Health cover has become a downtime hedge that FBT still punishes

1News asked this week whether health insurance is still worth having. That is the household version of the question. For employers it is a different question. Does private cover keep skilled people at work while the public system makes them wait? The evidence increasingly says yes. The tax system still treats that cover as a perk to be taxed rather than a productivity tool.

The workplace is where cover actually grows

Broad uptake has gone nowhere. New 2026 analysis by Martin Jenkins for the Financial Services Council puts coverage at 1,519,000 adults, or 35%. That figure has been largely static for a decade and sits below the OECD average. The same report finds 43% of policyholders are on an employer-subsidised group scheme, and a further 11% were previously subsidised by an employer.

The shift began in earnest after Covid. In 2023 Southern Cross reported a 170% increase in business join-ups, with 3,500 businesses covering 503,000 employees. Then-chief executive Nick Astwick credited the tight labour market and strain on the public system. The case was never only corporate. That same year Ngāti Awa Social and Health Services spent more than $100,000 covering 110 staff. Its then-chief executive had noticed sick leave climbing among staff waiting for surgery.

Waiting is the expensive part

That is the real business cost. A worker on a waitlist is often on reduced duties, on and off sick leave, or quietly looking for an employer who offers cover. NZIER’s August 2026 modelling estimates that among Southern Cross policyholders alone, up to 10,459 waitlist events could shift to private care, saving 471,630 waitlist days. That is 52.6% of expected public waitlist days. It puts indirect benefits from lower absenteeism and faster return to work at $222.1 million.

The productivity argument is not new. Back in 2010, NZIER found ill health was costing about 2.3% of all hours worked. The state has effectively conceded the point too. A 2025 Ministry of Health briefing referenced the government’s plan to expand private contracting of elective services to cut public waitlists.

The product is getting dearer and shakier

None of this makes cover cheap. In 2025 BusinessDesk reported that premium increases jumped to 14.5%, up from 7.4% the year before. That was among the steepest rises in Asia-Pacific. The insurer economics explain why. The same ministry briefing showed Southern Cross paid $1.498 billion in claims in 2023/24 and posted a $99.1 million deficit, with half of members claiming against a third in 2019. In 2024 Astwick said 93% of premium revenue went straight back out in claims.

Households are feeling it. Financial Services Council research in 2025 found one-third of insured people had downgraded or cut cover. That is exactly why the employer channel matters. It is where cover holds up when personal budgets crack.

FBT is the lever worth pulling

Which brings us to fringe benefit tax. NZIER’s 2026 report costs removing FBT on group life and health insurance at $210.7 million to $234.5 million a year in lost revenue. It sets that against $408.7 million in benefits, a net gain of $174.3 million to $198 million. That includes $57.9 million in direct relief for the public health system.

In 2025 the FSC’s then-chief executive Kirk Hope argued that FBT “discourages businesses, particularly small and medium-sized enterprises, from including insurance as an employee benefit.” He had a point. Large firms can absorb the tax. A 20-person engineering shop weighing a double-digit premium rise plus FBT often cannot.

There is a fair counterargument. Health economist Paula Lorgelly argued in 2025 that the deeper fix is a better-funded public system. That is true in principle. But businesses cannot wait for a funding settlement that has not arrived. A tax tweak that relieves public waitlists while cutting employer costs is hardly a giveaway to the private sector.

What to do before the next renewal

Employers reviewing remuneration should stop filing health cover under perks and start pricing it as downtime insurance. Check how much sick leave and reduced duty is tied to waitlists. Look hard at scheme design rather than cutting cover outright when the renewal notice lands. And with an election weeks away, ask every party where it stands on FBT for group cover. NZIER has done the costings. The question now is whether anyone in Wellington is prepared to act on them.

Sources

• 1News: Is it still worth having health insurance in NZ? (2026-10-17)
• Martin Jenkins for FSC: Insurance and health coverage statistics (2026)
• NZ Herald: Health insurance for staff on rise amid tight labour market and creaking public health system (2023-06-30)
• RNZ: Iwi health provider pays for staff health insurance, says public system too slow (2023-09-19)
• NZIER: The case for removing FBT on group insurance schemes (2026-08)
• NZIER: Private health insurance (2010)
• Ministry of Health: Aide-Memoire, Meeting with Southern Cross Health Insurance (2025-11-26)
• BusinessDesk: Employers turn to health insurance as public waitlists grow (2025-01-01)
• RNZ: Health insurance, ‘A noticeable shift in people prioritising their health’ (2024-10-02)
• RNZ: Health insurance crunch prompts calls for fringe benefit tax break (2025-07-15)
• NZ Herald: Is private health insurance worth it? (2025-10-04)