Southern Cross raises health insurance premiums for older members

Southern Cross Healthcare is bracing for angry calls from members between 50 and 64 years old, who will be told this week of rises of up to 72 per cent in premiums.

Typically, a 62-year-old with Southern Cross' most popular "RegularCare" policy covering 80 per cent of health expenses will pay an extra $884 a year. The cost of that policy leaps to $2112 a year from $1228.

New Zealand's biggest health insurer is announcing increases for most of its 800,000 members that will be phased in over the next six months as part of a huge revamp in the way it sets its premiums.

The revamp will remove the cross-subsidisation of older members by younger members.

Premiums for those 19 to 64 years will be set in one-year age bands.

Hardest hit will be the 50 to 64-year-olds. Those under 19 years and those over 65 years will be rated as two separate age groups. For many policy-holders under 50 years, premium rises range between 10 per cent and 50 per cent.

For a fortunate 20 per cent, the premiums will stay the same or drop by up to 10 per cent.

The move is designed to tackle a gap between what Southern Cross charges in premiums and what its policy-holders are claiming.

The non-profit organisation is facing a loss for the year to June 30, 2002 but its chief financial officer, Dr Mike Ashby, would not reveal the size of that today.

The insurer also earns income from its investments, but Dr Ashby said this year those earnings were unlikely to make up the difference between claims and premiums. In the last couple of years the claims growth had been significant.

"That's what makes it necessary to bring in the price increases."

Asked if the insurer expected to receive an angry reaction, Dr Ashby said: "We probably will. We have had in the past.

"We've tried to explain why we've had to do this and we are certainly very sympathetic to people who are disappointed about this. But the reality for us is this is a price increase where claims have gone up substantially and this is true around the world."

"It's a rebalancing that frankly should have happened years ago, we just didn't have the system capability to do it," Dr Ashby said.

Southern Cross expected some members would cancel their policies and a good number would downgrade to policies with less cover.

"We anticipate some members will find this more than they can pay," Dr Ashby said.

Southern Cross would try to direct members to less expensive plans that covered just surgery and other big expenses.

Individual policy-holders will be the first group to be mailed letters this week about the increases taking effect from August 1.

The next group to be informed will be the group policy-holders, whose increases start on September 1.

Southern Cross has bought another 135,000 health insurance customers from Aetna Health, but they are not included in this premium restructuring.

Their premiums are set in five-year age bands, like other health insurers such as Tower and Sovereign. The 135,000 customers have not been transferred to the Southern Cross "Diamond" computer system yet.

- NZPA