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Anagha Pasche, John SmeedNZSA Conference 2012
Taking the pulse of New Zealand's health insurance
industry
Agenda
‐ NZ health insurance‐ Key issues facing health insurers‐ Selection of insurer responses‐ Discussion
Disclaimer
Thank you to Southern Cross for making data available for analysis.
Any opinions, errors or omission are our own.
NZ health insurance
NZ health systemEssential health service sectors
What do they provide? Who pays for these services?
Public Emergency care, most cancer care, specialist care and elective surgery in public hospitals; GP visits and prescriptions are subsidised to make them more affordable.
Tax payers
ACC Treatment and rehabilitation costs arising from accidents (whether at work, at home, on the sports field or as a result of a car accident).
ACC levy payers (e.g. employers, employees, vehicle licensees etc)
Private Elective surgery and cancer care in private facilities and private specialist care; the un‐subsidised portion of GP visits and prescriptions.
Private individuals, out of their own pockets or via health insurance
NZ health insurance market• largely a free market• no specific health insurance regulation or restrictions• no incentives for individuals or employers purchasing health
insurance• ability to design and price insurance products• Exceptions to design and pricing of health insurance products
– The Human Rights Act– Certain medical services can only be provided by the public health
system, including acute accident and emergency treatment and maternity care.
• Health insurer liable for reimbursement of the medical treatment costs not health of the insured
Health insurance typically covers elective surgery, specialist consultations and tests, day‐to‐day doctors’ or pharmacy costs.
NZ health insurance market
0.0
0.5
1.0
1.5
0200400600800
1,0001,200
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012 Live
s In
sure
d (m
illio
n)
Pre
miu
m $
mill
ion
Total Premium and Lives InsuredYears Ended 30 June 2000 to 30 June 2012
Comprehensive Premium Major Medical Premium
Comprehensive Lives Major Medical Lives
Total Lives
NZ health insurance market
0%
20%
40%
60%
80%
100%
120%
2008 2009 2010 2011
Health Insurance Industry Profitability2008 - 2011
Claims Expenses Profit
Key issues facing health insurers
Key issues• Claim cost escalation and resulting issues of premium affordability.
• Retaining better (priced) risks, as high levels of premium increase result in selective lapsation.
• Low interest rates.• Volume of new sales.• Information imbalance between insurer and insured.• Increasing pressure on public sector health budget.• Ageing population and increasing life expectancy.• Technology improvements.• Changing health infra‐structure.
Claim cost escalation
0%
2%
4%
6%
8%
10%
12%
14%
16%
2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012
Cost of a hospital & specialist policy for a 65+ as a proportion of average weekly income
Claim cost escalation
Retaining better (priced) risks
Retaining better (priced) risks
Low interest rates
0.00
1.00
2.00
3.00
4.00
5.00
6.00
7.00
8.00
9.001/01/07
1/03/07
1/05/07
1/07/07
1/09/07
1/11/07
1/01/08
1/03/08
1/05/08
1/07/08
1/09/08
1/11/08
1/01/09
1/03/09
1/05/09
1/07/09
1/09/09
1/11/09
1/01/10
1/03/10
1/05/10
1/07/10
1/09/10
1/11/10
1/01/11
1/03/11
1/05/11
1/07/11
1/09/11
1/11/11
1/01/12
1/03/12
1/05/12
1/07/12
1/09/12
10 year government bond yields
United States
Germany
Italy
Spain
New Zealand
Volume of new sales
The impact of a reduction in sales volumes:• More difficult to recoup fixed acquisition costs, thereby impacting profitability.
• The duration in‐force of a health insurance portfolio will increase.
Information imbalance between insurer and insured
• Significant reduction in costs of genetic testing• Expect increased prevalence• If genetic testing is carried out, an insurer will want to minimise their risk by taking the information from the test into account.
• Potential increase the risk of non‐disclosure and information imbalance
• A principle of insurance is that risks are pooled
Increasing pressure on public sector health budget
• Health insurance approximately 5% of total health expenditure
• Small change in public health spend can have a big impact of claims costs of health insurer
Ageing population and increasing life expectancy
‐
50,000
100,000
150,000
200,000
250,000
300,000
350,000
400,000
0‐4Years
5‐9Years
10‐14Years
15‐19Years
20‐24Years
25‐29Years
30‐34Years
35‐39Years
40‐44Years
45‐49Years
50‐54Years
55‐59Years
60‐64Years
65‐69Years
70‐74Years
75‐79Years
80‐84Years
85‐89Years
90Yearsandover
New Zealand population projection by age band 2011‐2041
2011 Base
2041 Projection
Technology improvements
• Price and utilisation• Examples TAVI, PET/CT• Robotics
Changing health infra‐structure
• Shift out of traditional hospitals• E.g. day‐case surgery
Insurer responses
Insurer responses
Premium Increases
Consumer Driven
Partial self‐insurance
Downgrade paths
Insurer Directed
Contracting
Narrow network plans
Open referrals
“Wellness”
No/Low Claim Reward
Consumer driven
Partial self‐insurance
Co‐payments
Excesses
Downgrade paths
Less cover with lower premium
Quickly back to where we started
Temporary relief only
Insurer directed responses• Panel of preferred providers for policyholders to choose from
• Higher co‐payments if you move outside that panel
Narrow network plans
• Approved providers for some services• No cover or capped reimbursement for non‐contracted providers
Contracting
• GP provides an open referral• Policyholder selects specialist from list provided by insurer
Open referral
• Objective is to improve overall health status and hence lower claims costs
• Disease Management to health & fitness programsWellness
• Incentives for healthier lives to stay and reduce average claims costs
• 80% of claims cost are from 8% of members
No/low claim discounts
What are NZ insurers doing?
“Reasonable Charges” means charges for Healthcare Services determined by Southern Cross and based on Southern Cross’ ongoing review of Health Services Provider charges for a particular Healthcare Service, Southern Cross’ claims statistics and its knowledge of national and regional New Zealand health markets.
Is it working?
NZ Herald ‐ 16 November 2012
Bled dry trying to stay wellWhen budgeting for healthcare, more money is never enough
“Healthy is merely the slowest rate at which one can die”‐ Unknown
“Any intelligent fool can make things bigger and more complex... It takes a touch of genius ‐and a lot of courage to move in the opposite
direction.”‐ Albert Einstein
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