Health Sector Must Address Rising Cost Of Care

Media Release
13 October 2009

Health Sector Must Address Rising Cost Of Care

Southern Cross Medical Care Society announces annual result

The ability of New Zealanders to access private health care may come under increasing pressure if treatment costs continue to rise at current rates, according to not-for-profit health insurer, Southern Cross Medical Care Society.

The Society, which today released its annual results for the year to June 30, says claims during the period hit a record high of $525.6m - up 13.2% on last year.

Southern Cross Group Chief Executive Dr Ian McPherson says this is due to increased demand from members for surgical procedures, together with rapidly rising charges from healthcare providers - each accounting for roughly half of the increase in the Society’s claims costs.

For every dollar paid by members in premiums, the Society incurred 96.6 cents in claims to meet the costs of healthcare treatment.

“This statistic represents exceptional value to our members – few other insurers would come close to this level of reimbursement,” says Dr McPherson. “As a not-for-profit organisation operating for the benefit of our members, this statistic demonstrates our core purpose of enabling access to healthcare.

“Unfortunately, it also highlights the worrying trend of rising healthcare costs.
For many years we’ve seen the cost of healthcare services climbing well above the rate of inflation. As the trend continues, an increasing proportion of people may find it harder to afford private healthcare.

“Access to private healthcare is enabled for most New Zealanders by health insurance but rising treatment costs inevitably flow through to premium levels, even in a not-for-profit model.”

Dr McPherson says the Society is making a significant effort to moderate claims cost inflation through actively engaging with private sector surgeons, specialists and general practitioners to look for ways to moderate future cost increases.

“We are at the point where others involved in the healthcare sector have to engage on the cost of healthcare. We would welcome working together with providers to address this issue before it spirals out of control.”

Dr McPherson says there have been a number of reports this year documenting issues in the public health system, including the recent Ministerial Review Group report.

“It’s important to note that New Zealanders are heavily reliant on the private healthcare system as well the public sector and we share many of the same issues. The cost of care in New Zealand’s entire health sector is the issue here.”

Dr McPherson says the Society had planned to be in deficit during the financial year in order to return the best possible value to members during the economic recession, but the $14.4 million deficit reported was larger than budgeted because of the sharp rise in claims costs.

During the year the Society earned $544.2 million in premium income, up 4% on last year, and incurred $525.6 million in claims, up 13.2%. With claims increasing faster than premiums, the proportion of premiums returned to members through claims grew from 88.7% a year ago to a very high 96.6% this year.

“We are in a very solid financial position. We have no debt and our investment portfolio, valued at $411.4m at the end of the financial year, generated $30.1m of income – in effect moderating members’ premiums by approximately five cents for every premium dollar.

“In February 2009 Standard and Poor’s confirmed our A+ financial strength rating for the seventh consecutive year.”

Dr McPherson said membership continued to grow during the year, up 8155 to 843,122, highlighting New Zealanders continued reliance on the private health system for elective surgery.

Southern Cross Medical Care Society highlights
for the year ended 30 June 2009

* For every dollar of premium income received, 96.6 cents was set aside for claims

* Membership grew by 8,155 to 843,122. Southern Cross’ growth more than offset a small net decline among other insurers, resulting in a net gain of 5,000 customers for the New Zealand health insurance market as a whole

* Premium income $544.2 million, up 4% on the previous year

* Claims totalled $525.6 million, up 13.2% on previous year

* Operating expenses at $72.9, up 1.1%.

NB: These results are for the Southern Cross Medical Care Society which operates the Southern Cross health insurance business. They do not relate to the Southern Cross Health Trust and its subsidiary businesses - Southern Cross Hospitals and Southern Cross Travel Insurance – which operate independently and at arm’s length from the Society.

ENDS

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