Improving health outcomes - A better future for New Zealanders with KiwiHealth 2017 - assets ...

 
Improving health outcomes - A better future for New Zealanders with KiwiHealth 2017 - assets ...
Improving
health
outcomes
A better future for New Zealanders
with KiwiHealth

2017

kpmg.com/nz
Improving health outcomes - A better future for New Zealanders with KiwiHealth 2017 - assets ...
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HEALTH FUNDS NEW ZEALAND / SECTION NAME

                                                                                                Report Sponsor
                                                                                                KPMG was commissioned by Health Funds Association of
                                                                                                New Zealand (HFANZ) to develop this discussion paper
                                                                                                Contact the Sponsor:
                                                                                                Health Funds Association of New Zealand
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                                                                                                Phone: 04 499 0834
                                                                                                Email: admin@healthfunds.org.nz

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Improving health outcomes - A better future for New Zealanders with KiwiHealth 2017 - assets ...
Contents
                                                 04          Executive Summary

                                                 08          Introduction

                                                 10          Background

                                                 12          The cost of ill health in New Zealand

                                                 18          Designing KiwiHealth

                                                 22          Who would be eligible for KiwiHealth?

                                                 24          Exploring the impacts of KiwiHealth

                                                 29          Areas for further consideration

                                                 31          Appendix 1

                                                 34          Appendix 2
                                                                                                                               IMPROVING HEALTH OUTCOMES / CONTENTS

                                                 36          Statement of Responsibility

Purpose statement
The purpose of this discussion paper is to promotes debate around how public and private health sector participants can work
together to improve access, affordability, and outcomes of healthcare in New Zealand.
This paper highlights the importance of reducing the burden of ill health and explores options with potential to benefit
individuals, the economy and society.
It is important to note that this is not intended as a policy position ready to implement.

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Improving health outcomes - A better future for New Zealanders with KiwiHealth 2017 - assets ...
Executive
                                                Summary
                                                Based on current spending patterns, the cost of
                                                public healthcare will grow from 6.3% of GDP today,
                                                to 9.7% in 2060 – an increase of 53%.

                                                New Zealand’s health system              grow from 6.3% of GDP today                While the PHI market is well placed
                                                consistently ranks well against other    to 9.7% in 2060 – an increase of 53%.      to play a greater role, uptake of PHI
                                                developed countries; both in terms                                                  is at the lowest level in recent New
                                                                                         Although likely to result in restricted
                                                of efficiency (cost per capita), and                                                Zealand history. This is partly due to
                                                                                         access to healthcare before reaching
                                                effectiveness (population outcomes).     this level, the increasing cost of         affordability, but equally reflects
                                                                                         healthcare would place additional          New Zealanders' reluctance to spend
                                                However, the cost of providing this
                                                                                         pressure on the wider government           in the short term to gain the benefits
                                                level of healthcare is increasing,
                                                                                                                                    at a later date. This phenomena is
IMPROVING HEALTH OUTCOMES / EXECUTIVE SUMMARY

                                                potentially unsustainable, and could     budget, including education and
                                                                                         welfare.                                   similar to the thinking behind the
                                                result in restricted access to
                                                                                                                                    introduction of KiwiSaver, which was
                                                public healthcare.                       A key driver of the increasing cost
                                                                                                                                    designed to address the reluctance of
                                                                                         pressure is the ageing population.
                                                Both Government and industry             The number of New Zealanders over          New Zealanders to save for a better
                                                participants are now actively looking    the age of 65 is projected to increase     retirement while they are working.
                                                at policy options to relieve some of     to 1 in 4 by the middle of this century,   This paper sets out to discuss
                                                the inherent pressures surrounding       compared to just 1 in 7 in 2013.           the issue of sustainability, equity,
                                                the cost of ill health. This paper
                                                                                         Additionally, the productivity of the      and the need to look at innovative
                                                explores one such initiative, referred
                                                                                         working-age population is threatened,      ways to provide and fund healthcare
                                                to as KiwiHealth. This initiative
                                                                                         as non-acute illness such as chronic       in the future.
                                                encourages both employers and
                                                employees to adopt a more proactive      disease is becoming more prevalent.        In discussions on healthcare, the
                                                and preventative approach to             Despite this, most working age             indirect costs of ill health are often
                                                healthcare during the employees          New Zealanders rely purely on              overlooked. Indirect costs are
                                                working years.                           publicly provided healthcare, with         society’s overall loss to illness, most
                                                                                         only 28% currently covered by private      notably the loss of output arising
                                                Based on current spending patterns,
                                                                                         health insurance (PHI).                    from labour force participants exiting
                                                the cost of public healthcare will

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Improving health outcomes - A better future for New Zealanders with KiwiHealth 2017 - assets ...
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    IMPROVING HEALTH OUTCOMES / EXECUTIVE SUMMARY
Improving health outcomes - A better future for New Zealanders with KiwiHealth 2017 - assets ...
the workforce or reducing their           — Mandated employer                     What are the expected impacts
                                                productive hours. This discussion           contributions. A healthy              of KiwiHealth?
                                                becomes more relevant in the face of        workforce benefits individuals
                                                                                                                                  Based on current research and initial
                                                potential increased use of restrictions     as well as employers. Indicatively,
                                                                                                                                  economic modelling, the expected
                                                in the public health system.                KiwiHealth has been modelled
                                                                                                                                  benefits of KiwiHealth include:
                                                                                            on the basis that employers offer
                                                The direct and indirect costs of ill
                                                                                            a subsidy to their employees          — Improved access to healthcare
                                                health are significant. The direct cost
                                                                                            of up to $500 per year, should          for employees. Research
                                                of public healthcare in New Zealand
                                                                                            the employee wish to participate.       indicates that privately-funded
                                                was approximately $15.6 billion
                                                                                                                                    elective services have significantly
                                                in 2015/16.1 Although difficult to        — Minimum policy coverage for
                                                                                                                                    shorter waiting times than
                                                quantify, the Treasury estimated the        major medical events. There is
                                                                                                                                    services funded publicly.
                                                indirect cost of health to be between       a promising opportunity for private
                                                                                                                                    Increased access to PHI would
                                                $4.13 and $11.56 billion in 2010.2          healthcare to contribute to better
                                                                                                                                    allow for increased access to
                                                                                            health outcomes through easier
IMPROVING HEALTH OUTCOMES / EXECUTIVE SUMMARY

                                                                                                                                    elective care - potentially leading
                                                What is KiwiHealth?                         and faster access to elective
                                                                                                                                    to a healthier workforce.
                                                                                            services. This would require all
                                                Fundamentally, KiwiHealth would
                                                                                            policies to cover major medical       — Reduced pressure on public
                                                be an umbrella name for certain PHI
                                                                                            events at a minimum; including          healthcare. Economic modelling
                                                policies from existing health insurance
                                                                                            specialist appointments, advanced       indicates that KiwiHealth would
                                                providers. This approach is similar to
                                                                                            diagnostics and elective surgery.       fund approximately 50,000
                                                that adopted for KiwiSaver.
                                                                                                                                    additional elective surgical
                                                                                          — Utilisation of the current PHI
                                                The key features of KiwiHealth are                                                  procedures and between 43,000
                                                                                            system. KiwiHealth is designed
                                                envisaged to include:                                                               and 70,000 'other' encounters per
                                                                                            to utilise the current PHI system
                                                                                                                                    annum by 2027 (of which some
                                                — No Government subsidies.                  as far as possible, including major
                                                                                                                                    would directly substitute publicly-
                                                  While the initiative relies on            policy types. This would avoid
                                                                                                                                    funded procedures, and some
                                                  the Government endorsing a                unnecessary administrative costs,
                                                                                                                                    would be additional). In addition,
                                                  mandatory employer subsidy,               and means that employers already
                                                                                                                                    the social impact of reducing
                                                  the fiscal impact of the scheme           offering PHI to employees would
                                                                                                                                    early detection and improved
                                                  should be neutral to the Crown.           be able to continue their existing
                                                                                                                                    management of chronic disease
                                                                                            coverage and schemes.
                                                                                                                                    has many non-financial benefits to
                                                                                                                                    families and society.

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Improving health outcomes - A better future for New Zealanders with KiwiHealth 2017 - assets ...
Expected KiwiHealth outcomes

400,000                                                                 $224
                                                                        mil ion
more people covered

50,000
more elective surgeries
                                                                        in potential savings
                                                                        to public health per annum

per annum                                                               Improved labour
                                                                        force participation
                                                                        and productivity
                                                                        No government
                                                                        subsidy required

— Higher productivity and less             Fundamentally, KiwiHealth
  absenteeism and presenteeism.            would be an umbrella name
  With increased access to
  elective care, early detection           for certain PHI policies from
  and intervention is more likely to       existing health insurance
  occur. With the right preventative       providers. This approach is
  treatments, this has the potential
                                           similar to that adopted for
  to reduce the burden of ill health
  in future years.                         KiwiSaver.

Further considerations                     From an economic standpoint, the
The costs of KiwiHealth principally        option of doing nothing and relying
relates to the insurance premiums,         on publicly-funded healthcare simply
which are made up of the employer          ignores an already evident trend, and
                                                                                                     IMPROVING HEALTH OUTCOMES / EXECUTIVE SUMMARY

subsidy and the employee contribution.     shifts the financial burden to future
While significant, the employer            generations.
contribution is partly offset by reduced   It is therefore important to highlight
absenteeism and presenteeism,              these issues and set out the
increased workforce productivity, and      options in order to stimulate policy
over time, wage absorption.                debate in the health sector and
As with any policy initiative, there       Government, whilst at the same time
are some limitations that will             understanding the potential costs and
need further consideration. These          benefits to New Zealanders.
include the impact on individuals
in part-time employment, those
who are self-employed, or those
performing non-market activities
such as looking after children or the
elderly. In addition, the distributional
effects of further improving access
to healthcare to those who already
have comparatively easier access, as       1
                                               http://www.treasury.govt.nz/government/ex-
                                               penditure/health
a means of relieving pressure on the       2
                                               Treasury (2010), The Cost of Ill Health, New
public system, must be debated.                Zealand Treasury Working Paper 10/04

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Improving health outcomes - A better future for New Zealanders with KiwiHealth 2017 - assets ...
Introduction
                                           The New Zealand health system consistently
                                           ranks well against other developed countries,
                                           both in terms of efficiency (cost per capita) and
                                           effectiveness (population outcomes). It provides
IMPROVING HEALTH OUTCOMES / INTRODUCTION

                                           wide access to healthcare at low or no cost to
                                           New Zealanders, with Accident Compensation
                                           Corporation (ACC) covering accidental injury, and
                                           private healthcare playing a complementary role
                                           through providing access to specialist services.

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Improving health outcomes - A better future for New Zealanders with KiwiHealth 2017 - assets ...
This paper explores whether there        PHI alone cannot address all the        Approach
is an opportunity for PHI to play a      problems that will face the public
                                                                                 This paper takes a high level
greater role in providing access to      health system in the future. However,
                                                                                 approach to addressing the growing
some health services; in order to        it may be effective at facilitating
                                                                                 demand and cost of healthcare in
improve individual health outcomes       greater access to some services.
                                                                                 New Zealand and sets out to:
and reduce or redirect costs away
from the public health system.           Objectives                              — Define the “problem” by
                                                                                   assessing the current state and
There are a number of external           The key objectives of this paper
                                                                                   examining both direct and indirect
factors that will affect the health      are to:
                                                                                   costs of healthcare;
system in the coming years. Like the
                                         — Explore opportunities for PHI to
rest of the developed world, New                                                 — Outline a high level policy option
                                           increasingly complement the public
Zealand’s population is ageing. The                                                for consideration by Government
                                           healthcare system and improve
first cohort of “baby boomers” retired                                             and health sector participants; and
                                           individual health outcomes;
                                                                                                                         IMPROVING HEALTH OUTCOMES / INTRODUCTION

in 2011 and the next 20 years will see
                                                                                 — Identify the key benefits and costs
a dramatic change in the distribution    — Outline a policy option that could
                                                                                   of the proposed policy option,
of New Zealand’s population.               encourage greater uptake of PHI
                                                                                   including distributional effects
New Zealand is also experiencing           in New Zealand; and
                                                                                   (i.e. who benefits most vs who is
an increase in the prevalence of
                                         — Assess the impacts of the               excluded) where appropriate.
chronic disease such as obesity and
                                           proposed policy option on
diabetes, cardiovascular disease                                                 This paper is based on domestic and
                                           individuals, the public health
and arthritis. The combination of                                                international research and supported
                                           system and the economy as
demographic change and growing                                                   by econometric modeling.
                                           a whole.
prevalence of chronic disease will
affect New Zealand in a number of
ways, including a greater demand for
healthcare services. This will place
additional pressure on the public
health system.

                                                                                                                                9
Improving health outcomes - A better future for New Zealanders with KiwiHealth 2017 - assets ...
IMPROVING HEALTH OUTCOMES / BACKGROUND

10
                                              Background
What is the problem?                                                                                         to make relatively small decisions
                                                      When faced with day-to-day                             with insignificant immediate benefits,
Like other developed countries,
                                                      financial decisions, many                              and so avoid underestimating the
New Zealand’s health system is
                                                                                                             long-term value of an investment in
experiencing a number of social and                   individuals and New Zealand
                                                                                                             personal health and wellbeing.
technological trends that will increase               families delay expenditure                             As with retirement savings (where the
the future cost of healthcare services
                                                      on healthcare, including                               government intervened by introducing
to a point where it may become
                                                      health insurance.                                      KiwiSaver), the government plays
unsustainable to offer universal
                                                                                                             an important role in avoiding what
healthcare to all New Zealanders.
                                                                                                             economists may term ‘market failure’.
Traditionally, New Zealand has relied                 An additional, increasingly relevant
on rationing public healthcare to                     problem is the way in which public                     The problem of Status Quo
manage demand, using techniques                       healthcare is provided. Publicly-
                                                      funded care tends to focus on the                      Long-term sustainability of the
such as:
                                                      severity of illness and those with the                 New Zealand health system is unlikely
— Minimum thresholds. This                            highest treatment need. Whilst this is                 to be achieved by relying on the status
  involves prioritising individuals with              understandable, it can often overlook                  quo; where public healthcare, ACC,
  high needs over those with less                     the benefits of early diagnosis                        and private healthcare (funding and
  severe conditions;                                  and intervention, prevention and                       provision) simply co-exist.

— Managed access and capacity.                        disease management.                                    There appears plenty of scope for
  Restricting the range and location                                                                         public agencies, ACC, and private
  of services provided by the                         Why don’t people take more                             participants to work together to
  publicly-funded system; such                        responsibility for their own                           identify ways to better manage
  as pharmaceuticals or weight                        healthcare?                                            chronic disease; deploy human and
  loss surgery.                                       Health policy and funding has                          physical capital more efficiently;
                                                      often struggled to tackle the wider                    and encourage New Zealanders
— Reliance on co-payments.
                                                      economic impact of ill health to                       to become engaged in their own
  Basic healthcare services, such as
                                                      individuals, employers and the public                  healthcare. This highlights the
  primary care and pharmaceuticals,
                                                      health sector; and identify ways for                   importance of seeking shared long-
  attract co-payments, with the
  aim of promoting individual                         individuals, families and wha-nau                      term solutions, as well as promoting
                                                      to become more engaged in their                        innovation in healthcare funding
  responsibility among the adult
                                                      own health.                                            and delivery.
  population.
The public health system has a                        When faced with day-to-day financial
limited ability to vary co-payments                   decisions, many individuals and New
as a funding source without creating                  Zealand families delay expenditure on
serious inequities. This particularly                 healthcare, including health insurance.
applies to secondary and tertiary                     For many, this is simply a question
care or high-cost community care.                     of affordability; for others, it is a
By comparison, the PHI market has
                                                                                                                                                       IMPROVING HEALTH OUTCOMES / BACKGROUND

                                                      belief that publicly funded healthcare
created a range of policy options                     services are sufficient. For most, it is
which give consumers choice on the                    simply a decision they delay.
level of care and co-payment received.
                                                      In economic terms, this is often
Increased use of rationing tools in                   referred to as ‘under-investment’, or
the public health system directly                     ‘savings-behaviour’, and is similar
impacts on New Zealanders’ ability                    in nature to the problem faced by
to access healthcare and comes                        government policymakers when
with a significant cost to society.                   considering the introduction of
Any increased rationing of healthcare                 KiwiSaver. Similar to KiwiSaver, the
services, would widen the gap                         challenge is to encourage individuals
between those who can access
private healthcare out of their own
pocket – and those who can’t.

By universal healthcare, we mean that all New Zealanders have access to the full range of effective health
services they need to: be well; stay well; and get well without being exposed to financial hardship.

                                                                                                                                                       11
The cost of il health
                                                                    in New Zealand
                                                                    Figure 1. The Cost of ill health

                                                                                                      DIRECT COSTS                        INDIRECT COSTS

                                                                                                                                            Lost output as
                                                                                                                                             a result of…
IMPROVING HEALTH OUTCOMES / THE COST OF ILL HEALTH IN NEW ZEALAND

                                                                                                         Hospital
                                                                                                      inpatient costs

                                                                                                                                            …labour force       …non labour force
                                                                                                                                            participants…        participants…

                                                                         …being away                    …being less
                                                                                                                                  …working fewer                …not participating
                                                                           from work                productive at work
                                                                                                                                     hours                       due to ill health
                                                                         (absenteeism)                (presenteeism)

                                                                    Figure 1 is a reconstruction from Treasury (2010) The Cost of Ill Health, and provides an
                                                                    overview of the wider cost of ill health to New Zealand.

12
The cost of ill health includes both the
direct cost of healthcare, such as treatment
and rehabilitation; and the indirect costs
to society and the economy through lost
productivity and quality of life.

The direct cost of ill health             — Co-payments in primary care.            — A rapidly ageing population.
                                            Co-payments for primary care,             In 2013, 1 in 7 New Zealanders
The New Zealand health system
                                            pharmaceuticals, and some ACC             were over the age of 65. This is
is underpinned by three pillars: the
                                            services are used to manage               projected to increase to 1 in 4
public health system, ACC, and
                                            demand and promote individual             by the middle of this century.
private care. Chief among these
                                            responsibility amongst the
is the public health system, which                                                  — Growth in chronic disease.
                                            adult population.6
accounts for approximately 83% of                                                     The prevalence of certain
all health related expenditure.5 The      — Income and asset testing for              chronic conditions, such as
remainder is made up of PHI, out-           Aged Care. All people assessed            obesity related cardiovascular
of-pocket payments, and charitable          for Age Related Residential Care          disease and diabetes, have been
contributions. Supported by ACC and         (ARRC) are income and asset               increasing across the New Zealand
private care, New Zealand’s health          tested; with those above the              population in recent years; leading
system is relatively efficient and          threshold paying for their own care       to greater demand for often
delivers outcomes in line with other        up to a maximum cost per week.            specialist and/or expensive

                                                                                                                                           IMPROVING HEALTH OUTCOMES / THE COST OF ILL HEALTH IN NEW ZEALAND
developed countries.                                                                  health services.
                                          With growing demand and
While direct costs are most               expectations, it is unlikely that         — The cost of new treatments
commonly seen as the cost of              these policy levers will be sufficient      and technology. These costs are
providing hospital care (as highlighted   to manage the future demand for             driven both by the increased cost
in Figure 1) they are significantly       healthcare. Recent research by the          of newly-developed treatments
broader than this. Direct costs also      New Zealand Treasury indicates              and pharmaceuticals (e.g. the
include primary care, maternity,          that, were we to continue with our          Keytruda cancer treatment drug),
community care, disability support,       current spending pattern, the direct        and greater access to care (e.g.
aged care, and some oral health.          cost of public healthcare will increase     bowel screening), as well as the
District Health Boards are mandated       from around 6.3% of GDP today               cost of technology enhancement.
to manage the demand and cost of          to 9.7% in 2060.7 This equates in
                                                                                    — Rising expectations.
care through the introduction of:         real terms to an increase of 53% in
                                                                                      New Zealanders have rising
                                          direct expenditure, raising significant
— Minimum access thresholds                                                           expectations regarding the type
                                          questions around sustainability. Key
  for elective care. A points system                                                  and extent of care they receive.
                                          drivers of this growth include:
  is used to prioritise care towards
  individuals with high needs, and
  exclude those with conditions
  less severe.

                                                                                    5
                                                                                        OECD.stats
                                                                                    6
                                                                                        Note that the ACC does not restrict access in
                                                                                        the same way as DHBs, but use a co-payment
                                                                                        system.
                                                                                    7
                                                                                        Treasury (2016), He Tirohanga Mokopuna, 2016
                                                                                        Statement on the long term fiscal position. Note
                                                                                        the projections represent ‘what if’ scenarios
                                                                                        based on historic spending patterns.

                                                                                                                                           13
The indirect cost of ill health            concluded that 26.4% of Australians       studies is that ill health is a primary
                                                                                                               employed full-time suffered from          barrier to workforce participation in
                                                                    The cost of ill health in New Zealand
                                                                                                               chronic disease, and 11.7% of             this age group. Improved healthcare
                                                                    is not limited to the direct costs
                                                                                                               part-time employees also have a           and prevention would be likely to
                                                                    to the health system. Poor health
IMPROVING HEALTH OUTCOMES / THE COST OF ILL HEALTH IN NEW ZEALAND

                                                                                                               chronic condition. Overall, 8.8%          have a positive economic impact;
                                                                    may mean some individuals are
                                                                                                               reported losing productive life years     reminding us that healthcare, is in fact
                                                                    less productive while they are
                                                                                                               (PLY) due to their conditions.            an investment in keeping our people
                                                                    at work, work fewer hours to
                                                                                                               A further 6.4% of 45-64 year olds         healthy and able to participate in the
                                                                    manage their condition, or miss
                                                                                                               were not in the workforce due to          workforce and society.
                                                                    work altogether. This can affect
                                                                                                               their chronic condition9. This research
                                                                    the individual’s career prospects,
                                                                                                               highlights that a person out of the
                                                                    and reduce the productivity of
                                                                                                               labour force due to chronic disease
                                                                    the employer organisation. It can
                                                                                                               earned less than one quarter of a
                                                                    also place additional costs on the
                                                                                                               full-time employee, and less than one
                                                                    employers, who have to cover the
                                                                                                               half of a part-time employee. People         This paper acknowledges the benefits of
                                                                    costs of absent staff. Poor health                                                      addressing the impact of ill health using either
                                                                                                               out of the workforce due to ill health       Quality Adjusted Life Years (QALY) or Disability
                                                                    may also prevent some people                                                            Adjusted Life Years (DALY), but does not
                                                                                                               also paid 99.94% less tax compared
                                                                    from participating in the workforce,                                                    explicitly model these.
                                                                                                               to those who were employed                8
                                                                                                                                                            Treasury (2010) The Cost of Ill Health, New
                                                                    which affects New Zealand’s                                                             Zealand Treasury Working Paper 10/04.
                                                                                                               full-time10. Interestingly, the leading      Schofield, D, et al. (2016), Economic costs
                                                                    immediate and longer-term
                                                                                                                                                         9

                                                                                                               chronic conditions associated with           of chronic disease through lost productive
                                                                    economic growth prospects.                                                              life years (PLYs) among Australians aged
                                                                                                               premature exit from the labour force         45–64 years from 2015 to 2030: results from a
                                                                    Quantifying the indirect cost is           were back problems, arthritis, and           microsimulation model.
                                                                                                                                                         10
                                                                                                                                                            Schofield, D et al. (2011), Economic impacts
                                                                    complicated, with the Treasury             mental and behavioural problems,             of illness in older workers: quantifying the
                                                                    estimating these costs to be               as illustrated in Table 111.                 impact of illness on income, tax revenue and
                                                                                                                                                            government spending.
                                                                    between $4.13 and $11.56 billion                                                     11
                                                                                                                                                            Schofield, D et al. (2015), Lost productive
                                                                                                               In these studies, the resultant loss on      life years caused by chronic conditions in
                                                                    in 2011.8                                                                               Australians aged 45-64 years, 2010-2030.
                                                                                                               income, increase in welfare support,      12
                                                                                                                                                            Schofield D, et al. (2017), The costs of diabetes
                                                                    Recent research into the economic          and loss of taxation was estimated to        among Australians aged 45–64 years from
                                                                                                               be AU$20.6 billion12. The equivalent         2015 to 2030: projections of lost productive
                                                                    cost of chronic disease highlights the                                                  life years (PLYs), lost personal income, lost
                                                                    indirect cost of ill health. Focusing on   data is not available for New Zealand;       taxation revenue, extra welfare payments
                                                                                                                                                            and lost gross domestic product from
                                                                    the 45-64 year age group, the study        however the broad conclusion of these        Health&WealthMOD2030.

14
Table 1. Reasons people are not in the workforce (Aged 45-64) in Australia

        01                   Back Problems (dorsopathies)
                                                                     22.16%
        02                   Arthritis
                                                                     15.06%
        03                   Mental and behavioural disorders
                                                                      10.14%
        04                   Cardiovascular disease
                                                                       6.81%
                                   54.17%
        05                   Depression
                             (excluding post natal depression)
                                                                     6.81%
        06                   Injury/accident
                                                                     5.65%
                                                                               IMPROVING HEALTH OUTCOMES / THE COST OF ILL HEALTH IN NEW ZEALAND
        07                   Diseases of the nervous system
                                                                     5.72%
        08                   Other diseases of the musculoskeletal
                             systems and connective tissue
                                                                     5.36%
        09                   Cancer
                                                                     3.62%
        10                   Diabetes
                                                                     3.33%

                                                                               15
IMPROVING HEALTH OUTCOMES / THE COST OF ILL HEALTH IN NEW ZEALAND

16
Figure 2. Average wait times for elective surgery from first GP visit13

                         177                                                                  76
                                Days public                                              Days private
                                healthcare                                                healthcare

13
     TNS (2016) Assessing the demand for Elective Surgery amongst New Zealanders March 2016

Reducing the cost of ill health                As illustrated in Figure 2, a recent
                                               survey suggests that individuals
Currently, the private health sector
                                               receiving publicly-funded surgeries
provides access to non-acute health
                                               wait on average 101 days longer for
services. Predominantly, these

                                                                                                        IMPROVING HEALTH OUTCOMES / THE COST OF ILL HEALTH IN NEW ZEALAND
                                               surgery than those who have access
include specialist appointments,
                                               to private healthcare13.
diagnostics and elective surgery.
The private sector complements the             The next section explores how the
public system by providing access              Government could encourage greater
to services that may be restricted by          health insurance uptake without
treatment thresholds, waiting times,           the use of public funds; provides a
co-payments, and capacity limits in            potential high-level design of the
the public system.                             scheme; and outlines the benefits
                                               and costs of greater PHI uptake.
By increasing access to elective
services, PHI can support individuals
to maximise their workplace
participation and economic
contribution and improve quality of
life. Therefore, improving access to
elective services is a channel through
which PHI can contribute to reducing
or avoiding the long-term cost of ill
health in New Zealand.

                                                                                                        17
IMPROVING HEALTH OUTCOMES / DESIGNING KIWIHEALTH

18
Designing
KiwiHealth
The primary objective of KiwiHealth is
to support working New Zealanders to
maximise labour force participation by
reducing the impacts of ill health.

What is KiwiHealth?                   — Mandated employer
                                        contributions. A healthy
Like KiwiSaver, KiwiHealth would
                                        workforce benefits individuals
be a government-endorsed, but
                                        as well as employers. Indicatively,
employer-subsidised scheme.
                                        a scheme has been modelled
Previous research has explored
                                        where employers offer a subsidy
several types of interventions aimed
                                                                              IMPROVING HEALTH OUTCOMES / DESIGNING KIWIHEALTH
                                        to their employees of up to $500
at increasing the level of PHI in
                                        per year (CPI adjusted), should the
New Zealand, and most options have
                                        employee wish to participate.
included some form of a Government
subsidy or tax relief. However,        — Minimum policy coverage:
this would not address the problem       There is a promising opportunity
of fiscal sustainability.                for private healthcare to
                                         contribute to better health
The key characteristics of
                                         outcomes through easier and
KiwiHealth are:
                                         faster access to elective surgery.
— No Government subsidies.               This would require all policies to
    While the KiwiHealth policy relies   cover major medical events at
    on the Government endorsing a        a minimum; including specialist
    mandatory employer subsidy,          appointments, advanced
    the fiscal impact of the scheme      diagnostics and elective surgery.
    is neutral.
                                       — Utilisation of the current
                                         PHI system. Utilising the current
                                         PHI system as far as possible
                                         would avoid unnecessary
                                         administrative costs.

                                                                              19
IMPROVING HEALTH OUTCOMES / DESIGNING KIWIHEALTH

20
Table 2: Elasticity of demand for PHI by subsidy level

                                                      10%
                                                                              5.4%

                                          20%
                                                                                     10.8%

   50%
                                                                                                                27%

     Decrease in price               Corresponding increase in demand

What is the role of Government?            — To target passive decision
                                             making. A key concept behind
Government endorsement is central
                                             KiwiSaver and KiwiHealth is that
to the success of KiwiHealth.
                                             individuals are more likely to join
Although not financially subsidising
                                             and stay in a scheme if they are
the scheme, government involvement
                                             automatically enrolled. Research
is important for the following reasons:
                                             based on a series of decision-
— To reduce the risk of                      making experiments show that
  under-investment.                          individuals disproportionately
  Government plays an important              remain with the status quo.16 This
  role in directing proactive decision-      is a key behavioural economics
  making. Without government                 theory that was used in the
  endorsement, there is a high risk          development of KiwiSaver, most
  there would be a low uptake for            notably the auto-enrolment aspect
  KiwiHealth. In economic terms,             of the scheme.
  the reason for this is referred to
                                           — To mandate the incentive.
  as ‘under-investment’, or ‘savings-
                                             A further reason for government
  behaviour’. These terms refer to
                                             involvement is to mandate that
  the common behavioural traits
                                             employers offer an incentive
  where individuals defer decisions
                                             by way of subsidy, specifically
  by focusing on immediate costs
                                             targeted to PHI. The anticipated
                                                                                                                                         IMPROVING HEALTH OUTCOMES / DESIGNING KIWIHEALTH
  rather than future benefits.15
                                             effect of an incentive builds on
  Traditionally, government has
                                             the relationship between the
  played an important role in
                                             price of a good or service and
  identifying ways to avoid under-
                                             the corresponding demand i.e.
  investment, and should be
                                             elasticity of demand. The exact
  considered as an important feature
                                             relationship depends on the type
  of KiwiHealth.
                                             of goods/service. Table 2 show
                                             the relationship specific to PHI,
                                             based on an elasticity of demand
                                             of -0.54.14

                                                                                     14
                                                                                        NZIER (2014), Private health insurance - An
                                                                                        expanding role in the future of health care?
                                                                                        NZIER report to HFANZ.
                                                                                        The Treasury (2002), Treasury Report: Costs of
                                                                                        Subsidising Private Health Insurance.
                                                                                        NZIER (2001), The tax treatment of health
                                                                                        insurance premiums. Report to HFANZ.
                                                                                     15
                                                                                        Samuelson, W. & Zeckhauser, R. J (1988), Risk
                                                                                        and Uncertainty.
                                                                                     16
                                                                                        Benartzi, Shlomo; Thaler, Richard H (2007),
                                                                                        Heuristics and Biases in Retirement Savings
                                                                                        Behaviour.

                                                                                                                                         21
Who would be
                                                                    eligible for KiwiHealth?
                                                                    Fundamentally, KiwiHealth needs
                                                                    to be available to all employees. It is
                                                                    anticipated that pre-existing conditions
                                                                    would be covered with an appropriate
                                                                    stand down period.
IMPROVING HEALTH OUTCOMES / WHO WOULD BE ELIGIBLE FOR KIWIHEALTH?

                                                                    This section outlines the potential     acceptance of pre-existing conditions.    What services would
                                                                    enrolment parameters for                While the actuarial implications of       Kiwihealth cover?
                                                                    KiwiHealth as a starting point          this significant cover is out of scope
                                                                                                                                                      It is anticipated that an eligible
                                                                    for further discussion.                 for this report, it is anticipated that
                                                                                                                                                      KiwiHealth policy would, at a
                                                                                                            pre-existing conditions would be
                                                                                                                                                      minimum, cover ‘major medical’
                                                                    How are people enrolled?                accepted with an appropriate
                                                                                                                                                      events. One option is to design a
                                                                                                            stand-down period – similar to that
                                                                    Assuming Government support, there                                                base policy based on current Major
                                                                                                            of current PHI solutions.
                                                                    are two key models for enrolment:                                                 Medical schemes, with the option to
                                                                                                                                                      increase the cover to match current
                                                                    — automatic enrolment (opt-out) or      Are there exceptions to
                                                                                                                                                      Comprehensive policies.
                                                                                                            Kiwihealth?
                                                                    — employee driven enrolment (opt-in).
                                                                                                                                                      Table 3 summarises the key public
                                                                                                            It is potentially beneficial to allow
                                                                    An opt-out scheme would most                                                      policy considerations when selecting
                                                                                                            small business to be exempt from
                                                                    effectively target passive decision                                               the level of cover in KiwiHealth
                                                                                                            the scheme. Granting businesses
                                                                    making. A less aggressive approach,                                               compared to a 'do nothing' scenario.
                                                                                                            with between 1 and 5 employees
                                                                    would be an opt-in scheme.
                                                                                                            exemption would (based on 2015
                                                                                                            data) exclude about 229,000
                                                                    Would pre-existing conditions
                                                                                                            employees.18 Consideration will
                                                                    be covered?
                                                                                                            also have to be given to part-time
                                                                    Fundamentally, KiwiHealth needs to      employees, temporary staff and
                                                                    be available to all employees, on the   contract workers. This has been
                                                                    basis that all employers are mandated   considered in the underlying
                                                                    to subsidise the scheme. This           econometric modelling.
                                                                    raises an important question around                                               18
                                                                                                                                                           Ministry of Business, Innovation and Employment
                                                                                                                                                           (2015), Small Businesses in New Zealand

22
Table 3. KiwiHealth policy options

                               Key benefits                               Policy Considerations

 Major Medical Cover           — Increased access to elective             — Public healthcare will still need to
                                 surgery and specialist                      manage the more severe cases
                                 consultations
                                                                          — Surgeries offered privately may not
                               — Patients spend less time waiting            increase productivity
                                 for surgery and are therefore
                                 more productive

 Comprehensive Cover           — Increased access to elective            — Public healthcare will still need to
                                  surgery and specialist                     manage the more severe cases
                                  consultations
                                                                          — Private provision of primary care is
                               — Patients spend less time waiting           often found to be demand-inducing
                                  for surgery and are therefore
                                  more productive                         — C omprehensive Care is less
                                                                             affordable than the Major Medical
                               — Co-payments covered                         option
                               — Increased access to primary             — Employers should only need to
                                  care, and increased chances of             subsidise base level care
                                  early intervention
                               — Potentially higher impact on
                                  productivity

 Do nothing                    — Workforce participants are not         — Waiting times increase more rapidly
                                   treated differently to other
                                   New Zealanders                         — Loss of productivity due to
                                                                             absenteeism and presenteeism
                               — No ‘deadweight cost’ of                    (for cases that could otherwise
                                  administering PHI schemes                  have been avoided)
                                                                          — Further increased pressure on
                                                                             public healthcare

                                                                                                                         IMPROVING HEALTH OUTCOMES / WHO WOULD BE ELIGIBLE FOR KIWIHEALTH?
What would happen to existing           this subsidy would cover between           How is KiwiHealth structured?
employer subsidised schemes?            20% and 50% of the target working
                                                                                   There are a number of employer-
                                        population's average premium.
Where employers already offer                                                      subsidised health insurance schemes
existing cover, it is envisaged that    The employer contribution needs to be      already established in New Zealand.
these schemes would automatically       significant enough to effectively drive    This provides KiwiHealth with a
become approved or accredited           uptake of KiwHealth while keeping the      readily available administrative
KiwiHealth schemes. This would          cost of labour sustainable. In effect,     structure. Building on this would
avoid disruption and encourage          however, the employer contribution         minimise the administrative effort
employers to provide subsidies over     would likely be absorbed by the            required to initiate and manage
and above the minimum.                  employee over the long term; as many       the scheme.
                                        employers would likely, over time,
Who pays and what is the cost?          include the KiwiHealth subsidy in the
                                        total remuneration package.
In short, both employers and
employees would pay for KiwiHealth      The real effect is for minimum wage
policies, with the major change being   earners whose salaries would not
the obligated employer contributions.   be able to absorb the contribution. A
                                        $500 subsidy would therefore mean
In order to model KiwiHealth, it
                                        a 1.6% salary increase for a full-time
was assumed that the employer
                                        worker earning the minimum wage.
contribution matches the employee
contribution dollar for dollar, up to
a maximum subsidy of $500; with
the employee funding any remaining
cost. Based on current price levels,

                                                                                                                         23
Exploring the
                                                                  impacts of
                                                                  KiwiHealth
                                                                  Econometric modelling suggests that
                                                                  50,000 additional elective surgeries could
                                                                  be funded by PHI under KiwiHealth, at an
                                                                  estimated value of $234 million.
IMPROVING HEALTH OUTCOMES / EXPLORING THE IMPACTS OF KIWIHEALTH

                                                                  This section explores the benefits and     The analysis is based on a number
                                                                  costs of KiwiHealth on individuals,        of assumptions.
                                                                  the economy, and the public health
                                                                                                             Firstly, the uptake rate is modeled
                                                                  system. The policy analysis is based
                                                                                                             based on the assumed impact of the
                                                                  on domestic and international literature
                                                                                                             employer contribution.
                                                                  and econometric modeling. The policy
                                                                  is designed at a high level, with the      Secondly, chronic disease and other
                                                                  purpose of evaluating key implications     existing health problems may not be
                                                                  of increasing the level of PHI in          accurately reflected in the model or
                                                                  New Zealand.                               incorporated in the assumed health of
                                                                                                             new policy holders.
                                                                  The underlying econometric model
                                                                  used for this analysis is based on two     Lastly, the claim to premium ratio,
                                                                  key sources of data: demographic           number of claims, and elective
                                                                  data from Statistics NZ, and historical    surgeries funded by PHI, are all
                                                                  PHI industry data provided by              based on historical trends. These
                                                                  HFANZ. The key assumptions and             assumptions may not accurately
                                                                  sources of data are listed in Appendix     predict the future.
                                                                  1. Outputs are modeled over a 20-
                                                                  year period to accommodate uptake
                                                                  over time and labour force growth.

24
What are the benefits                    For an individual accessing public         For individuals, increased access
to the individual?                       healthcare only, this could mean           to healthcare and the subsequent
                                         an extra:19                                reduced absenteeism and
The key benefit to individuals under
                                                                                    presenteeism could decrease:
KiwiHealth is greater access to PHI      — 101 days with increased risk of
and therefore, greater access to           being away from work due to the          — The risk of missing out on
healthcare. Access can be assessed         condition (absenteeism); and/or            opportunities in the workplace;
in terms of:
                                         — 101 days with increased risk             — Financial stress and general
— Choice. Improving choice around          of being less productive while             anxiety linked to missing out
  the type of treatment, the location      at work due to the condition               on work because of treatable

                                                                                                                                            IMPROVING HEALTH OUTCOMES / EXPLORING THE IMPACTS OF KIWIHEALTH
  for treatment, and the range of          (presenteeism).                            conditions; and
  pharmaceuticals offered.
                                         — Higher risk of the condition             — Other social impacts on family
— Thresholds. Improving access             increasing in severity while waiting       and community.
  to healthcare for those conditions       for surgery.
                                                                                    International research indicates a
  where there is a treatment benefit,
                                         A key driver of the cost of healthcare     connection between sick leave and
  but they would not currently meet
                                         is rising expectations. Patients are       a worker’s earning potential. A study
  the public sector thresholds (most
                                         increasingly well informed, and more       on the casual effect of sick leave on
  importantly elective surgery).
                                         often have specific demands about          subsequent employment and earnings
— Time. Reducing the time it takes       the care they receive and when they        found that a 1% increase in a worker’s
  to access diagnostics, specialist      receive it. Many countries have found      sick leave reduced the worker’s
  advice, and treatment (e.g. First      private healthcare to be effective at      earnings by 1.2% two years later21.
  Specialist Assessment (FSA)).          responding to patient demands for
                                         new or more specialised services20.
The provision of elective surgery is
                                         This means that private healthcare, to a
the most commonly cited example
                                         larger extent, can allow consumers to
of the rationing system and resulting
                                         tailor services to their specific needs.
waiting times for treatment. Recent
research identified a difference of
101 days between private and public
provision of elective surgery.19 Note                                               19
                                                                                       TNS (2016), op.cit.
that this excludes patients who fall                                                *Note: this is unlikely to be the case for all condi-
below the public threshold altogether,                                                 tions that require surgery.
                                                                                    20
                                                                                       Colombo, F. and N. Tapay (2004),Private Health
and are not placed on a waiting list.                                                  Insurance in OECD Countries: The Benefits and
                                                                                       Costs for Individuals and Health Systems
                                                                                    21
                                                                                       Markussen, S (2011), The individual cost of sick
                                                                                       leave, journal of population economics

                                                                                                                                            25
Figure 3. Total number of (additional) claims under KiwiHealth (Scenario 1)

                                                                                     120,000

                                                                                     100,000
                                                                  Number of claims

                                                                                     80,000

                                                                                     60,000

                                                                                     40,000

                                                                                     20,000

                                                                                           -
                                                                                               2018

                                                                                                      2019

                                                                                                             2020

                                                                                                                    2021

                                                                                                                           2022

                                                                                                                                   2023

                                                                                                                                          2024

                                                                                                                                                 2025

                                                                                                                                                        2026

                                                                                                                                                                2027

                                                                                                                                                                       2028

                                                                                                                                                                              2029

                                                                                                                                                                                     2030

                                                                                                                                                                                            2031

                                                                                                                                                                                                   2032

                                                                                                                                                                                                          2033

                                                                                                                                                                                                                 2034

                                                                                                                                                                                                                        2035

                                                                                                                                                                                                                               2036
                                                                                                                                                               Year

                                                                                                      Other                   Elective surgeries

                                                                  Distributional impacts                                          Zealanders who can afford to pay for                      reduce or halt a conditions’ severity,
                                                                                                                                  a PHI policy than those who can pay                       and thereby keep individuals with
                                                                  The New Zealand working
                                                                                                                                  for a major medical event out of their                    long term diseases healthier for
                                                                  population – and in particular, those
                                                                                                                                  own pocket.                                               longer. This could lessen the long
                                                                  in stable careers – would benefit
                                                                                                                                                                                            term burden of chronic disease.
                                                                  from KiwiHealth.
                                                                                                                                  Impact on the public health
                                                                  While subsidised by employers, there                            system                                                    Impact on employers and the
                                                                  is a risk that some New Zealanders,                                                                                       wider economy
                                                                                                                                  The key benefit to the public
                                                                  such as those in lower income
                                                                                                                                  health system is the potential to                         Recent research indicates that
                                                                  brackets and ‘high-risk individuals’
                                                                                                                                  lighten the burden of specialist                          employees with subsidised health
IMPROVING HEALTH OUTCOMES / EXPLORING THE IMPACTS OF KIWIHEALTH

                                                                  who are charged higher premiums,
                                                                                                                                  assessments, high cost diagnostics,                       insurance, on average, take one less
                                                                  would still not be able to afford PHI.
                                                                                                                                  and elective surgeries.                                   sick day per year23. Econometric
                                                                  This risk may be partially offset as
                                                                                                                                                                                            modelling shows that this would
                                                                  uptake increases, policy offerings                              As illustrated by Figure 3,
                                                                                                                                                                                            mean an additional 400,000 sick days
                                                                  become competitive, and insurers                                econometric modelling suggests
                                                                                                                                                                                            saved per annum by 2027.
                                                                  pool risk and ensure competitively-                             that about 50,000 additional elective
                                                                  priced premiums. Additionally, there                            surgeries would be funded by PHI                          The same survey estimates the
                                                                  is a portion of the population who                              under KiwiHealth in the year 2027, at                     median direct cost of sick leave
                                                                  may not be eligible, such as people                             an estimated value of $234 million at                     (e.g. overtime payments and hire
                                                                  out of the workforce, those in part                             the standard case weight price22. This                    of temporary staff) to be $131 per
                                                                  time work, and the self-employed.                               is in addition to the current level of                    employee per day. As illustrated in
                                                                  This is accommodated by the                                     surgeries funded by PHI.                                  Figure 4, the additional uptake under
                                                                  uptake model, but worthy of                                                                                               KiwiHealth would result in more than
                                                                                                                                  It is expected that surgeries funded
                                                                   further consideration.                                                                                                   $52 million in savings to employers
                                                                                                                                  by PHI will fall into two categories:
                                                                                                                                                                                            per annum by 2027.
                                                                  When considering the distributional                             those who substitute publicly-
                                                                  impacts of KiwiHealth, and whether                              funded surgeries, and those that are
                                                                  PHI is, or could be affordable, we                              additional (i.e. under the threshold
                                                                  should not only compare PHI against                             for public provision). Although the
                                                                  the equity within public healthcare.                            first category represents the direct
                                                                  If an individual can realise benefits                           beneficial impact on the public health
                                                                  from accessing the private health                               system, it is probable that the second
                                                                  system, considerations should be                                category will be beneficial in the
                                                                  given to the way in which as many                               long term by reducing the burden of                       22
                                                                                                                                                                                               Based on a New Zealand Weighted Inlier Event
                                                                  as possible can do so. With this in                             chronic disease. Pro-active access to                        Separation (WIESNZ16) cost weight value at
                                                                                                                                                                                               2016/17 price of $4,681.97 per WIES]
                                                                  mind; there is a larger portion of New                          elective surgery has the potential to                     23
                                                                                                                                                                                               TNS (2016), Assessing the demand for Elective
                                                                                                                                                                                               Surgery amongst New Zealanders March 2016

       26
Figure 4. Estimated savings from reduced direct costs of sick leave

         $60m

         $50m

         $40m
 NZ $

         $30m

         $20m

         $10m

         $00m
               2017

                      2018

                             2019

                                    2020

                                           2021

                                                  2022

                                                         2023

                                                                2024

                                                                       2025

                                                                              2026

                                                                                     2027

                                                                                            2028

                                                                                                   2029

                                                                                                          2030

                                                                                                                 2031

                                                                                                                        2032

                                                                                                                               2033

                                                                                                                                      2034

                                                                                                                                             2035

                                                                                                                                                    2036
                                                                                Year

The direct cost of sick leave does                  have PHI cover. However, many
not account for productivity lost to                already receive voluntary employer
absenteeism and presenteeism. With                  subsidies. In the long run, this
reference to Treasury’s working paper               subsidy would likely be absorbed by
on the indirect cost of ill health, we              the total remuneration package.
note that while quantifying this effect
                                                    In addition to reducing the economic
is challenging, there is no doubt it
                                                    cost of ill health, and improving
exists and that employers could
                                                    labour force participation, this focus
gain significant productivity from a
                                                    on prevention and early intervention
healthier workforce.
                                                    may have wider benefits to society.

                                                                                                                                                           IMPROVING HEALTH OUTCOMES / EXPLORING THE IMPACTS OF KIWIHEALTH
                                                    Lost productive life years (PLY) due
Recent research indicates that                      to chronic disease is associated with:
employees with subsidised                           — Lost income, and lost tax
health insurance, on average,                       — Increased welfare payments24
take one less sick day per
                                                    — Illness-related early retirement25
year23. Econometric modelling
shows that this would mean an                       In Australia this has raised calls for
                                                    “…greater investment in effective
additional 400,000 sick days                        preventative health interventions
saved per annum by 2027.                            which improve workers’ health and
                                                    work capacity.”26
What is the cost of KiwiHealth?                     There remains some debate whether
                                                    these benefits will amount to a net
The cost of KiwiHealth is up to
                                                    economic benefit; and whether
$500 per annum per employee,
                                                    this accrues to the employer, the
and this cost would apply to both
                                                    individual, or to the Crown. This
new and existing PHI policies.
                                                    highlights the need for New Zealand-
Employers would therefore suffer
                                                    specific research in this area.
a deadweight cost of subsidising
the approximate 1.1 million working
age New Zealanders who already

                                                    24
                                                       Schofield D, et al. BMJ Open 2017;7:e013158.
                                                       doi:10.1136/bmjopen-2016-013158
                                                    25
                                                       Schofield et al. BMC Public Health 2011, 11:418
                                                    26
                                                       Schofield, Op Cit, BMJ Open

                                                                                                                                                           27
Figure 5. Employer/employee contributions

                                                                             900m

                                                                             700m

                                                                             500m
                                                                      NZ $

                                                                             300m

                                                                             100m

                                                                                 0
                                                                                  2017

                                                                                         2018

                                                                                                2019

                                                                                                       2020

                                                                                                              2021

                                                                                                                     2022

                                                                                                                            2023

                                                                                                                                   2024

                                                                                                                                          2025

                                                                                                                                                 2026

                                                                                                                                                        2027

                                                                                                                                                               2028

                                                                                                                                                                      2029

                                                                                                                                                                             2030

                                                                                                                                                                                    2031

                                                                                                                                                                                           2032

                                                                                                                                                                                                  2033

                                                                                                                                                                                                         2034

                                                                                                                                                                                                                2035

                                                                                                                                                                                                                       2036
                                                                                                                                                   Year

                                                                                            Employee                         Employer

                                                                  Conclusion                                           The analysis in this report shows that
                                                                                                                       even a conservative uptake of the
                                                                  With a rapidly increasing cost pressure
                                                                                                                       scheme could significantly increase
                                                                  in the New Zealand health system,
                                                                                                                       the number of elective services
                                                                  now is the time to consider options
                                                                                                                       funded by PHI. This would in turn
                                                                  around how to afford future care.
                                                                                                                       take pressure off the public health
                                                                  KiwiHealth as a policy option                        system, decrease waiting time for
                                                                  is fundamentally based on the                        elective care, and contribute towards
                                                                  complementary relationship between                   keeping New Zealanders healthy
                                                                  the public and private healthcare                    and productive.
IMPROVING HEALTH OUTCOMES / EXPLORING THE IMPACTS OF KIWIHEALTH

                                                                  systems. Increasing access to
                                                                  insurance means increasing access to
                                                                  healthcare, which results in significant
                                                                  benefits to the individual; employee
                                                                  and to society; especially in the
                                                                  provision of elective services and
                                                                  management of chronic disease.

28
Areas for further
consideration
KiwiHealth is a way of opening up a
broader discussion between public
and private healthcare industry
participants, with a common goal of
improving outcomes and creating a
more productive economy.

                                                                                                                          IMPROVING HEALTH OUTCOMES / EXPLORING THE IMPACTS OF KIWIHEALTH
There are a number of important             tied to their workplace). These       — Employers absorption of
areas outside the scope of this report      types of schemes have a long            subsidies. As with KiwiSaver, it is
that should be considered further.          history in New Zealand, and are         likely that PHI subsidies over time
This includes a more detailed policy        considered effective in the way         would be absorbed in the total
design, such as:                            they pool premiums across a             remuneration package. There is an
                                            workplace. They could, however,         opportunity to further investigate
— Minimum policy coverage and
                                            limit portability of policies (i.e.     the impacts of this effect.
   the link to New Zealanders’
                                            an employee's opportunity to
   productivity. There is an                                                      — Fringe Benefit Tax (FBT). PHI
                                            retain PHI cover when changing
   opportunity to further investigate                                               benefits both employers and
                                            employer). There is an opportunity
   specific gaps in healthcare among                                                employees. As with certain other
                                            to investigate the impacts of
   New Zealanders and ensure that                                                   employer-subsidised services
                                            these schemes.
   the healthcare services required to                                              (e.g. optometry) there may be an
   target these would be included in     — Quantifying the cost of ill              argument for exempting a portion
   eligible KiwiHealth policies.           health. Further quantification of        of the subsidy from FBT.
                                           the cost of ill health, and more
— Workplace Based Schemes.
                                           specifically the costs that could
  There are currently a significant
                                           be avoided with more targeted
  number of employer-provided
                                           healthcare would be valuable.
  health insurance schemes in
                                           While this is difficult to quantify,
  the market (where an employer
                                           it would be beneficial in order
  offers employees the opportunity
                                           to assess the effects of a
  to join a specific PHI scheme
                                           potential scheme.

                                                                                                                          29
IMPROVING HEALTH OUTCOMES / APPENDIX 1

30
Appendix 1
The econometric model is based on the
following key assumptions:

Table A1. The key variables used in the econometric modeling were uptake of Kiwi Saver
based on elasticity of demand, historical PHI claim rates, and demographic growth from
Statistics NZ.

                 Total uptake rate:   Number       Population             Uptake of each policy:
                                      of claims    growth:
                                      lodged:

  Scenario 1     Rate based on        Historical   NZ Stats               70% Major Medical
                 elasticity of        average      projections:           30% Comprehensive
                 demand. Reaching                  50th percentile
                 55% of the labour
                 force by 2027

  Scenario 2     As above             As above     As above               50% Major Medical
                                                                          50% Comprehensive

Table A2. Further data supporting the model and their sources are listed below.

  Data                                 Source

  Labour force estimates (historic)    NZ.Stats, data extracted on 09 Feb 2017 03:34 UTC (GMT)
                                                                                                   IMPROVING HEALTH OUTCOMES / APPENDIX 1

  Labour force projections             NZ.Stats, data extracted on 16 Jan 2017 02:23 UTC (GMT)

  Unemployment rates                   NZ.Stats, 10 year averages

  Price of policies                    Estimates based on current Southern Cross premiums.

  Claim incidence rates
                                       Estimates based on historic HFANZ provided industry data
  (and number of claims)

  Premium-to-claim ratios              Estimates based on histtoric HFANZ provided industry data

                                                                                                   31
Outcomes of Modelling:
                                         Figure A1: Number of lives covered (with KiwiHealth) over time

                                                                                         1,600,000
                                                     Lives covered by health insurance

                                                                                         1,400,000

                                                                                         1,200,000

                                                                                         1,000,000

                                                                                           800,000

                                                                                           600,000

                                                                                           400,000

                                                                                           200,000
                                                                                                        2018

                                                                                                                 2019

                                                                                                                         2020

                                                                                                                                 2021

                                                                                                                                        2022

                                                                                                                                               2023

                                                                                                                                                      2024

                                                                                                                                                             2025

                                                                                                                                                                    2026

                                                                                                                                                                            2027

                                                                                                                                                                                   2028

                                                                                                                                                                                           2029

                                                                                                                                                                                                   2030

                                                                                                                                                                                                            2031

                                                                                                                                                                                                                     2032

                                                                                                                                                                                                                              2033

                                                                                                                                                                                                                                     2034

                                                                                                                                                                                                                                            2035

                                                                                                                                                                                                                                                   2036
                                                                                                                                                                           Year

                                                                                                                        Number of lives covered

                                          Figure A1 shows the growth in PHI uptake under KiwiHealth, which is estimated to be up to 400,000 additional
                                          lives covered by 2028.

                                         Figure A2: New lives covered (scenario 1)

                                                                                         600,000

                                                                                         500,000
                                         New lives covered

                                                                                         400,000

                                                                                         300,000
IMPROVING HEALTH OUTCOMES / APPENDIX 1

                                                                                         200,000

                                                                                         100,000

                                                                                               -
                                                                                               2006

                                                                                                      2008

                                                                                                               2010

                                                                                                                        2012

                                                                                                                                2014

                                                                                                                                        2016

                                                                                                                                               2018

                                                                                                                                                      2020

                                                                                                                                                             2022

                                                                                                                                                                    2024

                                                                                                                                                                            2026

                                                                                                                                                                                    2028

                                                                                                                                                                                            2030

                                                                                                                                                                                                     2032

                                                                                                                                                                                                              2034

                                                                                                                                                                                                                       2036

                                                                                                                                                                    Year

                                                                                                        Comprehensive                             Major medical

                                         Figure A2 and A3 show number of new lives covered under scenario 1 and 2.
                                         Figures A3 and A4 summarize the expected lives covered under scenario 1 and 2

32
Figure A3: New lives covered (scenario 2)

                     600,000
New lives covered

                     500,000

                     400,000

                     300,000

                     200,000

                     100,000

                             -
                             2017

                                        2018

                                               2019
                                                      2020

                                                               2021

                                                                       2022

                                                                               2023

                                                                                       2024

                                                                                               2025

                                                                                                       2026

                                                                                                              2027

                                                                                                                      2028

                                                                                                                               2029

                                                                                                                                       2030

                                                                                                                                                2031

                                                                                                                                                         2032

                                                                                                                                                                   2033

                                                                                                                                                                             2034

                                                                                                                                                                                    2035
                                                                                                        Year

                                          Comprehensive                               Major medical

  Figure A4: Premiums and claims paid

                     1,800

                     1,600

                     1,400

                     1,200
     $NZD Millions

                     1,000

                      800

                      600
                                                                                                                                                                                           IMPROVING HEALTH OUTCOMES / APPENDIX 1

                      400

                      200
                                 2018

                                        2019

                                               2020

                                                        2021

                                                                2022

                                                                        2023

                                                                               2024

                                                                                        2025

                                                                                               2026

                                                                                                       2027

                                                                                                              2028

                                                                                                                     2029

                                                                                                                              2030

                                                                                                                                      2031

                                                                                                                                              2032

                                                                                                                                                       2033

                                                                                                                                                                2034

                                                                                                                                                                          2035

                                                                                                                                                                                 2036

                                                                                                      Year

                                         With KiwiHealth                              With KiwiHealth                        No KiwiHealth                                 No KiwiHealth
                                         (Premiums)                                   (Claims)                               (Premiums)                                    (Claims)

Figure A4 shows the expected premium and claim increase over time, based on historic averages. We note the value
of claims relative premiums have increased in later years and that the estimated value of claims is conservative.

                                                                                                                                                                                           33
Appendix 2
                                         Supply side considerations              Recent research suggests that
                                                                                 PHI covers the following types of
                                         Whether private provision of
                                                                                 elective surgeries :
                                         elective surgeries will increase
                                         the overall quality of healthcare       1.   Elective surgeries that are not
                                         in New Zealand depends on the                routinely offered in the public
                                         following two key aspects:                   healthcare system or offered
                                                                                      only in very severe cases (e.g.
                                         — The level of public/private
                                                                                      varicose veins, and dental
                                           substitution. Would privately
                                                                                      surgery).
                                           funded surgeries have otherwise
                                           been funded by the public             2.   Surgeries that are offered
                                           system?                                    publicly, e.g. such as hip and
                                                                                      knee replacements and cardiac
                                         — The elasticity of supply of
                                                                                      bypasses:
                                           resources (surgeons and
                                           healthcare professionals).             a) for patients who do not meet
                                           Would the resources used in the           the public sector treatment
                                           private system otherwise have             threshold; and
                                           been used in the public system?
                                                                                  b) for patients who meet the public
                                         Furthermore, does the existence of          sector thresholds but choose
                                         ACC and PHI help attract and retain         to use private health services
                                         the supply of skilled healthcare            funded by PHI.
                                         professionals to New Zealand.
                                                                                 It can be argued that 2b is the only
                                         The answer is likely to be a mix.       pure public/private substitution.
                                         In the short term, the supply of
                                                                                 Research does however suggest
                                         experienced professionals in New
                                                                                 that PHI has, in certain health
                                         Zealand is relatively inflexible, and
                                                                                 systems, ‘injected financial resources
                                         many of them work both privately
                                                                                 into health systems, which has
                                         and publicly.
                                                                                 contributed to the financing of
                                                                                 additional capacity and services’. If
IMPROVING HEALTH OUTCOMES / APPENDIX 2

                                                                                 there is unmet demand for elective
                                                                                 surgeries, and the public system is
                                                                                 not increasing supply to meet the
                                                                                 demand, investments in additional
                                                                                 resource need to come from
                                                                                 elsewhere.

34
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