Age Related Pricing Of Health Insurance Premiums

Age Related Pricing Of Health Insurance Premiums And The Human Rights Act

The Human Rights Commission has released a public statement (attached) pursuant to a consent order of the Hight Court resulting from Proceedings Commissioner v Aetna Health, National Mutual and Southern Cross Medical Care Society.

The statement describes the outcome of proceedings relating to age related pricing of health insurance premiums. The release of the public statement is part of the agreement reached between the parties to those proceedings.

While discrimination on the grounds of age is generally unlawful, the Human Rights Act 1993 contains an exception in relation to insurance, where health insurers are allowed to increase premiums for older people provided the increases are reasonable, having regard to actuarial data and other relevant factors.

PUBLIC STATEMENT PURSUANT TO SECTION 5 OF THE HUMAN RIGHTS ACT 1993

This is a public statement pursuant to s.5 of the Human Rights Act 1993. It is also made in accordance with the consent order in Proceedings Commissioner v Aetna Health, National Mutual Health and Southern Cross Medical Care Society which was settled in March 2000.

The Human Rights Act 1993 prohibits discrimination on grounds of age and, over recent years, the Human Rights Commission received a large number of complaints from people who claimed that health insurance premium increases, at age 65, were discriminatory.

Age related pricing seems, on its face, to be inconsistent with the prohibition on discrimination on grounds of age. But the Human Rights Act contains, in section 48, a specific exception relating to insurance. What it means, broadly speaking, is that health insurers are allowed to increase premiums for older people provided the increases are reasonable having regard to actuarial data and other relevant factors.

It was unclear to the Human Rights Commission whether three insurers; namely, Aetna Health New Zealand Limited, National Mutual Health Limited (now AXA) and Southern Cross Medical Care Society’s pricing arrangements were covered by this exception or not. The companies all believed that their pricing arrangements were covered and therefore lawful. In order to clarify this point, the Commission referred the complaints to the Commissioner responsible for legal proceedings. The Proceedings Commissioner then commenced declaratory judgment proceedings in the High Court against the three insurers. The case was set down for hearing in the week beginning 6 March 2000.

When the complaints were being investigated by the Human Rights Commission the insurers had given the Commission information intended to show that their pricing practices were based on sound actuarial data. In the week before the trial was due to begin, however, one of the insurers, Aetna, filed Affidavits containing some new information. The evidence showed that the case was likely to fail against National Mutual and Aetna because they would be able to show that their pricing structures had a reasonable actuarial basis and thus came within the section 48 exception.

The approach of Southern Cross to pricing was different to that of the other defendants. In assessing the risks of litigation the Proceedings Commissioner noted that it appeared that Southern Cross members under 45 years of age tended to subsidise older members. There was a risk that the outcome of litigation would result in younger members paying less and the subsidy to older members would cease. The result of that might have been adverse to the people who had complained to the Commission. The Commission notes that Southern Cross has since changed its pricing structure.

The overall position called for a reconsideration of whether the trial should go ahead. The Proceedings Commissioner took advice from the Government Actuary and experienced independent Counsel. In the event, the trial did not proceed and, instead, a judicial settlement conference was held on 7 March. The settlement conference was presided over by Justice Dame Silvia Cartwright. At the conference, counsel for all the parties presented an abbreviated outline of their arguments. The parties agreed that the setting of premiums in health insurance is a complex matter and the issues would best be progressed through the development of guidelines. The Government Actuary, Grey Power North Shore and Age Concern all spoke at the judicial conference. The latter two organisations made clear the concerns of many older New Zealanders concerning the cost of health insurance and the misunderstandings which often arise about premium increases.

The outcome of the judicial settlement conference was that the parties negotiated a settlement of the proceedings. The Court made, by consent of all the parties, a number of orders, which embody that settlement. The main features of the settlement are:

1 The Proceedings Commissioner withdraws the case against all three insurers and acknowledges that National Mutual and Aetna have not breached the Human Rights Act 1993.

2 Aetna, National Mutual and Southern Cross all agree to co-operate with the New Zealand Society of Actuaries and the Government Actuary in developing actuarial guidelines regarding health insurance.

3 Each insurer will also co-operate in developing health insurance guidelines to be formulated by the Human Rights Commission. These guidelines will include the actuarial guidelines and will be developed in consultation with the Health Funds Association of New Zealand, Age Concern and Grey Power.

4 Compliance with the guidelines will be treated as prima facie compliance with the Human Rights Act.

Justice Cartwright described the settlement as a “useful and appropriate resolution of the issues”.

It will be recalled that the exception in the Human Rights Act which relates to insurance means that, broadly speaking, older people can be charged higher prices to the extent that there is an actuarial basis for doing so and the higher prices are reasonable having regard to that data and other relevant factors. The proposed guidelines cannot alter that. They will only ensure that age-differentiated pricing has an appropriate actuarial basis. If age related price increases are consistent with the guidelines that probably means that they are consistent with the Human Rights Act, i.e. the age discrimination is lawful.

What the case makes clear is that the general problem of increasing health insurance costs for older people cannot be overcome under the Human Rights Act. Provided there is an actuarial basis for increased premiums and the higher prices are reasonable having regard to that data and other relevant factors, the Act allows age related premium increases.

The Human Rights Commission fully realises that the rising cost of health insurance for older New Zealanders is a burden, which often causes hardship. This general problem however, cannot be resolved by the Human Rights Act.
Human Rights Commission

March 2001

ANNEX 1

SECTION 48 HUMAN RIGHTS ACT: EXCEPTION IN RELATION TO INSURANCE

(1) It shall not be a breach of section 44 of this Act to offer or provide annuities, life insurance policies, accident insurance policies, or other policies of insurance, whether for individual persons or groups of persons, on different terms or conditions for each sex or for persons with a disability or for persons of different ages if the different treatment--
(a) Is based on--
i) Actuarial or statistical data, upon which it is reasonable to rely, relating to life-expectancy, accidents, or sickness; or
(ii) Where no such data is available in respect of persons with a disability, reputable medical or actuarial advice or opinion, upon which it is reasonable to rely, whether or not contained in an underwriting manual; and
(b) Is reasonable having regard to the applicability of the data or advice or opinion, and of any other relevant factors, to the particular circumstances.

(2) In assessing, for the purposes of this section, whether it is reasonable to rely on any data or advice or opinion, and whether different treatment is reasonable, the Commission or the Complaints Division may—
(a) Require justification to be provided for reliance on the data or advice or opinion and for the different treatment; and
(b) Request the views of the Government Actuary on the justification for the reliance and for the different treatment.

SECTION 44 HUMAN RIGHTS ACT: RELEVANT PROVISIONS

(1) It shall be unlawful for any person who supplies goods, facilities, or services to the public or to any section of the public--
(a) To refuse or fail on demand to provide any other person with those goods, facilities, or services; or
(b) To treat any other person less favourably in connection with the provision of those goods, facilities, or services than would otherwise be the case,
by reason of any of the prohibited grounds of discrimination.

(2) For the purposes of subsection (1) of this section, but without limiting the meaning of the terms "goods", "facilities", and "services" in that subsection, the term "facilities" includes facilities by way of banking or insurance or for grants, loans, credit, or finance.

IN THE HIGH COURT OF NEW ZEALAND
AT AUCKLAND
M No. 768/98

UNDER the Declaratory Judgments Act 1908
A N D the Human Rights Act 1993

BETWEEN THE PROCEEDINGS COMMISSIONER a statutory officer appointed pursuant to section 7(1)(d) of the Human Rights Act 1993

Applicant

A N D AETNA HEALTH (NZ) LIMITED a duly incorporated company having its registered office in Auckland and carrying on business as a health insurer

First Respondent

A N D NATIONAL MUTUAL HEALTH LIMITED a duly incorporated company having its registered office in Wellington and carrying on business as a health insurer

Second Respondent

A N D SOUTHERN CROSS MEDICAL CARE SOCIETY a society now registered under the Friendly Societies & Credit Unions Act 1981 and carrying on business as a health insurer

Third Respondent

Date of Hearing: 7 March 2000
_______________________________________________________________________

CONSENT ORDER
________________________________________________________________________

1 The Proceedings Commissioner discontinues this proceeding on the terms set out below.

2 The Proceedings Commissioner acknowledges that:

(a) Aetna and National Mutual have each satisfied the requirements of section 48 HRA 1993 and are therefore not in breach of section 44 HRA 1993;

(b) In respect of Southern Cross he has exercised his discretion not to pursue the claim on the ground that to do so is likely to operate to the disadvantage of the parties whose interests he has been seeking to represent in this proceeding.

3 Costs are to lie where they fall.

4 The Human Rights Commission is to formulate a public statement pursuant to section 5(c) HRA 1993 in relation to health insurance after consulting with the Respondents, the Health Funds Association of New Zealand Inc (“HFANZ”), Age Concern New Zealand and Grey Power.

5 The Respondents agree to co-operate in the formulation of guidelines as follows:

(a) A set of actuarial guidelines to be formulated under the aegis of the New Zealand Society of Actuaries; in consultation with the Government Actuary;

(b) A set of guidelines to be formulated under section 5 HRA 1993 (which will include the actuarial guidelines) in consultation with HFANZ, Age Concern New Zealand and Grey Power.

6 Once the guidelines have been finalised complaints will be considered in light of those guidelines and compliance with the guidelines will be treated as prima facie compliance with section 48 HRA 1993.

7 The Court file is not to be searched without the leave of the Court.

C C Lawrence
……………………………..
C C Lawrence
Applicant

P G Skelton
……………………………
P G Skelton
Counsel for First Respondent

A C Challis
……………………………
A C Challis
Counsel for Second Respondent

C J Allan
……………………………
C J Allan
Counsel for Third Respondent

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