New Zealanders with health insurance are facing unprecedented premium increases in 2025. Global risk management firm, Aon, has given us a new and dubious title – announcing that NZ has one of the highest medical trend rates both in APAC and globally, viciously spiking from 7.4% in 2024 to 14.5% in 2025.[i]
In tandem, recent comms from nib reveal that all their major health insurance products – from Easy Health to Ultimate Health Max – will see identical 22% increases for policies renewing in March 2025. We’ve seen nib announce a staggering 22% premium hike, and Southern Cross follow with increases as high as 27.3% for some group schemes.[ii],[iii]
Yes, you read that correctly – premium increases exceeding 20%, and in some cases closer to 30%.
This isn't a typo or exaggeration. It's a stark reality for Kiwis as healthcare costs spiral upward at an alarming rate, far outpacing general inflation and economic growth.
Meanwhile, Southern Cross Health Society's renewal notices show equally concerning figures with an average 16.4% increase due to rate card inflation (base medical cost increases), plus individual adjustments due to ageing members.
Understanding the Health System Pressure Points
Annual inflation was reported at just 2.2% in December 2024.[iv] How has medical inflation risen so drastically by contrast?
Medical inflation is driven by a perfect storm: rising procedure costs, increased utilisation, expanded coverage for new technologies, and an ageing population (note that ageing alone accounts for 3.85% of Southern Cross's increase).
Our health system is under immense pressure from multiple directions:
The struggling public system: Funding challenges and lengthy specialist wait times push more people toward private options.
Medical inflation outpaces general inflation: Healthcare costs typically run at nearly twice the rate of domestic inflation.
Surging claim volumes: More people are making claims and claiming more frequently – creating a double-hit on insurers.
Rising procedure costs: Despite efforts like Southern Cross's Affiliated Provider program, the average cost per procedure keeps climbing.
GDP growth lags behind medical inflation: Our economic growth often falls below inflation rates, creating a mathematical certainty that healthcare will consume an ever-larger share of our budgets.
The Smile Effect of Healthcare Costs
The late Canadian retirement expert Barry LaValley identified the "smile effect" in lifetime spending patterns. We typically face heavy expenditure during our education and establishment years, then a period of lower costs, asset accumulation, followed by increased healthcare expenses in retirement – creating a U-shaped or "smile" pattern.
This pattern appears in Southern Cross's premium cost curve, which shows how premiums rise dramatically with age. This is because older members generally claim more in terms of cost.
The Self-Insurance Alternative
With such a dramatic rise in premiums, many New Zealanders will question whether private health insurance remains affordable. Some will reluctantly cancel policies and rely entirely on the public system – a system already struggling with capacity.
Others will consider "self-insurance" – establishing a dedicated healthcare fund. This approach requires serious financial discipline but may suit some individuals.
To self-insure effectively, you need enough to cover potential major medical expenses. Think one or two hip replacements or knee surgeries in reserve. Depending on your age and health status, this means saving $35,000-$70,000 specifically for healthcare emergencies.
You might contribute to this fund just as you would pay an insurance premium. To some, money in hand (or in funds) is more reassuring than a policy they may never claim on.
However, there's an important caveat to consider. The term "self-insurance" is misleading, because you’re not actually insuring yourself. You’re making another nest egg for specific use. This is not necessarily a bad thing, but it does not work in the same way - and it will take longer for you to be ‘covered’ than the stand-down period of an insurance policy.
True insurance works through risk-pooling: Some people will claim less than they contribute, while others will claim more, and many will never claim at all. This risk-pooling makes insurance more cost-effective than individually funding every possible healthcare need.
As one financial expert commented to me, "You cannot really be insured if you're the only one in the risk pool." Self-funding healthcare is less about insurance and more about personal savings with inherent uncertainty.
The Risk of Provider-Hopping
A common reaction to premium increases is to shop around for a better deal.
However, this strategy carries a serious risk that many overlook. When you switch to a new insurance provider, your new policy will typically include exclusions for any health conditions that have developed while you were with your previous insurer.
As we age, these pre-existing conditions become more common, meaning a switch to save money could leave you without coverage for the very health issues you're most likely to face. The short-term savings from changing providers could result in significant long-term costs if you develop a condition that your new policy excludes.
The Employee Benefit Advantage
If you're part of a group scheme where health cover comes within your employment package and membership is typically without health evidence – be thankful. Your employer absorbs these massive increases, also resulting in higher Fringe Benefit Tax (FBT) which they incur when passing an in-hand tax-free gift to employees.
As these premiums continue to rise, employees with employer-provided health insurance are receiving an increasingly valuable benefit and are shielded from the direct impact of these extraordinary increases.
Beyond Insurance: The Complete Health Financial Plan
Health planning is an integral part of financial planning – not just an insurance decision. Whether maintaining private health insurance despite rising costs or creating your own healthcare fund, this aspect of your financial future deserves careful consideration.
A comprehensive financial plan should account for preventative healthcare costs, emergency medical expenses, long-term care needs, and the impact of health status on retirement planning.
Many willingly spend on gym memberships and lifestyle pleasures – sometimes overdoing food, wine, or other indulgences. Some of these choices can create future health issues that compound into both health and financial problems.
The challenge is balancing financial health and physical health (and mental health, as this can play havoc with both our spending habits and overall well-being).
At some point, no amount of money can buy back neglected health. Regular check-ups and early intervention often prevent more serious and expensive issues later. The paradox is that many avoid doctor visits thinking "everything will be fine," only to discover that years of neglect require extensive (and expensive) intervention.
Making Your Decision
As health insurance premiums rise by 22-27%, each New Zealander faces a personal decision:
Maintain private health insurance with your current provider despite the increasing cost by carefully managing the type of cover you have and the policy excess, $500 through $4,000 – being how much you pay for each claim
Create a dedicated healthcare fund as self-insurance
Rely on the public system and hope for the best
Whatever path you choose, don't leave healthcare financial planning to chance. The costs are too high, and the consequences are too significant to ignore.
These dramatic premium increases will inevitably drive some to cancel coverage, placing additional burden on our struggling public system. For those who can afford it, the peace of mind may be worth the premium.
The one option that isn't viable? Ignoring healthcare in your financial planning altogether.
[i] https://www.aon.com/en/insights/reports/the-global-medical-trend-rates-report
[ii] Nib, 13/03/2025, “Update on premium discount changes for your clients’ renewals”
[iii] Southern Cross, 17/03/2025, “Important information about Employee Health Insurance Scheme renewal”
[iv] https://www.stats.govt.nz/news/annual-inflation-at-2-2-percent-in-december-2024/
Nick Stewart (Ngāi Tahu, Ngāti Huirapa, Ngāti Māmoe, Ngāti Waitaha) is a Financial Adviser and CEO at Stewart Group, a Hawke's Bay and Wellington based CEFEX & BCorp certified financial planning and advisory firm. Stewart Group provides personal fiduciary services, Wealth Management, Risk Insurance & KiwiSaver scheme solutions. Article no. 401.
The information provided, or any opinions expressed in this article, are of a general nature only and should not be construed or relied on as a recommendation to invest in a financial product or class of financial products. You should seek financial advice specific to your circumstances from a Financial Adviser before making any financial decisions. A disclosure statement can be obtained free of charge by calling 0800 878 961 or visit our website, www.stewartgroup.co.nz
