The curious case of Southern Cross' disappearing benefit

UPDATE: Southern Cross subsequently restored the link to the October 2020 briefing on their advisers portal and also provided me with a link - normally, since I’m not an insurance adviser, I wouldn’t be able to access such briefings.

The company does clearly state at just over an hour into the briefing that it was withdrawing the non-surgical hospitalisation benefit.

However, it also assured advisers that their clients would still be covered by other benefits.

It said it was removing it “to avoid confusion” that it said was occurring and the accompanying slide said that the changes would affect only about 25 of its members

The company said the benefit was most often used for non-cancer IV infusions.

What Southern Cross failed to make clear in the presentation was that a $ 60,000-a-year benefit was being replaced by a benefit worth $600 to $1,000 a year, depending on the type of policy, to cover non-cancer IV infusions.

ORIGINAL STORY:

“Insurance isn't sexy but you need it,” starts an annoying ad that keeps popping up on my phone when I'm watching something else on YouTube.

But much as insurance companies like to tell us they'll be there for us when disaster strikes, for an insurance company, the best type of insurance policy is one people never claim on.

And the next best type of insurance policy is one that people don't claim on very often.

Because the first task of any insurance company is to ensure its own survival and the only way to do that is to minimise claims and ensure you don't have to pay out in claims more than you take in from premiums.

This goes for not-for-profit friendly societies such as the Southern Cross Health Society just as much as it does for the likes of Partners Life or nib, two other insurers which offer health insurance coverage.

Last week, I learnt that being on Substack isn't a one-way street when two of my readers, both in the insurance industry, contacted me to tell me about a $60,000 a year non-surgical hospitalisation benefit that Southern Cross used to provide that had been removed, apparently without notice.

I reported on the situation for GoodReturns, a website which covers insurance, mortgages and financial advice issues, last week.

Was it notified?

Southern Cross claims it did tell both advisers and policyholders back in October and November 2020 when it removed the benefit.

The company's head of customer strategy and experience, Nic Johnson, says the benefit “was not widely utilised” and that it had been considered “no longer fit for purpose.”

Johnson also says “there are no material adverse effects for our members as a result of the update and this was an extremely important consideration for us when we made the changes.

“When assessing any change to our benefits in a policy, we consider the overall impact on members (the numbers claiming and cost/premium impact) and the maximum health benefit for all members for the premiums spent,” he says.

“It is an assessment process that ensures we are prioritising value for the overall membership.”

Johnson says the original intention behind offering the non-surgical hospitalisation benefit was “to cover treatment or observation in an approved facility, other than when following surgery, and under the control of a medical practitioner, excluding hospice, geriatic, oncology and psychiatric hospital care.”

A 2019 review found Southern Cross paid an average of $414 per claim for 801 members and that most of the claims were for IV infusions or overnight accommodation associated with sleep studies, Johnson says.

The ideal benefit

Maybe I'm dense, but isn't a benefit that customers hardly ever claim, and when they do claim, the amounts involved are small, the ideal type of benefit an insurance company can offer?

I mean, the ads almost write themselves about such a generous-sounding benefit.

Another factor undermining Southern Cross' claim is that other health insurers still offer similar benefits, the agents tell me.

However, the first part of Johnson's explanation does ring true because it's only now that Jon-Paul Hale of Willowgrove Consulting has become aware of the benefit's removal.

Hale explains he was on a disability benefit himself at the time of the removal and only became aware of it when one of his clients contacted him recently.

The client who brought the change to his attention had used the benefit extensively in the past for several hospitalisations to treat a drug-resistant e-coli infection in an organ, but hadn't needed it since early 2020 when the affected organ was removed.

“Recently, they have had a change in circumstances and budget concern, so they were looking at their options and noted this benefit wasn't there, and called me,” Hale says.

When Hale went to Southern Cross' “adviser gateway portal” and clicked on the relevant briefing that occurred in October 2020, he got a message: “This content is blocked. Contact the site owner to fix the issue.”

TBD, Southern Cross says

I asked Southern Cross what was up with that briefing, but the person who looks after the site is unfortunately on leave. The company has promised an update when that person returns.

But Hale was able to provide me with copies of Southern Cross' communications with its customers – it calls them members – both before and after the benefit was removed.

It doesn't look to me like the company did tell customers the benefit had been withdrawn.

That advice Southern Cross sent to members in November 2020, after the benefit had been dropped, said: “We're enhancing some benefits and making changes to provide more options.”

It went on: “So that plans are easier to use, understand and compare, we've made some changes to align and simplify them.

“There are new cancer cover options for some plans, giving you more choice, including access to cancer drugs not subsidised by Pharmac. Cover has been added for the latest proven new health technologies.”

The notification went on to detail a number of changes, including a new benefit paying $100 a year for an annual health check, but nowhere does it say the non-surgical hospitalisation benefit had been dropped.

Southern Cross' Johnson is claiming that the non-surgical benefit has been replaced with other benefits.

A catch-all

“The original intention of the non-surgical hospitalisation benefit was as a 'catch-all' for eligible healthcare services that required in-hospital medical treatment. Based on a 2019 review of our claims data, which showed that the benefit was not widely utilised, it was assessed that this benefit was no longer fit-for-purpose,” Johnson says.

“The majority of medical (or hospitalisation) claims at the time were already covered under existing benefits, such as the surgical procedures, chemotherapy, radiotherapy and diagnostic tests/imaging benefits,” he says.

These benefits “more precisely defined coverage, and, to align with this approach, the non-surgical benefit was repositioned so that it more acurately reflected what members received.”

The type of claims which the original benefit covered are now covered by and IV infusion (non-cancer) benefit “with any additional outlier reassigned to other benefits where it more appropriately fit,” Johnson says.

The IV infusion benefit provides up to $750 a year under Southern Cross' Wellbeing Two with a $500 excess policy, for example, and up to $600 in claims a year under its Kiwicare policy.

Johnson says other benefits that replaced the one removed include overnight stays associated with a sleep study, which continue to be covered under the diagnostic test benefit, and cardiac in-patient claims following private cardiac assessments that resulted in a member requiring same-day in-patient care.

Seeking clarity

The surgical procedures benefit continues to cover hospital stays for eligible medical healthcare services, such as injections provided by a specialist and pain management.

“In terms of the hospital accommodation, early admission for treatment is covered under the appropriate benefits,” Johnson says.

But I was provided an email chain of another adviser's communications with Southern Cross on the withdrawal of this benefit, and that adviser sums up the changes with much greater clarity: “So, to be clear, Southern Cross removed a $60,000 benefit and replaced it with three specific benefits worth a maximum $5,000 a year.”

Johnson says in the year ended Aug 31, Southern Cross paid out 1,608 claims towards sleep studies at a cost of $1,253,225 and another 819 claims for IV infusions at a cost of $418,965.

I make that an average of $779.37 per sleep study claim and $511.56 per IV claim, certainly more than the $414 average Southern Cross says it paid out under the original non-surgical hospitalisation benefit.

Hale and other GoodReturns readers have speculated on what Southern Cross' motivation might have been for withdrawing the benefit and one theory that could explain it is that the company was worried it might be on the hook for covid-related claims.

Public cover

Southern Cross says says that anybody with a bad enough case of covid to need hospital care would be taken care of by the public system.

“The public sector manages acute care, which includes hospitalisations for illnesses such as covid, and during the pandemic the government funded all covid-related healthcare and respiratory illnessess,” it says.

That's true as far as the immediate acute care is concerned.

But covid is well known to have triggered cardiac and other conditions that could be regarded as non-acute that people might want covered by health insurance.

Hale says other respiratory, kidney or liver conditions related to covid “would likely fall into the IV infusions bit, but $750 per annum falls far short of what might be needed.”

And he notes the climate of fear in NZ at the time the benefit was withdrawn. We had suffered only a handful of cases and the country was largely covid-free with our borders closed to keep new infections out.

“We had no idea how it was going to hit our medical system. I know the private hospitals were put on notice that public health might take them over. So there certainly was concern enough in the market that it was going to hit hard,” Hale says.

But Southern Cross says its review was carried out between June 2018 and May 2019, long before covid hit our shores.

Mmmmm.

Correction: I’ve corrected the first date in the last sentence.

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