue with the Government about those.

Insurance works by aggregating premiums across a large number of people in order to fund the healthcare costs which might otherwise be unaffordable or cause financial hardship. The fact that New Zealand can achieve $1.13 billion annually of healthcare funding through 28.5 percent of the population having health insurance indicates that there is significant scope to increase the contribution to future healthcare costs by lifting coverage rates.

Having health insurance provides certainty and timely access to treatment for those who have it, while freeing up public resources to tackle key public priorities such as primary care and chronic conditions.

The Government needs to face up to the unsustainability of future health spending and develop a collaborative strategy to reduce dependency on public financing and move closer to the OECD average for public/private health spending shares. It won’t be able to raise the age of eligibility for surgery, and it will have to act before 2040.

A research report produced by TDB Advisory has found the existence of private health insurance (PHI) in New Zealand benefits government and the economy by about half a billion dollars annually.

Unlike previous research which has sought to look at the impacts of particular policy initiatives, such as subsidies, this work provides a broader assessment of the net impacts of PHI in New Zealand, compared with what might be the case in its absence.

Despite very conservative assumptions, the report finds the benefits of PHI include:

 An improved level of health coverage and outcomes; Productivity benefits equating to around $100 million annually; Net positive fiscal impact of around $0.5 billion annually.

It also discusses changes to the nature of health insurance over the past decade or so which have greatly reduced the extent to which PHI can be viewed as pro-consumptive.

The Health Funds Association is considering further research on possible policy options, particularly regarding opportunities to expand the level of employer-funded PHI in New Zealand from current levels. HFANZ chief executive Roger Styles said there were possible initiatives in this space which could benefit both health outcomes and productivity, without requiring a contribution from Government.

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The New Zealand Health strategy contains a number of worthy goals and objectives, including the focus on technology and smart systems. However the degree to which we can deliver on future health outcomes will likely be significantly constrained by available funding, which is insufficient to meet all present needs, let alone potential future healthcare demands.

Yet with public funding accounting for 80 percent of total health spending, the New Zealand health system is, by international standards, dangerously over-reliant on taxation funding. The New Zealand Health strategy omits consideration of arguably the biggest strategic issue in health – the unsustainability of public funding and the need to grow alternatives to tax funding. Official forecasts are dire, with public health spending under present policy settings projected to soar by $10 billion in today’s dollars – a bigger fiscal headache than the rising costs of NZ Superannuation.

There is a need for a strategy to broaden healthcare’s dependence on tax funding and help grow alternative funding mechanisms over time. Growing the overall funding pot will not just reduce pressure on the public purse, but will help lift overall health outcomes and reduce the level of unmet need in the future. With 86 percent of people agreeing they

would likely pay a greater share of their healthcare costs in the future, it is time to start planning what that might look like.

Click the image below to view presentation slides.

New Zealand already spends a bigger chunk of its tax revenue on healthcare than any OECD country – about $15 billion annually. On top of this, we’ve had repeated warnings from Treasury over the past decade that our health policies are unsustainable, with spending projected to blow out by 4 percent of GDP – around $10 billion per year in today’s dollars – over coming decades.

We know from the headlines that the government cannot keep up with present needs – whether it is drug funding, elective surgery, cancer screening programmes – you name it. So what chance is there of meeting the future healthcare demands under present policy settings?

The recently released health strategy acknowledges some of the pressure, and contains some ambitious goals to transform the health system and make use of new technology. This is all well and good, but one would be unwise to bet the house on new technology being a panacea. Especially given recent experience that new technology, treatments, procedures and medicines have actually increased healthcare demands and resulting costs.

The glaring omission from the health strategy is any plan to grow alternative funding streams and thus lessen New Zealand’s heavy dependence on taxation funding for healthcare. (New Zealand is one of a handful of OECD countries heavily dependent on public funding – around $4 in every $5 is funded via taxation). Without such a plan, we run a high risk that future health outcomes will be severely constrained by the lack of tax dollars to meet demands.

So we must look instead to the government budget for any sign of a plan to broaden healthcare funding.

We know there is a good deal of capacity in the private and not-for-profit sectors when it comes to both funding and delivery of healthcare. Around half of elective surgery is privately funded, and almost 30 percent of New Zealanders have health insurance, which collectively funds over $1 billion annually in healthcare.

The challenge for the future is to best harness both public and private funding to ensure we maximise health outcomes.

We have seen from how the country has taken to kiwisaver that such transformational change is possible in as short a time as a decade.

There is huge potential to employ similar strategies to lift the numbers covered by health insurance in New Zealand and the resulting contribution to future healthcare costs. A recent NZIER study found New Zealand could be funding an additional $1-2 billion annually in healthcare via insurance if it could match the best performing countries with similar tax and health systems.

Whatever the competing pressures on the public purse strings, surely the results would be better if we had an extra $1-2 billion being funded privately.

HFANZ is keen to assist and engage with Government to explore options. These needn’t have any fiscal cost – and have the potential to deliver benefits worth hundreds of millions, or billions over time. Not to mention the non-monetary benefits – the better health outcomes and access, lowering of unmet need, and reduction in unnecessary pain and suffering for hundreds of thousands of people.

Time is of the essence. Every year delayed is a missed opportunity as the population ages.

Over the next 15 years we know the ranks of the over 65s will grow by around 425,000. If recent experience is any guide, then the number of insured aged 65+ will likely grow by around 50,000. The other 375,000 will be joining the queues at public hospitals – swelling the ranks of the un-insured over 65s by 70 percent.

A closer look at the cohort aged 50-64 is also needed, (as this group will make up the extra 65+ group in 2030). In 2015, just 37 percent of the 836,000 aged 50-64 had health insurance – significantly below the 45 percent recorded in 2008, and way below the 50 percent in 2001.

We have a one-off opportunity to boost coverage rates while this group is still in the workforce, and thereby also lift the ensuing coverage rates post-retirement for this age cohort. It is no good to wait until 2030, look back and wonder why no one did anything. Surely this demands a closer look right now.

A potent combination of demographics, healthcare inflation and the rise of new treatments mean the nation’s healthcare costs will continue to rise at rates well in excess of consumer price inflation.

In recent years, a handbrake has been applied to the rate of public spending growth in health, as the Government has sought to wring efficiencies out of the sector. Despite this ‘restraint’, health has consumed almost one dollar in every two of new Government spending in the past six budgets – with New Zealand having one of the fastest rates of increase in health spending in the OECD.

As the Treasury has repeatedly advised, the unsustainable growth in healthcare spending presents a bigger fiscal problem for the Government than the soaring cost of NZ Super. While super costs are picked to go from 5% of GDP to 8% - an increase equating to 3% of GDP – the nation’s public-funded healthcare costs are projected to jump by 4% of GDP – from 7% to 11% - over coming decades.

This is not a problem unique to New Zealand, rather it is something which all countries are facing. Some are better prepared than others. In New Zealand, we are perhaps in better shape fiscally than many other nations – but this is no cause for complacency. The 4% ‘gap’ between present funding and future funding in today’s terms amounts to $10 billion.

Saving a few million here and there through efficiencies, together with expanding Pharmac’s brief – while worthy initiatives – will hardly make a dent in the $10 billion gap.

Traditional policy options – including increased user charges, greater rationing/waiting and selected withdrawal from public provision – will all be needed to some degree in coming decades, although are only able to meet some of the $10 billion gap.

Some additional Government funding may play a limited role in targeted areas, although there is no room for significantly lifting health spending without compromising other key spending areas.

The vast bulk of the $10 billion gap will likely manifest itself in two ways: People paying a greater share of their own healthcare costs; and growing unmet need.

Another reason we cannot afford to be complacent is that the New Zealand health system is ill- prepared for the rebalancing in spending which is required. On average, OECD countries fund around 28% of their health costs privately. NZ is way below average, with just 20% of healthcare costs privately funded.

Countries like Ireland and Australia, where private funding accounts for $1 in every $3 of health spending, are undoubtedly better prepared to transition to higher healthcare costs.

Countries like New Zealand and the UK, where private funding is only $1 in every $5, will face the biggest adjustments.

New Zealand’s 20% private funding amounts to around $4 billion a year. Around $1 billion of this is healthcare treatments funded via health insurance, collectively paid for by the premiums of over 1.3 million people.

While health insurance funds around 5% of healthcare costs at present, there are good reasons why it will likely fund more in the future. Not least of these is the ability of health insurance to enable routine private funding of high cost treatments. None of the traditional grab-bag of user charge options can do this. User charges are limited by people’s ability to pay – so beyond a few dollars more for prescriptions, GP visits, lab tests or co-payments for diagnostics, there is limited ability for applying these as either cost recovery or demand management tools in a public setting.

Insurance works by aggregating premiums across a large number of people in order to fund the healthcare costs which might otherwise be unaffordable or cause financial hardship. The fact that New Zealand can achieve a billion dollars annually of healthcare funding through around 30% of the population having health insurance indicates that there is significant scope to increase the contribution to future healthcare costs by lifting coverage rates.

To come: NZIER explores scope for health insurance funding.