Are you likely to be better off taking health insurance, or saving up a sum of money to pay for any treatment you might need, yourself?
Health insurance has been back in the news this week after celebrity chef Simon Gault said he was disappointed at the way his Southern Cross policy responded to skin cancer.
He said a mark on his cheek turned out to be cancerous.
"[Southern Cross said] they'd cover me for a standard excision of it, and my surgeon specialist said 'no, you shouldn't do that, you should be getting this Mohs surgery, you'll have a way greater chance of removing all the cancer with that'," Gault told RNZ.
"But he [the specialist] said you won't meet the criteria, but they put an application in anyway, and Southern Cross declined it.
"So then I said, 'okay, well if you'll cover the standard excision, how about you pay that portion of it and I pay the difference', and they said no to that, and I think that's disgraceful, you know, they just leave you on your own."
Southern Cross tightened its criteria for Mohs surgery in December.
With health insurance premiums rising quickly, up almost 75% in the past five years some people have wondered whether it's worth holding on to cover.
Russell Hutchinson, whose business Chatswood Consulting provides research on insurance products, said he personally valued health insurance but he could understand why some people did not.
"Do you need to buy private health cover? If we were having a debate, we could definitely make a case for either of the propositions."
But he said anyone who planned to self-fund their own healthcare, rather than taking insurance or relying completely on the public system, would need to save quite a bit in case of a large health problem.
"That's the classic insurance quadrant. If you have a frequent event and it's low cost, you might as well cover it yourself. That's your regular doctor's visits.
"Then if you have an infrequent event at a low cost, you might as well cover it yourself because you can do that. That's fine.
"But if you have infrequent events at very high costs that's your catastrophic risk… that's the area where medical insurance helps."
He said, although Southern Cross had a surplus in its most recent annual report, it had tougher years previously and that reflected the increasing cost of claims.
Jon-Paul Hale, who founded insurance specialist Willowgrove Consulting, said the sums of money people would have to save to truly self-insure would be unmanageable for most people.
He said one recent claim he dealt with for a client was worth $265,000 in 12 months for an early stage breast cancer.
He calculated the average person who had medical insurance from the age 20 to 70 would spend about $230,000 on premiums over their lifetime, most of that in the second half.
"For the average punter they would have to save 20 to 30 years…that saving rate needs to increase in line with where the premiums would have increased. The reality is, okay, you're saving for this, putting money aside for your health for 25 or 30 years, but what if something happens at year 10?"
Hale said, as people got older, it could make sense to take on more of the cover themselves.
"Five or 10 years ago I would have said, look, you get to 65, you assess whether holding on to specialists and test cover is something you need to keep because the cost of specialist and tests against what you're claiming is likely to be there or thereabnouts, if not more. But with the price rises in the last thee years, that's now come back to age 55.
"Someone who's 55, as a couple, is going to spend about $250 a month just on specialists and tests [cover]. So that's basically a follow-up specialist appointment every month. The reality is, if you're not spending that, you probably should take the money, stick it in a savings account and not pay the premiums, because a lot of those specialist and test benefits have a $5000 to $10,000 maximum anyway."
"But that still needs advice from an adviser because some of those policies, if you drop out specialists and tests, you'll lose your access to MRIs and CTs."
Liz Koh, founder of Enrich Retirement, said anyone worried about their premiums could also consider taking a higher excess.
This can make a substantial difference to the premiums that are charged, but means you pay more of the cost of any procedure you claim for.
'People need to understand exactly what their policy covers'
Tim Fairbrother, founder of Rival Wealth, said it was important to note that Gault had not been declined cover altogether.
"They declined the specific surgery his specialist recommended because it didn't meet their current funding criteria, much like they don't cover non-Pharmac drugs which can be very expensive. Southern Cross will pay for surgery, just not the better surgery that was desired.
"As for the bigger question of whether you're better off having health insurance or simply saving the premiums, for most people the value of insurance isn't the smaller claims, it's protection against potentially very large and unexpected medical costs that could run into tens or even hundreds of thousands of dollars. Self-funding can work if you've accumulated substantial savings, but many New Zealanders would struggle to absorb a major medical expense without insurance. So the choice is; fund one hip for $35,000, wait on the public system for possibly 18 months, or pay $500 per month for health insurance that covers the hip and all other ailments. Under this scenario you would fund all ailments for 6 years for the cost of one hip operation.
"People need to understand exactly what their policy covers, what criteria apply, and how those rules can change over time. It's a reminder to regularly review your cover rather than assuming every treatment recommended by a specialist will automatically be funded."
Southern Cross chief sales, marketing and customer experience officer Regan Savage said people could not predict the specific treatment they would need until they were diagnosed and procedures could run to tens of thousands of dollars.
A colonoscopy was up to $4000, he said, and hip replacement could be $33,000.
"People also need to think about health insurance over the longer term. As people get older, they are generally more likely to need specialist appointments, diagnostic tests, surgery or treatment for more complex conditions. That increased use of healthcare is one reason premiums tend to rise with age.
"Before cancelling health insurance because premiums are becoming difficult to manage, we'd encourage people to talk to their insurer or financial adviser about the options available to them. Depending on their policy and circumstances, there may be ways to reduce premiums while retaining some cover, rather than cancelling altogether. It is worth thinking carefully before cancelling because taking out cover again later may not put someone back in the same position they were in previously. For example, pre-existing conditions are often excluded from new policies.
"Ultimately there's no single answer that will be right for everyone. Someone considering self-funding needs to think not only about what they could save in premiums, but how readily they could meet an unexpected healthcare bill of $20,000 or $30,000, potentially more, and what level of financial risk they are comfortable carrying themselves."
