Sunday, 19 March 2017

Newsflash! NZ health insurers want us to buy more health insurance

Roger Styles (chief executive of the Health Funds Association of New Zealand, the industry body for health insurers) wrote an opinion piece in the New Zealand Herald last week:
Thanks to an ageing population, healthcare inflation, and the rise of new and costly treatments, New Zealand's health spending has one of the fastest rates of increase in the OECD.
The Treasury has repeatedly advised this unsustainable growth presents a bigger fiscal problem for the Government than the soaring cost of NZ Super...
Currently about 20 per cent of healthcare in this country is privately funded, amounting to about $4b a year. Just over a quarter of this is funded through health insurance, which is held by about 1.36 million New Zealanders.
Health insurance could be playing a bigger role in meeting future healthcare costs and thereby relieving the pressure on government budgets and the public health system.
Private health insurance is ideally placed to be able to routinely fund high-cost treatments, which user charges cannot. We just need to address some of the disincentives that stand in the way of more people taking out cover...
Insurance works by aggregating premiums across a large number of people in order to fund the healthcare costs which might otherwise be unaffordable or cause financial hardship.
The fact that New Zealand can achieve $1.13b annually of healthcare funding through 28.5 per cent of the population having health insurance indicates that there is significant scope to increase the contribution to future healthcare costs by lifting coverage rates...
he Government needs to face up to the unsustainability of future health spending and develop a collaborative strategy to reduce dependency on public financing and move closer to the OECD average for public/private health spending shares. It won't be able to raise the age of eligibility for surgery, and it will have to act before 2040.
It may be true that health care costs will rise in the future, due in part to population ageing but equally or more due to Baumol's cost disease (see here for more on this). However, that in itself doesn't mean that we need more health insurance. Anyone who believes that health insurance is a solution ought to be looking carefully at the continuing mess that is the cost of healthcare in the U.S.

The main problem with insurance is adverse selection - insurers want low-risk people to buy insurance, but the incentives to buy insurance are greater for high-risk people. In the case of voluntary health insurance (as in New Zealand currently), the people who buy health insurance are either: (1) the worried well and risk averse healthy people; and (2) people at high risk of getting sick. The second group are of course quite expensive for insurers, so they rely on getting as many healthy people (who won't make claims) to sign up as possible. One way to do this is the lobby government to make health insurance more attractive in some way, such as making employer-funded schemes tax-advantageous to firms (which is what Styles is arguing for).

However, we need to see this for what it is. A self-serving lobby from a profit-motivated health insurance industry that ought to be ignored by policy makers.

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