Economic Pressures and Health Coverage: Navigating NZ's Employee Benefits Landscape

Healthcare costs are climbing globally, and New Zealand is no exception. The medical trend rate, which reflects the anticipated increase in group health insurance unit costs due to factors like inflation, technological advances, and changing plan utilisation, now stands at 8%*. The rise of 0.5%* is minimal, but we believe there will be an acceleration in the growth of the trend rate as claims have returned to pre-COVID levels and multiple factors are continuing to place upward pressure on the rate. 

Disclaimer: It's important to interpret this data cautiously, considering the volatile nature of global and domestic price inflation.

The landscape of healthcare in New Zealand is encountering escalating costs due to a variety of factors, each contributing to the upward pressure on medical expenses:

1.    Medical Advancements and High Treatment Costs: Advanced medical technologies and treatments, whilst improving outcomes, come at a significant cost. People's expectation now is that if a new technology is available, they want access to it. The increased cost of treatments coupled with demand puts upward pressure on the cost of healthcare.

2.    Public system waiting times driving demand in the private system: Private health memberships have increased, driven by the lack of capacity in the New Zealand healthcare system, causing waiting times to extend significantly. As a result, more New Zealanders are utilising the private system, putting upward pressure on the claims.

3.    Increased Diagnostic Procedures: The shift towards preventative healthcare has led to more diagnostics, such as scans and imaging. These methods, crucial for early detection, effective treatment and recovery, contribute to immediate increases in healthcare spending despite preventing higher long-term costs.

4.    Economic Factors: The healthcare sector faces increased operational costs due to general inflation and clinical workforce shortages, directly translating into higher healthcare costs.

5.    Rising Pharmaceutical Costs: The continuous development of new, sophisticated therapies and medications in the pharmaceutical industry significantly impacts healthcare expenses.

6.    Demographic Shifts: An aging population in New Zealand leads to higher healthcare utilisation rates, increasing the frequency of medical consultations and the complexity of health issues.

7.    The Rise in Long-Term Illness and Chronic Disease: The prevalence of chronic diseases in New Zealand, such as heart disease and diabetes, is rising, driven by lifestyle factors and demographic changes:
a.    Lifestyle Choices: Sedentary lifestyles, poor stress management, unhealthy eating habits, and substance abuse are significant contributors to the escalation of chronic diseases.
b.    Aging Population: The aging demographic significantly influences the increased prevalence of chronic diseases, requiring ongoing management and treatment.

Genetic predispositions and aging contribute to chronic disease development, underscoring the importance of targeted prevention and treatment strategies.

The Strategic Value of Health Insurance in Risk and Talent Management

In the current landscape, where rising medical costs inevitably affect premiums, corporate-sponsored healthcare programmes remain a fundamental component of an employer's value proposition. When assessing the effectiveness of an employee health plan, it's essential to consider the return on investment beyond mere cost, which can be encapsulated in three broad categories:

1.    Talent Attraction and Retention: New Zealand's businesses are grappling with workforce and skills shortages, making talent acquisition and retention a top-ten risk for business leaders across the executive, finance, HR, and risk sectors. Health insurance plans rank as the most valued employee benefit, with their availability often being a deciding factor for employees to remain with or leave an employer.

2.    Productivity and Engagement: Providing access to quality healthcare facilitates prevention and early intervention, keeping employees healthy and shortening recovery periods during illness. Funding of the healthcare premium and the reduced cost of care reduce the financial burden and associated stress it brings. 

3.    Fostering a Culture of Care, Support, and Inclusivity: Ensuring healthcare access for all employees cultivates a caring culture within the workplace. This culture boosts loyalty and increases engagement with the organisation, reinforcing loyalty and engagement.

Developing a Sustainable Employee Health Plan Aligned with Organisational Goals

Designing a healthcare strategy that meets your business objectives and helps you to manage return and cost is critical. Below are essential steps to ensure your employee health plan is both practical and financially sound:

1.    Conduct a Comprehensive Needs Analysis: Understand the specific health needs of your employees by conducting surveys, health risk assessments, and reviewing past health claims. Combine this with other employee data, which will guide you in tailoring an employee health plan that addresses your workforce's most pressing health concerns.

2.    Align Health Plan Features with Organisational Objectives: Ensure that the benefits provided by your employee health plan are in sync with your organisation's long-term objectives. If talent retention is a priority, include health benefits employees value the most.

3.    Optimise Plan Design for Cost Efficiency: Consider flexible options such as cost sharing with employees, which can lower premiums and encourage employees to make more cost-conscious healthcare decisions.

4.    Leverage Preventative Care Programmes: Emphasise preventative care in your employee health plan, which can reduce the likelihood of more expensive treatments in the future, including regular health screenings, vaccinations, and wellness programmes.

5.    Partner with the Right Providers: Choose healthcare providers and insurers that offer competitive rates without compromising the quality of care. Negotiate terms that benefit both your employees and your bottom line.

6.    Evaluate and Adjust Regularly: Healthcare needs and costs evolve, so regularly review and adjust your employee health plan to ensure it remains relevant, competitive, and cost-effective by benchmarking your plan against industry standards and adjusting contributions or benefits as necessary.

7.    Educate Employees on Health Plan Utilisation: Provide your employees with resources and education on effectively using their health benefits to drive more intelligent utilisation of services and cost savings for both employees and employers.

8.    Measure Return on Investment (ROI): Continuously measure the impact of your employee health plan on employee health outcomes and productivity, attraction and retention of talent and engagement to justify the investment and highlight improvement areas.

By implementing these steps, you can develop a healthcare plan that supports your employees' well-being and aligns with your financial capabilities and organisational ambitions.

With the medical trend rate expected to remain elevated, New Zealand businesses must adopt a multi-dimensional approach to healthcare management, encompassing cost containment, attractive Employee Value Proposition (EVP) creation, and proactive health risk management within the employee population. These strategies are crucial for navigating current challenges and laying the groundwork for sustainable future growth in a dynamic healthcare landscape.

For more tailored information or assistance in developing a comprehensive employee health plan strategy, please contact Kevin Stephens.

*2023 Medical Trend Rates Report, Global Overview and Data Tables, Key Highlights, Aon