Southern Cross Limits Premium Increases
3 May 2006
Southern Cross Limits Premium Increases Despite Rising Healthcare Costs
The rising cost of healthcare and growing demand for treatment from an aging population are reflected in the Southern Cross Medical Care Society’s need to increase its base-rate premiums by an average 6.5% for the 2006/2007 financial year.
Group Chief Executive, Dr Ian McPherson said today that with surgical claims costs up by 11.8% from August 2004 to September 2005, and combined claims costs (surgical and medical) up by 8.5%, the not-for-profit society was forced to raise premiums accordingly.
“We paid out over $223 million on surgical costs alone last year. There are many factors affecting premiums and there is little Southern Cross can do about any of them. Surgical costs are going up because treatments are more sophisticated, there’s more demand for expensive technology, the fees charged by medical professionals have also risen and there are factors like higher nurses’ wages to be taken into account.
For example, take a now common procedure like a knee replacement. As at September 2005 overall claims costs had risen by 23.8% on the previous 12-month period. The average claim for this procedure rose by 11.6%, and the number of patients making claims rose by nearly 11%.
“At the same time, we are seeing more and more demand in the private sector for elective surgery, so it’s a case of more people claiming, as well as more expensive procedures. The problem isn’t unique to us – rising costs and demand are national issues and something the public sector is also grappling with – but it is one which puts substantial pressures on premiums.”
Cross Members will receive an average base premium rate
increase of 6.5%. However there will be considerable
variation reflecting different claiming patterns of Members
in different age groups and on different plan types. Other
influences include moving to a higher age band and
qualifying for discounts such as the Low Claims Reward.
“64% of Members will get net increases of 10% or less, while 11% of Members will get net increases of 20% or more. The largest increases will be noted by members moving into the 65 year age band and/or losing the 10% Low Claims Reward.
“We believe that even with the increases, health insurance continues to represent value for money.”
Dr McPherson said the impact of increase on the 65+ age group was, however, a particular concern for the Society.
“Older Members place a great deal of value on their health insurance, especially in terms of rapid access to elective surgery, and they get a great deal of value from it with one in three claiming for surgery each year. We need to maintain a balance between premiums paid and claims costs. With older people claiming more for more procedures, increases are required.”
Dr McPherson said that while the Society this year had drawn on the strength of its balance sheet and strong financial position to limit increases as much as possible for many members, particularly the elderly, there was a limit to what it could do long-term in the face of medical inflation.
“Higher costs coupled with higher demand are problems that are not going to go away. We see that in the public sector which has had increases in health spending, but still faces considerable challenges in keeping up with demand.
“It’s a national problem because if older people decide to give up insurance because of the costs, it’s the public sector that will bear the brunt of this. It’s important that we find ways to identify some solutions which enable older people to have access to the private system for as long as possible.”
Dr McPherson advocates a collaborative approach between Government, providers and the combined private health sector to find long-term solutions. Potential solutions for discussion include targeted assistance for the elderly, tax breaks, cost reduction initiatives or medical savings plans. Other options included locating public and private hospitals together to share costs, contracting to private hospitals, prevention programmes and better definitions of what healthcare the public and private parts of the health system will or will not provide.
Case study examples:
A single person: UltraCare 400 Plan:
Gary is a 34 year old male who became a Southern Cross member in 1998. Though he has claimed, based on current claiming patterns he is eligible for 10% Low Claims Reward. He is not eligible for Founding Members Reward as he joined after 1983. His current annual premium (as a 33 year old) is $1,323; and this is expected to increase 4.6% or $61 to $1,384.
77 years old: KiwiCare Budget Plan:
June has been a member since 1965. As such she qualifies for the 15% Founding Members Reward. June can claim up to $900 on her KiwiCare Budget plan and qualify for the Low Claims Reward. June has had no claims in the last two years so she also qualifies for this. Her current annual premium is $681; and this is expected to increase 17% or $115 to $796
Hamilton Family: KiwiCare Plan:
Mary is a 49 year old mum and has been a member since 1971, husband John is 50 and has been a member since 1994 – they have a 13 year old daughter, Caitlin who has been a member since 1994. Mary doesn’t qualify for Low Claims Reward as she has had some health issues in the last few years and has made a few thousand dollars worth of claims (and has therefore received value from her Health Insurance). She does however qualify for a full 15% Founding Members Reward. John qualifies for the 10% Low Claims Reward as his claims are under the threshold. Caitlin doesn’t qualify for either the Low Claims Reward as she is a child, or Founding Members Reward as she joined after 1983. Their current annual premium (as 48, 49 and 12 year olds respectively) is $810; and this is expected to increase 7% or $58 to $868.
NB: Details of the policies described above can be found on the Southern Cross website, www.southerncross.co.nz
About Southern Cross Healthcare
Southern Cross Healthcare is comprised of two organisations that focus on the health sector in New Zealand:
- One organisation, the first created, is the Southern Cross Medical Care Society with over 800,000 members. It is a not for profit Friendly Society that focuses on delivering health insurance services for both individual members and group schemes.
- The other organisation is the Southern Cross Health Trust. It consists of the Southern Cross Hospitals - New Zealand’s only private hospital network, and Southern Cross Travel Insurance.