Claims by members of New Zealand’s biggest health insurer rose by $254 million to hit $1.3 billion in the latest year, pushing it from a surplus last year to a deficit this year - and further premium rises are planned.
According to accounts released today, Southern Cross Health Society’s $90msurplus in the year to June 30, 2022 turned into a $16.5m loss this year, partly due to claims shooting up from last year’s $1.1b to $1.3b.
Although premium revenue rose from $1.38b to $1.55b in the June 30, 2023 year, the cost of running the big business also increased, meaning income failed to offset expenses.
Operating expenses increased from $172m to $245m.
“The health society group worked to keep premium increases lower this past year by using some of the $90m surplus reported in FY22,” the society said.
568,768 specialist consultations, up 9.4 per cent;
620,533 prescriptions, up 7.1 per cent;
729,846 doctor visits, up 15.5 per cent.
The most common procedures were knee replacements, costing $60.3m, colonoscopies, costing $59.9m, hip replacements at $59.2m, spinal fusions at $40.6m and skin excisions, costing $39.3m.
The highest claim from one member in the latest year was $350,000 for spinal fusion surgery which involved two surgeries a day apart and hospital expenses.
From July 1 last year to June 30 this year, Southern Cross paid 88.4 cents in claims from every dollar it received in premiums. That compares to an industry average - excluding Southern Cross - of 65.9 cents, it said.
Membership numbers are continuing to climb, up by 31,929 in the latest year, meaning the society now has 940,105 members. That includes members who have joined from 223 new businesses.
Southern Cross Health Society chief executive Nick Astwick.
Society chief executive Nick Astwick warned premiums would rise this current financial year. The society forecasts a 7.1 per cent rise during the June 2024 year, up from 5.1 per cent last year “before ageing, like when someone turns 65 and changes an entire year group”.
The society wanted to keep premiums as low as possible, he said.
“Our team remains committed to keeping premium increases as low as possible. However, we do expect those increases to be higher in the coming year. The inflationary environment still buffeting New Zealand has also impacted the society, particularly through the increasing costs of providing healthcare,” he said.
Membership had grown for the last seven years: “People are valuing access to healthcare considerably. Half the members joined via businesses.”
Rising claim volumes affected premiums, and the society needed to increase the level of its capital reserves to meet the new Reserve Bank of New Zealand interim solvency standards.
Astwick said the society was still working to keep claim costs down through its affiliated provider programme, which saved an estimated $115m in the past five years, helping to suppress premium rises.
Southern Cross has around 60 per cent of New Zealand’s health insurance market and has a Standard and Poor’s financial strength rating of A+. Members’ average age is 40.
Jon-Paul Hale, the principal adviser of insurance business Willowgrove, said the sector knew of a big jump in claims for health insurance.
“The industry is expecting an increase in claims of around $500m more this calendar year for all healthcare insurers than last year. That’s because the public health system is unable to deliver, plus we’re seeing more complicated medical claims and treatment needs. That all costs more,” he said.
He received a $2500 claim for a grommet operation six years ago, but $5000 was claimed for the same operation this year. Three wisdom teeth being surgically extracted from a teenager was $6500 in 2019, but in 2020, the same procedure at the same place with the same specialist resulted in a claim of $13,500, he said.
“That shows how costs are rising in the sector,” Hale said.
But Astwick said cost increases of procedures covered by Southern Cross were only rising 1 to 2 per cent annually in the last five years and the society was not seeing the large price rises Hale quoted.
“On average, under the affiliated programme, which is about $700m of our claims, we have kept price inflation to only 1 to 2 per cent annually in the last five years,” Astwick said.
“Our members use more services: 70 per cent of the premium inflation has been driven by utilisation, which is people using our services more. They’re accessing private care. They’re more aware. Fewer are going into the public system,” Astwick said.
Hale is unhappy about a Southern Cross change in November 2020 when it dropped a $60,000/year non-surgical hospitalisation cover from all policies. He said that was to members’ detriment and they should ask the society for cover to ensure any future needs were met.
Astwick said the society had operated in good faith: “All claims are getting serviced under other benefits. Members are not missing out because of those changes. Maybe it could have been communicated better but it was three years ago. We had been upfront.”
Astwick said one way members could cut premiums around the age of 66 was to increase their excess from $500/year to $4000/year. That could approximately halve annual premiums, he said.
Anne Gibson has been the Herald’s property editor for 23 years, has won many awards, written books and covered property extensively here and overseas.
