Medical underwriting and risk adjustment practices: New Zealand

Health insurance models vary from country to country. As highlighted in our first series of articles on international health markets, governments often dictate the role of private and public health insurance within any country. Milliman has produced a new series of blogs focused on the medical underwriting and risk adjustment practices of eight countries: Australia, Ghana, Ireland, New Zealand, Saudi Arabia, South Africa, Spain, and United Arab Emirates. This is the fourth article in our series.

The publicly funded health system in New Zealand is a tax-funded system that provides (largely) free healthcare at the point of use to New Zealand permanent residents and citizens, plus various other eligible groups.

The Ministry of Health allocates more than three-quarters of the $14 billion of public funds it manages through government health funding to 20 regional district health boards (DHBs). DHBs use this funding to plan, purchase, and provide health services within their areas, including primary care, hospital services, public health services, aged care services, and services provided by other nongovernment health providers including Māori and Pacific providers.

Most of the remaining public funding provided to the ministry is used to fund national services such as disability support, public health, specific screening programs, mental health, elective services, well child and primary maternity services, Maori health, and postgraduate clinical education and training.

DHBs allocate funds to primary health organizations (PHOs), which are healthcare providers with enrolled populations. The allocation is based on age, sex, ethnicity, and socioeconomic status of the enrolled population. Providers that are part of PHOs are able to charge for services they provide through copayments. This includes general practitioners (GPs). These copayments are set by the providers and vary from clinic to clinic. Nurse-led care often costs less than GP.

Enrollment in a PHO is voluntary, but people are encouraged to join in order to gain the benefits associated with belonging to a PHO, which include cheaper GP visits and reduced costs on prescription medicines. Some GPs also provide free consultations for children under six.

Most laboratory tests and x-rays are free in the public sector, mostly funded by the DHBs. Some medications are subsidized, with a government organization deciding exactly which ones receive the subsidy. There is also usually a prescription charge for each item.

Those living on lower incomes and other social security benefits are provided with a community services card (CSC), which reduces the cost of certain health services. The same applies to high users of health services and who have long-term illnesses. These people may be eligible for a high use health card (HUHC).

The Accident Compensation Corporation (ACC) provides comprehensive, no-fault personal injury coverage, including the cost for health treatment, for all New Zealand residents and visitors to New Zealand.

The private medical insurance (PMI) market in New Zealand provides complementary and top-up care to the public health system. PMI is most often purchased to cover costly or more complex nonurgent and elective treatment where there are long waiting lists within the public health system. All non-immediate treatment is assessed for qualification for elective service in the public system, a process that can often take months, even years. Some treatments don’t meet the criteria for publicly funded surgery.

Some services are only available publicly (e.g., radiotherapy) but those with PMI may still see a private specialist. Cancer treatments, major trauma, intensive care, and accident treatments are other services typically not provided by PMI. The private system carries out roughly half of all elective surgery in New Zealand.

There are two main types of health insurance policies:

• Comprehensive care: Covering primary care costs, such as GP visits, prescription charges, physiotherapy, and other everyday medical bills, as well as surgical and hospital costs. Sometimes there is a monetary limit.
• Elective surgical and specialist care: Covering only health problems that require hospitalization. Sometimes there are additional options to cover extras such as diagnostic or screening services, and dental treatment.

Both kinds of policy usually exclude certain conditions or treatments, such as cosmetic and fertility.

Many employers offer group schemes where premiums are based on the individual employee risk or where the group as a whole is unit-rated.

Approximately 30% of the New Zealand population has PMI coverage.

Underwriting
PHOs are not allowed to underwrite—they must accept paying for the care of any enrolled eligible citizen who lives within their geographically defined area.

Private medical insurers may underwrite, and applicants are asked to provide information on health, lifestyle, and family history. Private medical insurers cannot refuse to insure anyone because of age or disability, but they can apply a waiting period or exclude specific health conditions.

Most insurers treat preexisting conditions in one of three ways:

• Exclude treatments directly related to the condition(s)
• Charge a higher premium
• Provide coverage after an initial moratorium period

If the policyholder decides to change insurer, the new policy may not cover that policyholder for any problems that existed at the time of the transfer.

Premiums are based on age, and sometimes other factors such as gender and health status.

Comment
Like many other countries, New Zealand is currently focusing on reducing deficits and managing its public debt. New Zealand has the fifth-highest spending on publicly funded healthcare as a proportion of GDP out of all Organisation for Economic Co-operation and Development (OECD) countries. If public sector spending is scaled back there is a possibility that private spending on healthcare in New Zealand may well increase over the next few years from its current level of approximately 20% of total health spending. Unless this occurs in combination with tighter controls and/or restrictions on the level of permissible underwriting or premium selection (perhaps combined with some form of risk equalization system) then access to health services may become more limited for some of the most vulnerable populations.