• 2015

Time for honesty in health

As we patiently await Budget 2015, many will be wondering if there will be a major ground shift in policy or mere tinkering around the edges. Health is one of those areas where it could be ‘business as usual’ with the customary additions to pacify the electorate regardless of political leanings, or are we at a point in our economic cycle where the Government can afford to be bolder and announce sentinel policy changes in health?

Is the recent announcement that an extra $98 million will be set aside in the Budget for elective surgery one of these “pacifiers”?

The time has come for some honest discussions about healthcare funding. Unfortunately, fiscal pressures mean that continuing with the old ways of funding healthcare in New Zealand will not be an option. More and more, people are faced with the inevitable outcome of having to take greater personal responsibility for financing their health needs. Responsible Government policy could put sustainable options in reasonable reach of those who are younger and working.

It is not too many years ago when many New Zealanders felt that a large portion of the workforce was doomed to fail at saving for retirement. Social commentators were concerned that even middle income earners were not managing to put aside sufficient funds for their retirement in a disciplined, regular fashion. The hand of the nanny State was needed. This political hot potato was thrashed around for many decades until KiwiSaver was boldly announced and is a stand-out success with greater numbers participating than ever anticipated. The reality is that KiwiSaver merely becomes part of day-to-day working life for the majority of wage earners, and the self-employed for that matter. Most people don’t even think about it now. It just happens. Putting aside a prolonged global economic catastrophe, if today’s young people participate in KiwiSaver, they will reach retirement age with significantly more wealth than they would have if left to their own devices.

Could the same learnings be applied to the funding of private health insurance (PHI)? Many senior health specialists and economic commentators are asking the same question.

Rates of PHI are falling in New Zealand. This inevitably increases demands on the public system. Currently the PHI sector contributes $1 billion to the health budget in New Zealand each year. Further falls in PHI will reduce this contribution to health funding, so everyone is worse off.

Heath funding is a growing problem for many reasons, including not least, our aging population, the growing cost of delivering high tech treatment options and the cost of employing and retaining highly qualified health professionals to deliver the services required. Many developed countries are facing these challenges and the solutions that other economies have implemented vary widely.  If our Government is going to make a significant policy shift in funding healthcare, there’s no shortage of models (both successful and unsuccessful) from overseas to learn from. Being a late adopter can have its benefits.

If increased rates of PHI can improve access to healthcare, there are a number of ways that this can be achieved. Removal of FBT on employer contributions to PHI; an extra tax on high income earners with no PHI; or subsidies for early return to work are some options that have been tried around the world. These are all valid options. Any option has to be assessed on a number of attributes including: administrative simplicity, equity of access, efficiency and effectiveness.

Fortunately in New Zealand, we have established an infrastructure to handle insurance premium deductions from salaries; IRD clearing house mechanisms for re-direction of contributions to providers and mandatory registration of employees via employer payrolls (subject to usual opt-out provisions if deemed appropriate).  The health sector may be more geared up for change given there are less PHI providers compared with the financial services sector offering KiwiSaver products, and potentially less differentiation in product, although current PHI providers would possibly argue differently in some cases. Like KiwiSaver, the Government could consider identifying one or more default providers.

Government subsidies for employee contributions to such a scheme is another issue. International evidence would suggest that subsidies need to be carefully assessed, otherwise the cost to the taxpayer can outweigh the cost savings for the public health purse. Nevertheless, these challenges are not a sufficient reason to shy away from considering a KiwiSaver-type scheme for increasing the funding of health services.

It is possible that some bold thinking now on such an initiative could leave a notable legacy for Generation X and Y, many of whom (although not all) have access to good incomes and the benefit of good health. This puts them in a good position to secure cost-effective insurance at a young age that would set them, and the economy, in good stead later in life, provided there is a State view that this is in everyone’s best interests.

Further enquiries, please contact:

Pam Newlove
Partner, Privately Held Business and Chair of the Grant Thornton New Zealand Board
T +64 (0)9 308 2579
E pam.newlove@nz.gt.com