UPDATED: Southern Cross tries to contain rising premiums after posting $1.1m loss

UPDATED 4pm: Southern Cross Medical Care Society, the country's largest medical and health insurer, is planning to contain premium hikes this year through signing up more affiliated providers, cutting overheads through pushing claims online, and getting serious about fraud detection.

The Auckland-based insurer recorded a $1.1 million annual loss after higher than expected claims from members in the last four months of the June 2014 financial year, particularly for orthopaedic procedures and specialist consultations.

The not-for-profit insurer's annual report for the June 2014 financial year showed a record $694.5 million claims were paid out, up 8.7 percent on the previous year and that led to a turnaround from last year's $22,106 surplus to a $1.1 million loss.

Chief executive Peter Tynan said the society's major focus and that of the industry regulator was not on whether it made a surplus or a deficit, but rather than it maintained solvency. It currently is sitting well within the desired range with reserves equivalent to about seven months in claims.

"Our reserves came within 1 percent of where wanted to be - nearly $395 million when we had planned it to be $400 million," Tynan said.

The most important value figure for members, he said, was that for every dollar in premium income, the society paid out 90.4 cents to members. That was well above the industry average of 67.5 cents. The society earned $768.4 million in premiums, up 5.9 percent on the previous year, while overheads were slightly reduced by $700,000 to $93.5 million.

Membership also declined but in line with the industry trend to 815,447 members, down 0.3 percent on 2013. Still, the industry heavyweight's overall market share rose slightly to 61 per cent.

Tynan said the society's affiliated providers programme was a key way of helping mitigate the impact of rising treatment costs. Begun in 1997, the programme now involves over 1,000 providers who seek prior approval and handle claims on behalf of members.

Around 34 per cent of all Southern Cross claims now come under the programme and the aim is to grow that to 60 per cent by 2016.  Ten new procedures that would be covered by affiliated providers only were added this year and more will come this year, Tynan said.

There is resistance to the programme, now being copied by other industry providers, as it restrains the fees the private health providers can charge and locks out those that won't agree. Members have also protested when they can't continue using the specialist they prefer or have to travel a long way to an affiliated provider.

The number of claims covered by affiliated providers increased only 7 percent in the past year and Tynan said they would have to get "innovative" to meet the targeted 26 percent rise in the next two years. For example, it is considering signing up affiliated providers for everything that comes under a specific speciality such as orthopaedics, rather than just for certain procedures such as hip and knee operations.

Other tools for reducing costs include a push to getting more members and providers to claim online, although cost reductions from this shift have yet to show a significant benefit.

Tynan said a new area it was targeting was fraud prevention and detection. International benchmarks put fraudulent claims, including deliberate and non-deliberate, at between 2 to 3 percent of premiums. In Southern Cross's case that would amount to between $30 million to $40 million. Tynan said he didn't think New Zealand was faced with the same level of fraud and most detected so far had been "at the edges, such as providers mistakenly billing twice for an operation.

"We're catching up a little bit. ACC has been very vigilant in this area," he said.

Tynan doesn't think any one thing will be prove a panacea for curtailing rising premiums. "It needs to be a multi-faceted approach."

(BusinessDesk)