Households cut health insurance, despite rising claim payouts

New Zealanders are increasingly opting out of health insurance, even as the value of claims paid by insurers has surged over recent years. A new report, commissioned by the Financial Services Council, reveals that nearly one in ten policyholders, 9 percent, canceled their coverage in the past year, marking a rise from 7 percent in 2022. This trend comes amid a sharp increase in the average payout per insured individual, which climbed from $1097 in 2021 to $1921 in 2025. The data highlights a growing disconnect between the rising cost of health insurance and its perceived necessity among households. Premiums have spiked by nearly 75 percent over the past five years, pushing some consumers to reconsider their coverage. According to Kirk Hope, chief executive of the Financial Services Council, this situation poses a challenge for both individuals and the broader healthcare system. He emphasized that while insurance plays a critical role in funding care and shielding families from financial strain due to medical issues, the current trajectory suggests many are withdrawing support at a time when demand for coverage is increasing. The report underscores the complexity of the issue, noting that as treatment costs climb and the use of health insurance expands, more households are finding themselves unable to afford the premium hikes. Hope pointed out that this withdrawal of coverage could hinder timely access to care, especially given the role insurance plays in enabling early intervention. For those who drop their policies entirely, reinstating coverage later may involve navigating the underwriting process, potentially excluding coverage for pre-existing conditions. Approximately 35 percent of adult New Zealanders hold private health insurance, with nearly half of these individuals covered through employer-sponsored or group schemes. Hope suggested that the government could alleviate pressure on both employees and employers by eliminating the fringe benefit tax applied to such plans. Currently, employers face a 50 to 70 percent tax burden on premiums for employee-funded insurance, making it costly for businesses to offer low-cost or free coverage. Removing this tax, he argued, would encourage more widespread adoption of health insurance without placing undue financial strain on employers. The findings reflect a broader debate around the affordability and accessibility of health insurance in New Zealand. While the Financial Services Council advocates for strengthening the existing framework to build a more resilient health system, critics argue that the rising costs are deterring participation. The council’s report highlights the potential benefits of integrating private insurance more effectively into the national health strategy, ensuring that coverage remains accessible and affordable for all segments of the population. As the government weighs options for addressing the challenges facing the health insurance sector, stakeholders continue to emphasize the importance of balancing cost containment with equitable access. The push for policy changes, including tax reforms, aims to reduce barriers for both individuals and employers seeking to maintain or expand coverage. With health insurance playing an increasingly vital role in managing personal and public health expenditures, the coming months will likely see further discussions on how best to align regulatory frameworks with evolving consumer needs.