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Why bother with Medical Insurance?

Written by Russell Johnson on April 25th, 2012.      559 comments

Person in hospital
I am often asked "Why should I have private medical insurance when we have a public health system in New Zealand?"  This is a perfectly understandable question; clearly private medical insurance costs money we could use for other things, yet why do so many Kiwis have their own private medical cover?

Our public health system offers excellent care and is staffed by dedicated, skilled professionals; yet it is under pressure; you do not need to look too hard to find newspaper articles on the length of the hospital waiting lists in this country.  Behind the story of waiting lists for elective surgery is the suffering of those affected and unable to get prompt treatment.

It is elective surgery that is the issue.  If you have an emergency, for example an accident or a heart attack, will are most likely to get the help you need in a public hospital in a timely manner; in these circumstances the system generally works.

However if your condition is not an emergency, for example the removal of a cancerous tumor, a hysterectomy, replacement knee or hip joints, heart surgery, then you’ll probably  affect any of us at any age, and completely without warning.  Even getting diagnostic services such as MRI scans, CT scans, colonoscopy, laparoscopy etc. can involve waiting … before you even know what your condition is.  Waiting times for such procedures can take up to a year or longer: a condition left untreated can cause unnecessary long-term suffering and worry.

Medical insurance is therefore designed to give you the peace of mind that expert medical treatment is there when you need it.  You get choice over the surgeon, the time and the place of the treatment … and you can get a wide choice over the drugs to treat your condition if you have insurance cover that allows for this.

You see there are two main classifications of drugs in New Zealand; the Medsafe list and the PHARMAC list:

The Medsafe list includes all of the drugs that are approved for use in NZ.  This list tends to include the latest and best advances in medication; and these drugs can cost serious money, often tens or even hundreds of thousands of dollars per course of treatment.  Often the NZ government cannot afford to fund these through the public health system, so they tend not to be available to those to do not have the medical insurance cover that will pay for these medications … and only two insurers in NZ do!

The PHARMAC list contains the medications that are funded by the government through the public health system.  Often the drugs on this list are older, generic and cheaper … but at least our tax dollars can afford them!
The question of whether you have medical insurance is basically the same as any other asset you own, do you insure or take the risk.  People often take the view that their health is the most valuable asset they have, and therefore having the best medical care when necessary is the right decision for them.  We must all make our own individual choice.

Startling Statistics
New Zealand residents have the highest levels of anxiety about health care of any country in the OECD: 42% of Kiwis feared they would not be able to afford private medical care in the event of an illness, 38% worried they would be forced to wait too long for non-emergency care and 38% believed they wouldn’t get advanced care if they became seriously ill.¹

In May 2005 (the latest statistics I could find) nearly 28,000 people were waiting for elective surgery; almost 8,000 of them had been waiting longer than six months; I cannot imagine the situation has improved any. ²

Health insurers pay for around 72% of the cost of surgery performed in private hospitals.  They reimburse the actual costs of health care services charged by the market. ³

Have you considered your options?
What outcome would you want for your family should they need non-emergency (but still important) medical treatment?  It is probably a question we should all ask … so we make an informed decision rather than no decision.  It is important to remember that there are generally no waiting lists for surgery in private hospitals.
If you would like to know more about which medical insurance options would be best suited for your family simply contact for a no cost, no obligation consultation.

1. Commonwealth Fund 1998 International Health Policy Survey.
2. Ministry of Health, May 2005
3. New Zealand Health Information Service 2002


Will your home be an asset you can use in retirement?

Written by Russell Johnson on April 8th, 2012.      854 comments

For most of us our home our single biggest purchase; and we were raised to believe that paying off our mortgage and owning our home is the key to our financial security.  Whilst it is true this is something we should all aim for, how much will home ownership contribute to our lifestyle in retirement?

Blogg house photo

Much of this thinking came from times of high inflation; in times of low inflation as we have now we need to ask ourselves if our home will appreciate as much as we expect.  The real cost of home ownership of course also includes the amount of interest paid over the term of the mortgage, maintenance, rates and insurance.  Markets also go down as well as up; consider the impact of a downturn in house prices just prior to your retirement.

Using the Equity in Your Home
To tap into the equity in your home comes with costs; you have to pay the interest costs on the money you borrow against your home.  Securing a traditional mortgage after you have retired and no longer have an income may be difficult, so it may be necessary to use one of the reverse equity mortgages that are now available.  With these you do not have to pay the interest until your house is sold, the interest will accumulate and could over time account for a good part of the value in your home.  Reverse equity mortgages do have a place in your financial planning.  If you outlive your retirement savings and are in a later stage of your retirement a reverse equity mortgage can be an excellent vehicle for maintaining your retirement income.  However they are best relied on as a backup plan and if used in the later stages of your retirement the impact of the compounding interest is dramatically reduced verses beginning the funding of your retirement this way.
Downsizing your home is of course another alternative.  If you have paid off your mortgage then you could sell your home and buy a smaller, cheaper house, perhaps in a less desirable area; living off the freed up capital.  Of course you would need to invest the freed up capital wisely so it continues to work for you until you need it.  More often than not though the amount of capital released will not fund your entire retirement.  At retirement people typically do not wish to trade down as much as they originally thought they would, therefore less equity than expected is released for retirement.
It is possible that your home will provide you with both a place to live in retirement and also some of the equity you need to contribute to your retirement lifestyle.  However it is also important to understand that you might not end up with what you expect.  You should consider making real estate a part of your larger retirement portfolio.  A Personal Financial Plan will help you to determine how your future may look relying solely on your home equity to fund your retirement verses using real estate in a broader portfolio.