Is health insurance worth it?

Our friends Kerry and Ian are fans of health insurance, having cottoned on to it when Kerry worked at NZ Post and it was offered to employees.

‘I was a great advocate for it 20 years ago,’ she explains. ‘You don’t have to wait for public services, and you can select who you want to see if you’ve got a preference for a specialist or a surgeon. The waiting lists are so long, so if you are able to afford it, you are able to have surgery done right away.’

At the latest count, 1.34 million New Zealanders have opted for health insurance – close to 30% of the country according to the Health Funds Association. But how do you decide whether it’s worth it for you and your family to pay those premiums, when there is the public health system and ACC?

These days Kerry and Ian could certainly use the extra health insurance cover, after he recently damaged his shoulder on his construction job and she fractured her leg playing netball last Saturday. Perhaps they could get surgery earlier and be back at work that much sooner. Yet unfortunately, after having it for a dozen years or so, they let their health insurance go.

The issue? As with so many things, it was the cost. ‘We used to have it but had to get rid of it,’ she says, explaining how their health insurance premiums had jumped $400 a year. Yet now that they are out of work, they are having to go without close to $500 less a week in income.

Sometimes it seems like the more you need something, the more out of reach it gets.

What risks are you running?

When you’re weighing up whether you need any kind of insurance, you need to ask yourself what could happen that you might need to protect yourself and your family from. Will you need funds for major health costs, like surgery, or day-to-day things like doctor and dentist visits as well?

When it comes to your health, thankfully there are safety nets already in place: the public health system, and ACC for accidents. If you need acute surgery immediately, for example, that’s always going to be taken care of through the public health system.

But for ‘elective’ procedures, which are those that can be put off at least a week and are not as urgent, that’s where having health insurance can make a huge difference.

Simply put, money to pay for any health needs that arise will need to come from one of these three:

• The public health system (which is not entirely free; there can be part-charges at times)
• A private health insurance company (with premiums you pay according to the level of cover you can afford)
• Your own personal savings

Should you self-insure?

Self-insuring means that, instead of paying an insurance company, you put money aside yourself for health costs. You opt to let the public health system cover urgent conditions, and if you need other surgery or treatments, you’ll cover them out of your own pocket.

To do this, you could expand your emergency fund – building it up so you could handle some of your healthcare costs if needed. Here at Sorted we typically recommend setting aside three months’ of expenses for an emergency fund, but you could set your goal even higher if you wanted to be prepared for healthcare costs, too.

For most, however, self-insuring may only be an option for cheaper procedures or treatments. Fairly common surgeries can cost in the order of $20,000 and over, so self-insuring is not going to be a complete alternative to insurance. 

That being said, setting aside a buffer for health costs can save you money on health insurance, allowing you to opt for a higher excess (the part of a claim that you pay before the insurance kicks in). Insurance companies reduce your premiums if you have a higher excess­­ ­­– you pay up to a certain point; they cover any costs above that.

Fast-tracking your health

The advantage of health insurance – although you may end up with exactly the same surgeon as you would in the public system – often lies in cutting down the wait times involved. While the public system will treat you right away for anything life threatening or for serious injuries from an accident, you’ll usually end up on a waitlist if it’s not as urgent.

How much of a wait are we talking about? One industry study found that it took on average 100 days longer for surgery if you were on the public list rather than on a private one. In the public system, the average time from the first GP referral to having surgery was 224 days; those going private would generally be seen by a surgeon a couple of weeks after the first visit.

‘The surgery was done, you’d recovered and you’re back at work before the public list would even see you,’ says Andrea McKay of the Health Funds Association.

That wait time, of course, also affects work and family. According to the study, people took an average of five weeks off work while they were waiting and required help from family members, who also had to take time off of work.

‘It’s peace of mind for you to know you can get treated when you want to, where you want to, if it’s ever going to come to that,’ says McKay. ‘And you’re not going to be waiting around in pain.’

How to save on health insurance

If you think that buying health insurance is the right thing for you and it fits your money plan, there are a number of ways to contain your costs.

Shop around and uncover the discounts. By carefully comparing what the insurance companies are offering and getting quotes, you could save hundreds or even thousands of dollars over time. The way you pay your premiums – such as by direct debit or annual lump sums – may also reduce your costs.

Live well and save. There are a number of discounts available for those with healthier lifestyles, such as for those who don’t smoke or drink too much, exercise and eat their fruit and veg.

Take advantage of group rates. If your employer offers health insurance, for example, a ‘comprehensive’ policy that covers everyday medical costs may be worth it. These workplace-based policies are also cheaper because their cost to you is not typically based on your age, but rather where you work, and employers are often able to negotiate much better group rates because of the strength in numbers.

Getting in early is also key – at a younger age, health insurance premiums are much cheaper. New packages from insurers aimed at twentysomethings, for example, can start at $1 a day or even as low as $4.95 a week. While these may not cover surgery, you can claim for everyday things like visits to your GP, dentist, physiotherapy and glasses. And because insurance does not usually cover for ‘pre-existing conditions’, starting early solves that, too.

You can also reduce the amount of coverage you buy, such as by choosing a higher excess or a lower coverage of say $100,000 instead of $300,000. (According to Southern Cross, there is no single private procedure in New Zealand that would cost as much as $200,000 – almost all last year were below $100,000.) If you choose a higher excess, you’ll need your emergency funds available at short notice just in case.

By focusing on the big risks – skipping comprehensive coverage for day-to-day medical costs and choosing ‘hospital-only’ or ‘hospital and specialist’ policies – you’ll ensure you’re protected from the highest health costs that might hit.

And all the while saving on premiums along the way.