Private Health Insurance - A Must For A Young Family?

Financial adviser Jon Collier puts the case for why private health insurance is a must for young families. 

If your child ever suffers a serious illness or accident and requires immediate emergency treatment, we are fortunate in New Zealand to have a public health system to assist in our time of need. However, the system does have its limitations.

If the help your child needs isn't an emergency (but, of course, still very important to you), then the normal course of action is for your child to undergo an assessment and, if appropriate, be earmarked for an elective service, such as surgery.

The potential problem here though, is that, via the public health system, this process can take months or even years.

Meanwhile, your child is left to endure what can sometimes be a painful and even degenerative condition. It's not hard to imagine how stressful and unsettling this can be for a family when all you want is for your child to be happy and well.

Some friends of mine would attest to this when, earlier this year, their son suffered multiple coughs, colds and ear infections.

He was referred to a specialist and it was then that the couple pulled out their health insurance policy.

Having worked in healthcare and with a family history of health issues, they had always considered health insurance a must-have. So when their child was born they signed him up to their existing plan as soon as they could.

By the time of their specialist appointment, they had already had their claim pre-approved by their health insurance provider. On the specialist's advice their son was booked in for surgery to have grommets fitted.

Thankfully, the whole process went smoothly and was over in a couple of weeks and their son is now very happy and healthy. They haven't bothered to dwell on what might have been if they were forced to rely on the public health system and put on a waiting list, or alternatively attempted to pay for private treatment themselves. (According to Southern Cross Health Society, grommet insertion can cost between $1600 and $2700).

This is a great example of the importance of health insurance for children, yet many parents I meet have never even considered health insurance for themselves, let alone for their children. The most common reasons seem to be a lack of understanding as to what it actually provides and a feeling that it probably costs too much.

This a great shame when almost every week as an adviser I see someone benefiting from his or her health insurance policy. Furthermore, the cost of having health insurance is not as expensive as you might think.

Cost versus benefit
Here's an example. A basic health insurance cover for a healthy couple aged about 32 with a three-year-old son and newborn daughter is around $84 a month for the entire family. This is based on an average premium across seven health insurance providers as at October 2012 and assumes a $500-$600 excess and no additional "add-ons" to cover specialists and diagnostic tests.

Obviously, costs can vary depending on individual circumstances, which provider you choose and what covers and excesses you select. However, the point is that the cost of insuring a family can be close to the cost of insuring a house, its contents or a car. Which do you consider the biggest and most important asset?

One of the easiest and most common ways to make your insurance more affordable is to look at your excesses.

If you have a $250 excess, you agree to pay the first $250 and your health insurance company will pick up the rest of the tab.

By opting for a higher excess, you can reduce the amount you pay each month in your premiums. For instance, you can knock around 25% off your monthly premium, by opting for a higher, $500 excess.

There are other ways your policy can be designed specifically for your needs. For instance, obstetrics generally isn't covered by most standard health insurance policies, but some companies do offer an obstetrics and gynaecology subsidy. So if this is important to you make sure you shop around, or better yet, discuss it with your adviser.

You can also get "add-ons" for things such as dental and optical cover, although many insurers are phasing this cover out due to the cost and frequency of claims.

It is possible to create a policy that even covers chiropractors, acupuncturists, osteopaths and naturopaths, although mostly only after a referral from a GP. Again, it comes down to what you view as your health priorities, and how much you're willing to pay for it. But my adviceis to ensure your basic policy is a good one, before being tempted by any potential "add-ons".

Looking after baby
According to the Health Funds Association, an industry body of health insurance providers, 322,255 New Zealanders under the age of 20 have health insurance, and in the year to 30 September 2012 a total of $44.62 million was paid out to them in claims.

Southern Cross Health Society says for every $1 it received in premiums from those under 20, it paid out 92 cents in claims in the 2012 financial year.

Figures from the Health Funds Association show a large number of claims are made on behalf of the youngest members of society. For instance, here's the percentage of those with health insurance who made claims in the year to September 2012:

• 36% of zero to four year olds
• 13% of five to nine year olds
• 12% of 10-14 year olds
• 13% of 15-19 year olds.

As you can see, many health issues arise in the crucial newborn-to-preschool years, so it's important you have your baby added to your own health insurance policy as soon as possible after birth.

The risk of not getting health insurance for your baby as soon as possible is that if he develops a medical condition you may find it difficult to get that covered by health insurance as it will likely be treated as a pre-existing condition.

Again, it's best to do your research first, but some companies have rules such as a stand-down period before a child (often over three months old) is covered by their parents' policy and can make a claim.

Potential pitfalls
While insurance can do a lot to ensure a smooth ride through the health system, there are some pitfalls you need to be aware of.

At first glance, the majority of health insurance providers offer what appear to be very similar covers. However, if you look closely at each provider's policy wordings you will see that one provider's cover can differ quite significantly to the next.

All providers will set a maximum limit on how much they will cover in relation to a specific treatment or procedure, but again, these amounts can be significantly different from one provider to the next.

Really, it does come down to what is important to you, as well as you being aware of getting what you pay for. Beware the cheap and easy covers and do speak to a qualified, registered financial adviser.

An adviser can help guide you through the entire process and a good one will not only ensure your cover is suitable for your family's needs, but will also offer to play an active role in the claim process should you ever need to make a claim.

It is likely the adviser won't charge you up front, but may receive a commission from the insurance provider he or she recommends, as indicated in his disclosure statement, a copy of which you must be given up front.

How it works
At your first meeting with a financial adviser he or she will try to get a good sense of what is important to your family as well as how much you could afford to pay in the event of a claim (what excess you should have), and whether you require additional cover for specialists and tests.

As discussed earlier, there are many add-ons or "bells and whistles", but you need to prioritise what you need and how much you can afford to pay in your monthly premiums.

Beware of policies that offer great add-ons, but are essentially hiding a very poor standard cover.

A registered adviser really is the best person to help you navigate your way through all the various options. They work out what type of cover and which provider best meets your needs and will present you with recommendations in a written report, highlighting all of the reasons why he or she has selected a particular cover. Hopefully, this will also include an indication of the experience he's had in the past putting claims forward to that particular provider.

If you accept the adviser's recommendations (and you are by no means obliged to), your application is then sent on to the insurance provider. These applications ask detailed questions relating to the health of each applicantso don't be surprised if they take a while to complete!

After evaluating your application, the insurance provider will decide whether it will offer you cover and whether it will exclude any pre-existing conditions (such as a previous injury or disorder) and/or add any increases to the premium to reflect a perceived increased risk of you claiming (this is called a "loading").

This part of the process can take anywhere from a few weeks to a couple of months, but most insurers will provide you with an interim cover of sorts to ensure you're not caught short if you need to make a claim in the interim.

Assuming you're still keen to take out health insurance, the policy will then be issued and you will have peace of mind, knowing your family has access to quality and timely medical care in your time of need, beyond those which are limited to a medical emergency.

If you're not yet convinced of the benefits, consider this - 73% of adults in New Zealand are unable to afford elective surgery costing $5000 or more, according to the Health Funds Association. I urge you to view health insurance for your family, as important as your house, contents and car insurances.

Having a sick or injured child (or indeed any family member) can be a harrowing experience, but it's certainly easier for all if you don't have to wait on a long public health waiting list, or face a hefty bill.

While his clients are located all over New Zealand, Jon currently lives in West Auckland and is very happily (and recently) married to Melissa.  Jon invites you to contact him for an appraisal of your family's insurance needs. He can be contacted at jon.collier@milestone.co.nz