Southern Cross Medical Care Financial Results

News Release
15 September 2010

Southern Cross Medical Care Society Financial Results

Getting smarter about payment and delivery is essential to the future provision of healthcare services in the public and private sector, says not-for-profit health insurer Southern Cross Medical Care Society.

Increased demand for medical procedures from its 842,000 members together with rapidly rising charges from healthcare providers saw the Society’s claims reach a record $562.2 million for the financial year to 30 June, up 7 per cent on 2009.

For example, in the year to 30 June 2010 Southern Cross saw total spending on orthopaedic surgeries increase by 17%, driven by increases in both utilisation and average prices.

In 2010, the Society returned over 94 cents in claims to members for every dollar received in premiums. Over 555,000 claims were processed, which included the funding of around 150,000 elective surgical procedures.

Due to the ongoing effects of the economic downturn, the organisation made a deliberate decision to utilise its strong reserves to moderate the impact of rising claims costs, resulting in a deficit of $7.1 million.

“The significant year-on-year increase in healthcare costs is an issue faced by Governments and healthcare funders the world over. New Zealand public health spending has increased 89% in the last ten years yet the population increase was just 14%,” says Southern Cross Group Chief Executive Dr Ian McPherson.

“While our 94.1% claims to premiums ratio represents outstanding value for our members, it is unsustainable long-term. We are 61% of the New Zealand health insurance market yet we pay 71% of all claims. That’s why Southern Cross is focused on finding solutions to manage rising healthcare costs. We need to ensure members continue to receive excellent value for money from their health insurance - without compromising the health of the organisation.”

“We are working on a number of proactive solutions to help keep health insurance affordable for our members and a greater number of New Zealanders. These include expanding our Affiliated Provider programme, closely monitoring the value of introducing new benefits to our policies, and advocating on behalf of our membership for tax rebates on health insurance.”

In place since 1997, the Affiliated Provider programme includes specialists, surgeons and facilities that contract with Southern Cross to provide a range of healthcare services to members at agreed prices, giving the Society and its membership certainty of cost.

Southern Cross will also continue to strongly support the introduction of a tax rebate on premiums for the over 65 age group and the removal of Fringe Benefit Tax on employer-subsidised health insurance.

In the last financial year Southern Cross saw more than 25,000 members “downgrade” their health insurance plans (i.e. reduce the range of benefits available under their policy in order to lower their premiums) – a 33% increase on the number of downgrades in 2009.

“This is concerning to us. Members can’t continue to keep downgrading their policies. Eventually there will be nothing left for them to downgrade to which means the next step is to relinquish their policies altogether and fall back on our public health system.

“Relative to their proportion of total membership, downgrades were most common among people aged over 65 - highlighting the importance of a tax rebate for this group”, says Dr McPherson.

“Although those aged over 65 make up just 11% of our membership, they account for 35% of all claims paid by Southern Cross. If they relinquish their health insurance, the costs from this high-need sector of society will fall to the already overburdened taxpayer dollar.”

Southern Cross Medical Care Society highlights for the year ended 30 June 2010:

• For every dollar of premium received, on average 94.1 cents was returned to members in claims.

• Premium income was $597.3 million while total claims reached $562.2 million.

• Membership remained relatively stable in a declining New Zealand market, decreasing by just 1,078 over the year (0.13%) to 842,044 members. The Society’s market share increased slightly to 60.63 per cent. The number of employer subsidised members increased 2,327 on 2009 figures.

• With no debt and reserves of $306 million, the Society remains in a strong financial position. In February the Society received an A+ financial strength rating from Standard & Poor’s for the eighth consecutive year.

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