Brian Gaynor 's Opinion

Investment columnist for the NZ Herald

Brian Gaynor: Forget Obamacare debate - focus on NZ

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We've got our own medical insurance problems that have to be examined

Paying for the healthcare of an ageing population is a growing issue in NZ. Photo / Thinkstock
Paying for the healthcare of an ageing population is a growing issue in NZ. Photo / Thinkstock

We hear a great deal about Obamacare and the debate over health insurance in the United States, yet there is little media comment on New Zealand's health insurance issues.

Why isn't health insurance the subject of robust debate in this country as well?

Is this because we have sufficient insurance coverage? Who will pay the soaring medical bills of our post-World War II baby-boomer generation?

The first point to note is that the number of individuals with health insurance has declined by 49,728, from 1,389,436 to 1,339,708, over the past five years.

Only 29.9 per cent of New Zealanders have medical insurance compared with 32.5 per cent in June 2008.

By comparison 54.9 per cent of Australians have health insurance, and 84.3 per cent of Americans are covered for medical costs.

Health insurance coverage is much higher in Australia and the United States and it continues to grow as a percentage of the population in those two countries while it is falling steadily in New Zealand.

This reinforces the view that New Zealanders rely too heavily on the Government for medical care and many other essential and non-essential items.

Insurance coverage in the 0-19 and the 20-64 age groups in New Zealand has fallen over the past five years whereas coverage in the 65-plus age group has expanded.

But percentage figures give a more accurate picture because the 65-plus age group is growing rapidly:

Medical insurance coverage has fallen from 28.1 per cent of the 0-19 age group to 26.6 per cent since June 2008.

Coverage of the 20-64 age group is down from 36.4 per cent to 33.5 per cent over the same period.

Only 22 per cent of the 65-plus age group now has health insurance compared with 24.8 per cent in mid-2008.

The number of individuals in the 65-plus age bracket is growing more rapidly than any other age group and these individuals, who have the greatest medical needs, are seriously underinsured.

The problem with medical care is that it is becoming more and more expensive.

Figures from the Health Funds Association of New Zealand (HFANZ) show the industry's premium income for the year to March was $1.1 billion and claims paid were $879.6 million or $657 a member.

This compares with premium income of $791.3 million in the year to March 2008, and claims paid of $630.6 million or $454 a member.

The average annual claim paid per member has increased by 44.7 per cent over the past five years.

HAFNZ's chairman, Dermot Martin, wrote in his 2013 annual report: "Nothing has been done to address the elephant in the room of rampant increases in public health costs as the baby-boomer cohort moves into old age and health costs spiral upwards."

He went on to note that the Treasury had given some hint of "greater rationing through waiting lists, imposition of patient co-payments or user charges, and selective withdrawal from particular services altogether".

Chief executive Roger Styles wrote that the ACC had tightened up on the funding of elective surgery and many elderly were being denied surgery after an accident because the ACC believed age had been a contributing factor.

Styles wrote that the Australian Government actively promoted private health insurance and the private insurance sector paid about 33 per cent of total health spending in that country, compared with 17 per cent in New Zealand.

Styles and Martin say there should be far more debate about medical insurance and health expenditure, because the Crown will not be able to meet the medical needs of an ageing population.

The Southern Cross Health Society, which is New Zealand's largest insurer by a wide margin, recently released its annual report for the year to June.

The society has 817,822 members, a 61 per cent market share, and accounts for nearly 66 per cent of total sector premium income.

Chairman Graeme Hawkins noted that the society paid out 88.1c for every dollar in premium received. "This demonstrated the excellent value that we, as a not-for-profit organisation, deliver to members," he said.

He wrote that the 65-plus age group "now makes up 12 per cent (101,000) of total Southern Cross membership and accounts for 33 per cent of all claim costs".

"Members aged 65 and over continue to receive very good value from their health insurance. During the financial year for every dollar of premium, 91c was returned to these members in claims for healthcare services".

Chief executive Ian McPherson pulled no punches when he wrote: "The New Zealand public healthcare is under enormous financial pressure. We have an ageing population, proportionally fewer taxpayers to fill the public purse, an increasing incidence of chronic conditions and a rising demand for new services and treatment options."

He noted that New Zealand's real per capita GDP had increased by 144 per cent since 1950 but real per capita spending on healthcare was up 412 per cent over the same period.

This surge in spending would continue as public healthcare expenditure was forecast to grow from 6.8 per cent of GDP in 2010 to 10.8 per cent by 2060.

McPherson welcomed the Affordable Healthcare Bill but didn't mention it was being promoted by New Zealand First MP Andrew Williams.

The bill has two main features:

Removal of fringe benefit tax on employer-paid health insurance premiums.

A 25 per cent rebate, up to a maximum of $500 a year, for SuperGold card holders.

But this is a private member's bill that may never be drawn from the ballot.

Southern Cross is a well run organisation that produced a net surplus of $21.3 million for the year to June.

Its expenses-to-revenue ratios are lower than those of Medibank, Australia's largest private health insurer. One of the biggest differences between Southern Cross and Medibank is their investment portfolios.

The New Zealand organisation has an incredibly conservative portfolio that was worth $492 million at year's end. It mainly comprised bank deposits, commercial paper, New Zealand Government stock, state-owned enterprise bonds and local authority bonds.

The portfolio produced an estimated return of only 4.6 per cent for the year to June.

Medibank has investments of A$1.45 billion comprising equities, unit trusts, private equity, derivatives and debentures. This portfolio delivered an estimated return of 9.3 per cent for the year to June.

The Southern Cross annual meeting, which will be held at the Ellerslie Events Centre at 7pm on Thursday, December 5, is usually a lively event with plenty of questions and debate on coverage, escalating premiums and the effect these premiums have on the 65-plus age group that generally has no employment income.

Members should also ask the directors why they have adopted such a conservative investment approach, as a more adventurous strategy could have delivered higher investment returns and lower premiums.

The Southern Cross meeting will have plenty of vigorous debate but it is a pity this is mostly confined to one meeting ever year.

Our media have given huge coverage to Obamacare whereas we should be debating our burgeoning health costs, particularly how the private insurance sector can play a bigger role as taxpayers will be incapable of funding all of our future medical requirements.

Brian Gaynor is an executive director of Milford Asset Management and a Southern Cross member.

- NZ Herald

Brian Gaynor

Investment columnist for the NZ Herald

Brian Gaynor has written a weekly investment column for the Weekend Herald since April 1997. He has a particular passion for the NZX and its regulation. He has experienced - and suffered through - the non-regulated period prior to the establishment of the Securities Commission in 1978 and the Commission’s weak stewardship until it was replaced by the FMA in 2011. He is also a Portfolio Manager at Milford Asset Management.

Read more by Brian Gaynor

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