Retirement Life
9 November 2021

Health Insurance or Self Insurance?

Happiness in life comes largely from three sources: relationships with friends and family, good health and having a clear purpose in life. Good health comes about through adequate housing, diet and medical care and statistics show that on average, those with more money have better health. With the increased pressures on the health system, health insurance plays a big role. Around 30% of the population have health insurance. It’s big business, with claims of around $1 billion a year. However, many retirees question the need to continue with their cover due to the big increase in premiums as you age.

Health insurance is not cheap, but neither is medical care. Premiums are higher in old age for good reason – there is a high probability of claim. The purpose of health insurance is to allow you to obtain a high standard of medical care without having to compromise your standard of living in paying for it. If you have substantial wealth, you can probably cover health costs without the need for insurance. Others should keep in mind that 1 in 2 people will suffer from cancer during their lives and that there are over one million hospital discharges a year in New Zealand. You shouldn’t take good health for granted.

It is well known that health care costs are on the rise and the upward trend has commonly been attributed to our ageing population. This is now in dispute. Professor Paul McDonald, Pro Vice Chancellor of the College of Health at Massey University has a different explanation which is deserving of attention. He postulates that one of the two prime causes of the increase in health care costs is not an aging population but an increase in chronic illness. Health statistics are alarming.

Of our total population:

  • 18% have a mood or anxiety disorder
  • 16% have arthritis 
  • 11% take medication for asthma
  • 5.5% have diabetes
  • 4.6% have heart disease and 1.8% have had a stroke
  • 16% take medication for high blood pressure
  • 11% take medication for high cholesterol

The second major causal factor of high health care costs, says Professor McDonald, is end of life care. The costliest time of life in terms of health care is the last six months of a person’s life, regardless of their age of death. Advances in medicine mean there are now more treatments available to prolong life, albeit at significant cost and for perhaps only a short period of time.

So what does this all mean? People are living longer with and without disease. There are clear implications for personal financial planning. Retirement planning must factor in the high costs of care in the final months of life, when palliative, hospice or in-home care may be required. The burgeoning costs of health care in the public system and the increasing array of alternative treatment options may lead to an ever-widening gap between those who can and can’t afford to pay for their care.

Whether you like it or not, you face health risks as you go through retirement. If you choose to self-insure (by not buying health insurance), these risks do not go away. You will have to either rely on the public health system or pay the costs associated with these health risks yourself.

When deciding whether to self insure, the key questions you need to ask yourself are:

What are the risks?

You may have a known existing health condition which is likely to get worse or lead to other problems. There may be a family history of certain medical conditions.

What are the consequences of those risks?

There may be loss of enjoyment of life resulting from non-urgent conditions that put you on a long waiting list. If you are still working you may also suffer loss of income through illness.

How much risk are you willing to accept?

If you have significant financial assets, it may be possible for you to cover private health care costs yourself without affecting your standard of living. Alternatively, you might choose to have an excess on your policy so you share the risk with your insurer and pay a lower premium.

Health insurance passes the risk of medical costs onto the insurer, giving you peace of mind. Even if you don’t make a claim, the peace of mind is a benefit in itself.

Photo of Liz Koh
Written by:

Liz Koh

Liz Koh is a money expert who specialises in retirement planning. The advice given here is general and does not constitute specific advice to any person.

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