Financial adviser Maryann Pratt explains why private health insurance in New Zealand is heading for a death spiral, why that matters for our public health system and our nation, and why financial advisers should care.
Most of us have had the conversation this year. A healthy client in their 30s looks at a renewal notice with another double-digit increase and asks, “Why am I paying for this?” Some of them cancel. That one decision, repeated tens of thousands of times, is the biggest threat facing private health insurance in New Zealand.
Medical inflation almost doubled in New Zealand in a year, from 7.4% in 2024 to 14.5% in 2025. Aon forecasts employee medical plan costs will rise another 18% in 2026, against an Asia-Pacific average of 11.3%.
The average claim paid per member is up 75% since 2021. Clients are responding. An estimated 80,770 people in New Zealand ended major medical cover in 2025, and the termination rate has climbed from 7% in 2022 to 9% in 2025.
Why this is more than a bad year
The people leaving are mostly younger and healthier: the ones who claim least. Southern Cross members over 65 claim more than three times as much as those aged 35 to 49.
Every time a low-claiming member walks away, the same claims cost is shared among fewer, older members…
Every time a low-claiming member walks away, the same claims cost is shared among fewer, older members. Premiums rise again, more healthy people leave, and the cycle repeats.
Economists call it adverse selection. In its extreme form, it’s an insurance death spiral. We’re not there yet, but every ingredient is in place.
Australia has already run this experiment
After Medicare arrived in 1975, private cover in Australia slid from around 80% of the population to 30.3% by 1998.
The government then pulled three levers together: an income-tested rebate of 25–35% of premiums; Lifetime Health Cover, a 2% loading for each year past 31 that someone delays taking cover; and a levy surcharge on higher earners without hospital cover.
Coverage recovered and has held at 45–47% for 25 years. No single lever did it. The combination, sustained over time, did.
New Zealand’s adult coverage has sat between 32% and 38% since 2012. We’re roughly where Australia was in the early 1990s: strained, not broken. Fixing it now is far cheaper than rebuilding later.
This is a public health issue, not just an insurance one
Every client who cancels and later needs surgery joins the public waiting list. Health New Zealand is already paying private hospitals to take elective surgery off its lists, an admission that public capacity alone can’t meet demand.
We’re also an estimated 1,800 doctors short. Meanwhile, specialists are moving private. Between 2022 and 2024, private-sector specialist numbers grew 9.6%, against 4% in the public sector. A bigger, steadier pool of insured patients gives private hospitals the confidence to build theatres and recruit specialists from overseas. That’s the capacity the public system is now leaning on.
What we should be asking for
My white paper The Future of Private Health Insurance and the effect on Public HealthCare in New Zealand – September 2026 recommends a package, not a single fix:
- An FBT exemption on employer-funded health and life insurance. The Financial Services Council has already put this to government in its 2026 election manifesto. Group schemes bring whole workforces into the pool, including the young and healthy.
- An age-based loading modelled on Australia’s Lifetime Health Cover or Ireland’s Lifetime Community Rating. It rewards joining early and staying covered, and costs government nothing directly.
- A capped or flat individual tax credit targeted at new and younger entrants, with a review clause.
Design matters. The UK gave tax relief to over-60s from 1990 to 1997; when it was scrapped, only about 4,000 people dropped cover. Incentives must change behaviour at the margin: keep the people who would leave, and bring in the people who would delay.
Nobody sees cancellation decisions more closely than we do…
Where advisers come in
Nobody sees cancellation decisions more closely than we do. We know which clients are one renewal away from walking. That makes our voice credible. We should use it.
- Government: Write to your local MP and the relevant ministers. Feel free to reiterate the solutions that are easy and effective, citing the experiences of Australia and Ireland and the success of their initiatives
- Centres of influence: Talk to the accountants, employers and business advisers you work with. An FBT exemption makes group cover more affordable for their clients, and they may have their own lines into policymakers
- Insurers: Ask your BDMs and product teams whether they’ll back an industry-wide position rather than fight over a shrinking pool
The goal is simple: by making health insurance more accessible to New Zealanders via exemptions and tax incentives, this will fund private capacity to take pressure off the public system. The window to do that cheaply is open now. It won’t stay open.
Click here to see the white paper.
Maryann Pratt, a Certified Financial Planner, is the Managing Director at Professional Investment Services Manawatu in Palmerston North. She has been an adviser since 1995.