Insurance can keep you and your family from financial ruin. But how much do you really need? How should you prioritise different types of insurance? And what are some of the common mistakes people make when buying insurance? In part three of a Herald series, Tamsyn Parker looks into health insurance.
A woman who was left with a "bulging stomach" after having breast cancer surgery was turned down by her insurer for further surgery because it was deemed to be cosmetic and not medically necessary.
That was just one of the 3800 cases the Insurance and Financial Services Ombudsman dealt with last year.
The woman's claim was deemed by the insurer to be outside the scope of its policy because the policy only provided cover for "approved treatments".
It offered the woman $10,000 as a settlement but she turned it down because she believed the bulge was caused by the previous surgery and should have been paid for in full to be fixed.
Unfortunately for the woman, the ombudsman ruled in favour of the insurer as a report from her doctor confirmed the stomach surgery was not strictly medically necessary because there was no sign she was in severe pain or discomfort.
Having health insurance allows people to access tests and surgical procedures much faster, which can cut back on months or even years of waiting on the public health system in pain or discomfort.
But like any insurance it's not foolproof if your claim doesn't meet the strict policy conditions.
Peter Leitch, a financial adviser at Share, says there are some things health insurance will never cover.
"No health insurer is going to cover a congenital condition."
He says the main reason people get health insurance is to avoid waiting for treatment.
"If they need to get treatment in a hurry and the financial circumstances of having to pay for themselves would be too hard to cover, health insurance is an option."
But, says Leitch, not everyone can afford it and it gets a lot more expensive as you age and the likelihood of a claim rises.
"If you can get it through your employer it is a bit of a golden ticket."
That's because many insurers will provide cover through employers without excluding pre-existing conditions. And in many cases an employer will also pay for the annual premiums.
More companies are offering health cover in the tight labour market.
Around 35 per cent of New Zealanders have health insurance and those who have it often swear by it.
There are typically three levels of cover - comprehensive, which covers all doctors, dentists and other specialist visits as well as surgery; specialist and surgical cover and minor tests cover as well as a multitude of add ons for covering things like eye care and glasses.
Most of those with health insurance have specialist and surgical cover, with around 70 per cent opting for that while a smaller and shrinking number have comprehensive cover, which is the most expensive option.
A visit to a private specialist can set you back $300-plus, while even minor surgery like having grommets inserted - a common surgery for children - can set you back $5000.
Southern Cross Healthcare paid out $561 million in claims in 2018, with its most expensive claim hitting $211,978 for a spinal fusion.
Leitch says many people only think about health insurance as they get older and start having issues.
But the best time to get it is when you are young and don't have pre-existing conditions.
These conditions can be excluded from cover for a certain amount of time or permanently.
Shopping around for insurance is not all about getting the lowest cost policy either.
"You do have to have your eyes wide open," Leitch says.
"If one insurer is 25 per cent less than three others you need to look at why? Is there something it is not covering? How important is that to you?"
Making sure a policy covers non-Pharmac drugs can be vital with the growth in new cancer treatments which are not covered by the government pharmaceutical agency.
Karen Stevens, the Insurance and Financial Services Ombudsman, says the biggest problems it sees at claim time are around pre-existing conditions.
"Pre-existing is often very broad and that is where people come unstuck."
Stevens cites an example of going to the gym only to find you have a sore knee and your doctor asks if you want to go to the physio to get treatment.
"You do so but it doesn't get better and three months later you have an x-ray which shows it is damaged. Or you find out you have osteo arthritis."
Up to that point you didn't have a name for it but you did know you had a sore knee but if you take out an insurance policy at this point and don't declare your "sore knee" it could come back to bite you later.
If the sore knee turns into a situation where you need a knee replacement your insurer will decline the claim because it should have been declared as a pre-existing condition.
She says often people will go back and say I didn't have a diagnosis when I bought the insurance.
But insurance policies are worded so that people are expected to reveal all signs, symptoms and events when they sign up.
"That is the really tough bit for the consumer to understand. If you don't know what it is called you can't possibly disclose it. But if the insurer can tie the symptoms to a claim they won't pay out on it."
It's an issue insurance lawyer Karl Robinson of Shine lawyers also deals with.
Robinson says insurers typically ask set questions when you apply for insurance such as do you have any signs or symptoms of kidney failure.
But he says the problem with this is that many people won't know all the signs and symptoms unless they are a doctor.
Insurance application forms are inclusive, insisting that people have made full disclosure, and usually have a privacy waiver at the bottom which allows the insurer to access your medical files.
But after the application, Robinson says, the document gets filed away until claim time when an insurer then looks at the doctors' notes.
There are also issues here as what the doctor writes in his or her notes may also differ from what they have told the patient verbally.
"That presents a conundrum because the insurer can look at the notes and say you didn't tell us about this - this differs from what you declared to us."
But the thing that Robinson believes is most unfair is that the non-disclosed issue doesn't have to relate to what a person is claiming for it to stop a claim from going ahead.
"I think it is outrageous."
So you can fall off a bike and claim for a knee replacement but if you didn't declare you had depression in the 90s you can be turned down for the claim.
Insurers insist if they had known about the undisclosed health issue they would have provided different cover to start with.
The government is in the process of changing the law around this to put the onus back on the insurer to make sure they have all the information they need to make the right calls.
Robinson says this is a good thing because the average person doesn't know what is "prudent information" for an insurance underwriter.
"The other way around is definitely preferable.
"The insurer knows what it considers to be material."
That is likely to mean insurers will assess applicant's medical records when they apply for cover rather than at claim time.
It could mean that some people won't be able to get insurance. But more likely, Robinson says, insurers will put in more exclusions or hold periods where they won't take a claim for up to a year.
People may also be required to undertake more tests before they will be covered. Insurers may also load policies where certain aspects cost more to cover.
Robinson says the key to protecting yourself is to apply for your medical file and then give it to the insurer.
"It makes it a lot more difficult to turn down at claim time."
But not everything is in your medical notes, family history can play a big part in potential risks as well as undertaking riskier activities as part of your lifestyle.
Robinson suggests using a good broker, who, if they are doing a good job, will ask you the right questions about pre-existing conditions.
If you tell something to your broker it is then considered to be declared to your insurer, he says.
Lying is another issue he sees problems with on a regular basis, citing one case where a man admitted to pushing his car off a cliff to his insurer after trying to make a claim.
"The way you protect yourself is through full disclosure."
Jessica Wilson, Consumer NZ head of research, says one of the problems with health insurance is the increasing cost as you age.
"When you really need it, it gets really high."
Often people will cancel their policies at age 65 at a time when they really need it, meaning they will have paid out a lot of money over the years and not seen the benefit.
Anthony McPhail, chief operating officer and general manager at Southern Cross, New Zealand's largest health insurer, says it has been trying to smooth out the premium rise as people head into older age.
They have now moved it to 69, reflecting the fact that more older people are healthier than in the past but still many people end up cancelling their policies as they head into retirement.
"The drop off as people get older is inevitable when people end up on a fixed income and it's a financial decision they have to make. And we do have the public health system."
He says people who have health insurance for their lifetime end up on the winning side, getting paid out more than what they pay in premiums.
Southern Cross paid out 89c for every $1 in premiums paid in its 2019 financial year.
It declined only around 3 per cent of claims.
"The vast majority of claims get paid."
Cutting the cost
Before you take out health insurance, Wilson says, people should consider if they could put aside the money themselves and self insure.
Most can afford to go to the doctor. And also weigh up the chances of needing surgery.
"Look at what you really need."
She says if you are seriously ill and need urgent care the health system would kick in.
Other ways to cut the costs is to have an excess on the policy where you pay up to a certain amount.
Tim Fairbrother, a financial adviser at Rival Wealth, says one couple he saw recently had some savings and decided they could handle a $5000 excess.
"That takes about 60 per cent off the premium."
He says older people often will take a higher excess as well, as they have savings in the bank and can afford to pay for some of an operation but not all of it.
Taking out add ons for optical care can be a waste of time as the premium amount can add up to the same as shelling out for glasses every few years.
Fairbrother believes the biggest misconception is that health insurers are trying to get out of paying.
"In 11 years of experience I have only had three claims declined - all of those were for non-disclosure."
Insurers trumpet the fact that 97 per cent of claims get accepted.
Fairbrother says the key is to be thorough with what you tell your insurer right from the beginning.
"Tell your insurer as much as possible at the beginning and then let the insurer decide what to exclude."
Insurance - are you covered?:
Monday: What you need and what you don't
Tuesday: How to avoid mistakes with house, car and contents insurance
Wednesday: Health insurance
Thursday: Life and income protection insurance
Friday: Travel insurance
Saturday: All your insurance questions answered plus the best tips and advice from the experts