Southern Cross Medical Care Society CEO Nick Astwick attributes 70% of health insurance premium increases over the past 20 years to members using more healthcare services, not rising treatment costs.
The chief executive of New Zealand’s largest health insurer said only 20% to 30% of premium increases stem from procedure cost increases during a recent interview with NZ Herald’s Money Talks.
“When you look at CPI, it’s the same basket of goods each year. We are not the same basket of goods,” Astwick said, explaining that technological advances continuously expand available treatments.
Southern Cross returns 93 cents of every premium dollar to healthcare services, with 10 cents covering operating costs. Astwick said the wider insurance industry typically allocates 73 cents per dollar to healthcare, with 30% covering costs and shareholder returns.
“We are a money- go-round in that sense,” Astwick said of the friendly society structure.
Health insurance premiums have increased 6% to 7% annually over two decades, with members’ increased usage driving most growth rather than inflation in medical costs.
The organisation maintains an average member age of 40 across its nearly 1 million customers, with equal numbers above and below that age. Astwick said this demographic balance supports the insurance model’s sustainability.
“We need the good, healthy lives, as well as the lives that need sick care to be funded,” he said.
Premium pricing follows age-based risk assessment. “We pull all the 63-year-olds, we look at what you’re going to claim next year, and that is your premium. And we look at all the 35-year-olds and what you claim.”
Southern Cross offers excesses and co-pays to reduce premiums for older members facing cost pressures. About 25,000 members added excesses last year due to economic conditions.
Astwick said excesses can halve premiums while maintaining coverage for major procedures. “Our excesses only apply to the big stuff, not the small stuff,” he said.
Imaging services remain outside excess arrangements. “We want you to get your diagnosis as fast as possible. So we don’t have those in the excesses.”
Southern Cross holds 70% of the health insurance market by value and 60% by membership, making it New Zealand’s third-largest health funder after ACC and the government. The organisation processes 4.1 million claims annually across a $2 billion operation.
As a friendly society, Southern Cross cannot borrow or raise capital, requiring profit generation for long-term sustainability while serving members rather than shareholders.
The organisation contracts with 2,500 healthcare providers nationwide, working to limit price increases to inflation rates over the past 10-20 years.
What factors do you think are driving health insurance premiums higher? Share your insights in the comments below.
