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Health Sector Shares ACC’s Inflationary Worries

3 December 2008

Whole Health Sector Shares ACC’s Inflationary Worries

Inflationary pressures on ACC’s accident compensation budget are symptomatic of rising costs affecting health insurers and the health sector as a whole, the Chief Executive Officer of Southern Cross Medical Care Society, Dr Ian McPherson, said today.

He was commenting on concerns raised by ACC Minister, Nick Smith, that increases in medical costs could worsen the $1 billion shortfall in the non-earners account in ACC’s budget and put levies under pressure in all ACC accounts.

“In our own experience, claims cost escalation has reached near historical highs at 7.5% over the last 12 months. The biggest driver of claims cost escalation is the price of surgical claims – increasing at over 2% per quarter and totalling 7.5% for the 12 months to 30 September 2008.

“Surgical costs will be a significant component of ACC’s budget and, like all insurers, ACC will be watching these upward trends with increasing concern.”

Dr McPherson said higher salaries for medical staff, advances in medical technology and the growing health needs of an ageing population were all contributing to rising health costs.

“At the same time, we have a falling dollar, which means imported equipment and materials such as prosthetics are more expensive, while falling interest rates mean returns on investments are falling. These returns traditionally contribute to operating costs and help mitigate cost pressures, so this is an additional concern.”

Dr McPherson said rising costs were reflected in an increase of over eight cents in Southern Cross’ claims to premium ratio for the first quarter of the current financial year. We have gone from paying almost 90 cents in claims to members for every dollar of premium income received to over 98 cents in the last quarter.

“Returning all but 2 cents for every dollar of premium income we receive is fantastic for our members of course, but it does illustrate that the health sector has a situation where costs are beginning to outstrip the revenue available to meet them.

“As a not for profit, we do not have to generate large surpluses to satisfy shareholders and we can call on our strong financial position to mitigate premium increases, but we are watching current trends very closely.

“Rising costs are a significant challenge for the health sector as a whole and there is merit in both the public and private sectors getting together, and seriously working together, to determine what, if any, options we have to slow the rate of medical inflation.

“We empathise with ACC and the government on this issue. People need only look back over recent years to see that inflation in healthcare costs has been a constant problem, with rising health spending not always delivering higher levels of service. There are no easy answers.”


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