Health Insurance- The most cost effective option in the long term 14-10-14

 

Whenever we think of health Insurance, it is often accompanied by the comment that it is expensive for those who have a generally healthy lifestyle or that the New Zealand public system is going to provide healthcare if you suffer a serious condition. Certainly a recent report ranked the NZ system as one of the best in the OECD, but with an ageing population and the number of Kiwi’s over 65 set to outnumber the number of children in the population within the next 15 years, the level of service available through the Government funded system is bound to be affected.

 

Yet despite the thought-provoking prediction that 63% of public health spending will be taken up by those over 65 by 2051, it is interesting to note that currently 60% of all health spending is used by those under 65.  As we have mentioned in the past, the advantage of taking out Health Cover through one of the many providers on the market, means that you know that you and your family will be able to get healthcare from a provider of your choice at the time when you need it without having to wait on a public queue. This option is sometimes made less appealing by the perceived expense of the product. However, I recently went through an exercise costing out the price differences between the main ways of covering the costs of elective surgeries and came up with some interesting conclusions.

 

There are four main ways to cover the expense of major surgery should you need medical treatment.

 

Public System Waiting List

This is the option that many people rely on. Unfortunately this method relies on your need being greater than somebody else’s and can leave you in a considerable amount of pain for a number of months. Often the pain level can have a detrimental effect to other aspects of your general health and can lead to a reduced level of work efficiency and output which could also affect your income earning ability.

 

Self fund

Not an option that is available to many people. This is where you can just draw out the funds from your bank account and pay for the operation or procedure in cash. While this may be possible for smaller complaints, it may not be quite as easy if you have to go through major surgery. Surgery costs start from around $6,000 (small hernia) and can increase up to $150,000 for major surgery.  Often, the person affected may have to sell personal assets to raise the funds, which is fine if there is only one procedure required, but if there are other issues further down the track then there may not be the available assets to sell to obtain the cash amount required.

 

Borrow

If you have equity in your home and a good regular income, then there may be an option to borrow funds to cover the cost of your surgery, as long as you’re going to be in a position to return to work quickly to pay back the debt. This option doesn’t come cheaply though. Using a relatively low cost procedure such as an angioplasty or hip replacement as an example provides an average cost of $25,000. Based on an average home loan interest rate of 6.5% with repayments spread over 10 years, the total cost of the $25,000 borrowed works out to $34,064.

 

The comparative cost of option number 4 - Health Insurance for a non-smoking couple in their 40’s allowing for increases in premium costs over the same 10 year period works out to a total of $20,290. Remember that the cost of self-funding by selling a prized possession works out higher than this figure, so in the long term the cost of health cover provides a great option to allow you to receive treatment when and where you need it most.

 

Don’t think that all health covers are the same though. Some will cover certain procedures that may not be covered by another provider, and payments at claim time can vary as to whether you receive a portion of the cost or have your full treatment paid for. It pays to talk to a registered Insurance adviser who has access to a range of insurer’s products so that you know that the cover you get will not only be the best value for money but will also cover the things most important to you and your family.