According to Aon's 2025 Global Medical Trend Rates Report, global medical costs were expected to rise by around 10% in the 2025 year, marking the second consecutive year of double-digit increases.
The problem is more local than one might imagine. While the annual inflation rate (for groceries, utilities, rates etc.) sits at 4.1%, the price of a NZ typical medical plan has roared upward by 17% in 2025. The forecast for the rate of increase for 2026 is projected to be 18% which is far above the global average.
[Image caption: Kids love playing doctor. The game gets a lot more serious as we face old age.]
The high cost of healthcare
Even compared with Australia, New Zealand faces higher healthcare costs. At a recent NIB webinar we attended, we heard a hip replacement in a private hospital can cost around $22,000 to $28,000 without health insurance.
And the price of a coronary artery bypass is not for the, er, fainthearted. Without health insurance the operation could set you back by somewhere between $83,000 to $110,000.
What is driving the increase?
The reasons for the ballooning health costs are woven together in a complicated tango of cause and effect. Our average life expectancy at birth in 1960 was 71 years. This figure has grown to 83 in 2026 (from www.macrotrends.net). The advances in diagnostics, medicine and surgical techniques have made this possible.
In that sense the shape of the healthcare system has changed. Today there is much greater use of diagnostic testing – think CAT and MRI scans - and this leads to a rise in specialists treating suspected health issues before they become fatal problems. In our old age we can expect several successful hospital episodes.
Let's not forget the top 3 chronic conditions such as cardiovascular disease, cancer and high blood pressure which are major contributors to healthcare demand and costs. As more people need ongoing diagnosis, treatment and monitoring, the financial pressure on the health system — and on households — continues to grow.
Insurance provides a buffer — but for how long?
Sitting in the wings of this story is health insurance and it is here that our clients most commonly confront the rapidly rising cost of medical care. Health insurance provides a shared financial buffer against the truly high health bills. It also provides shorter waiting times for treatment.
According to a RNZ article on 18 February 2023 about the woes of public healthcare, private hospitals are responsible for nearly 70% of elective surgery procedures in NZ (224,000 per year).
The crisis with private health cover is that the pool of members is currently skewed toward older people: the very people who are likely to require more expensive care. Insurance companies are putting up their prices as well as taking a tougher line on pre-existing conditions as well as what conditions get covered.
At the webinar, NIB indicated that the medical insurance industry is unlikely to suffer a structural failure and for the industry "the tide is turning to sustainability". But they recognise that there are concerns about private insurers, and their viability and sustainability to meet claims.
What does this mean for clients?
Health insurance premiums — As premiums rise faster than CPI inflation, there is a strong case for building an emergency fund in lieu of choosing policies that are too comprehensive.
Retirement income planning — It is worth reviewing the level of portfolio drawings to allow for increasing living costs and testing how long your money will last if costs rise faster than CPI. Check in with your adviser for some projections.
Cash-flow management — A medical event can create costs beyond hospital treatment such as healthier but more expensive food choices or medicines not funded by Pharmac.
Cover decisions — Review cover levels, excesses and affordability so insurance remains fit for purpose. Increasing an excess or removing non-essential benefits can reduce premiums, while any decision to drop cover should be weighed against how much you are prepared to self-fund.
Increasing the excess on your medical plan can be a simple way to trim down premiums. LifeDirect, an insurance advice business with a DIY quote comparison website, estimates that adding a $1,000–$4,000 surgical excess to Southern Cross cover could lower premiums by 20–40%. This excess usually applies only to surgical hospital claims, not GP or specialist visits.
The best financial strategy is to stay healthy.
Ultimately prevention is the key to reducing the risk of an expensive health episode.
- Keep active, eat sensibly and have regular check-ups.
- Maintain suitable emergency and healthcare reserves.
- Have a financial plan that gives you confidence and peace of mind.
- Build flexibility into retirement spending assumptions.
- Review medical cover as premiums and personal circumstances change.
