NZ Health Insurance on Brink of Death Spiral

Private health insurance in New Zealand is facing a 'death spiral' due to increasing medical inflation, warns financial adviser Maryann Pratt. Medical costs have almost doubled in the past year, with Aon forecasting an 18% rise in employee plan costs for 2026, compared to an Asia-Pacific average of 11.3%. The average claim paid per member has increased by 75% since 2021.

As a result, many healthy clients are canceling their policies, taking with them the low-claiming members who keep premiums down. This creates an adverse selection cycle, where only older, sicker members remain, driving up costs and prompting even more healthy individuals to drop coverage.

Australia has already experienced this problem, but implemented a combination of measures, including income-tested rebates and age-based loading, which helped restore private insurance coverage to around 45-47% of the population. Pratt recommends similar solutions for New Zealand, including an FBT exemption on employer-funded health insurance and an age-based loading model.

She argues that this is not just a matter of economic policy, but also public health, as clients who cancel their policies often end up joining public waiting lists. Private hospitals are already taking elective surgery off the government's list, and Pratt warns that rebuilding capacity later will be more expensive than fixing it now.