Posted on January 9, 2003

The New Zealand Health Care System


By Stuart Bramhall MD, past president Health Care for All-Washington

(In October 2002 Dr. Bramhall accepted a locum tenens position as a consultant psychiatrist in Christchurch New Zealand after third party reimbursement problems caused her Seattle practice of 20 years to become insolvent.)


New Zealand, with a current population of around 4 million, was one of the first countries in the world to provide universal health care.  Under the Social Security Act of 1938, the government began funding hospitals, although medical and pharmaceutical benefits were not fully effective until 1941. The health systems of New Zealand, the United Kingdom and Canada employ similar models; the government bears ultimate responsibility for the payment for health care, even when it is provided through private institutions.  (In contrast, Germany, France and Japan guarantee universal health care but employ “mixed” systems relying more on non-governmental funding sources, primarily employers and individual patients). 1

Helen Clark, New Zealand’s current Labour prime minister, has always had a strong commitment to universal, publicly accountable health care.  As Minister of Health she was responsible for implementing major reforms under the 1983 Area Health Board Act, restructuring the country’s 27 hospital boards into 14 area health boards with a population-based funding formula.  The restructuring was intended to introduce greater local accountability and administrative efficiency, in the face of escalating health care costs.  The 1983 Act successfully held health expenditure steady from 1980-1990, following a sharp rise during the 1970s. 2

In 1991 under a National (conservative) government, Ms. Clark’s area health boards were swept away and replaced by four regional health authorities headed by government-appointed commissioners.  Hospitals became Crown Health Enterprises with appointed boards of directors, and much health care was funded through market-driven competitive contracting.  It was a radical departure from a system of community involvement in health care which had largely been accepted by both political parties since the establishment of universal health care in the 1930s.

These monetarist reforms largely failed to produce promised benefits, and the new Labour Government elected in 1999 has begun to reverse most of its elements, including a return to community elected District Health Boards. 3

According to the New Zealand National Business Review, the current Labour government has plans to propose an additional tax this year to provide additional health service funding. 4  Taxation methods under consideration include: a general tax, a “social insurance” model (such as a payroll tax or extending the Accident Compensation Corporation, which is primarily employer funded, to include illness as well as injuries), “sin taxes,” and private contributions, such as user-payments and private health insurance.  The last option is unlikely to be enacted because the health insurance industry is not a part of the planning process.

How New Zealand’s National Health Care System Works

Each year the national government of New Zealand decides how much public money will be spent on health care.  These funds are then allocated to the District Health Boards (currently 21).  The national government provides broad guidelines on what services the DHBs must provide.  Some DHBs then purchase these services from a range of providers including public hospitals, non-profit health agencies, iwi (Maori) groups or private organizations.  Other DHBs run public hospitals, preventive services, such as the National Cervical Screening Programme, health promotion activities and public health nursing services.

The first point of contact is usually through a primary health care provider, such as a GP, accident and medical centre, midwife, independent nurse practitioner, Family Planning Clinic, optometrist, dentist or complementary therapist.  Specialists can only be seen after referral from a GP or midwife.  Patients are personally responsible for the GP’s fee, ranging between $35-65 NZD ($13-33 USD).  However specialty care, which is generally delivered through the public hospital outpatient department, is fully covered by the DHB.

Low income (annual income under $9,800 USD for single person living alone) New Zealand residents are eligible for a Community Services Card (CSC).  The government subsidizes GP visits for patients with a CSC – adults with a CSC receive a $15 subsidy, children age 6-18 a $20 subsidy.

A CSC also entitles patient to receive additional subsidies on prescription drugs.  The normal charge to a patient for a subsidized drug is $15 ($10 for children) per prescription, up to 20 prescriptions per year.  Adults and children six and over with a CSC pay $3.00 per prescription.  Children under six with a CSC pay nothing.

There is also a High Use Health Card (HUSC) which allows for additional subsidies for GP visits and prescriptions.  To be eligible for a HUSC, which is not means tested, an individual needs to have visited the doctor more than 12 times in one year.

Families not qualifying for a CSC or a HUSC qualify for a Pharmaceutical Subsidy Card (PSC) after 20 prescriptions and pay only $2 per prescription.

Other Covered services

In addition to specialist inpatient care, other health services are handled as follows:

•    Laboratory tests and x-rays: fully covered by the DHBs through the public hospitals.

•    Physical therapy and osteopathic and chiropractic care:  partially subsidized by the DHBs, provided there is a physician referral.

•    Acupuncture, naturopathy, homeopathy and other alternative therapies:  not covered unless provided by a registered physician or midwife.

•    Dental care:  limited dental services available in some public hospitals in some areas, but the majority of patients pay privately for dental care.

•    Long term care:  nursing home care is based on income and needs assessment, like Medicaid financed nursing home care in the US.  The DHBs fund home health care.

Accident Compensation Corporation

Treatment for accident-related illnesses (including the psychological consequences of childhood sexual abuse) are subsidized by the government funded Accident Compensation Corporation (ACC), which also provides generous time loss benefits.  Copayments for medical services and prescriptions funded through ACC are generally lower than those funded through the DHBs.

Special High Cost Treatment Pool

The Ministry of Health sets aside $6.5 million a year for “one-off” treatments not otherwise funded by the public health system.  District Health Board specialists apply to the Ministry of Health on a patient’s behalf.

These special high cost treatments include highly specialized medical treatments, frequently obtained overseas (examples:  simultaneous pancreas and kidney transplants, separation of Siamese twins, gender reassignment surgery, epilepsy surgery, diode laser treatment for melanoma of the eye).  About four out of every five applications were accepted in 2001 (with around 40 patients receiving funding for treatment).  Some applications were declined because the funding for treatment was available elsewhere in the public health system.


PHARMAC is the government agency, established in the 1990s, which decides which prescription drugs will be on the Pharmaceutical Schedule to receive full or partial governmental subsidy.  PHARMAC has been a pioneer internationally for its ability to hold down prescription costs.  Before drugs are put on the schedule, there is a strong burden on drug companies to demonstrate not only that their products are effective, but also more cost effective than similar products.  After negotiating with drug companies for the lowest possible price, PHARMAC typically sets a dollar amount for the subsidy of all medicines in what they call “therapeutic sub-groups.”  Usually this amount is set at the manufacturer’s price for the least expensive drug in a given category.  (For example in each category of H2 blockers, calcium channel blockers, ACE inhibitors, proton pump inhibitors, serotonin reuptake inhibitors, atypical antipsychotics, etc., the least expensive medication would be fully subsidized.)  If a brand name drug priced higher than the subsidy is prescribed for a patient,, he or she is required to pay the difference.

The transnational pharmaceutical companies don’t like PHARMAC very much.  They have filed numerous lawsuits alleging “non-competitive price setting,” patent and intellectual property infringement, and restraint of trade.  Numerous drug manufacturers have closed down their New Zealand operations altogether.  All private medical insurers limit claims reimbursement to medications included on the Pharmaceutical Schedule, and significant sales of most medications are impossible unless they are on the schedule.

Unfortunately for mental health consumers, PHARMAC has had difficulty dealing with the fact that psychiatric patients often react differently to different drugs within the same class, making these drugs not truly interchangeable.  It is also unfortunate that historically PHARMAC focused exclusively on the cost of the drugs and not on the total health economics of such illnesses as schizophrenia, bipolar disorder, major depression and obsessive-compulsive disorder.  Unique antidepressants such as Effexor, Wellbutrin and Remeron are essentially unavailable in New Zealand (because they aren’t subsidised), and only after a long fight have Zyprexa, Clozaril and Risperdal been made available.  Fortunately recent PHARMAC policy statements suggests that the agency is beginning to give global health care costs more weight in the approval process.

Emergence of Two Tier Health Care System

Unfortunately, starting in the 1980s New Zealand has been subject to the same neo-liberal, free-market-is-best, structural adjustment forces operating in other industrialized countries.  As in other countries, the primary effects have been deep tax cuts, a freeze in public sector salaries, massive cuts in health care, education and social services (in New Zealand 30% of children live in poverty) and soaring profits for a wealthy elite.  Systematic cuts in health care spending (under both Labour and National Parties) starting in 1984 have led to a significant deterioration in health standards among working and middle class people – and the emergence of a two-tier health system.  An increasingly expensive and exclusive private system caters to the wealthy who can afford their own health insurance, alongside an underfunded and inadequate public system for the mass of the population.

The Public Tier: Effects of Underfunding

The Commonwealth Fund has funded a series of studies comparing New Zealand ‘s health care system to systems in other OECD (Organization for Economic Cooperation and Development countries).

Rank in Spending and Health Parameters: 5

•    New Zealand spends 23% less than the OECD average on health care ($1,352 per capita per year in 1999.

•    New Zealand has lowest average hospital stay of any OECD country (6.5 days) and the lowest per capita spending on pharmaceuticals.

•    In the 1960s New Zealand had the lowest infant mortality in the world.  By 1999 it had dropped to 12th lowest (7.4 deaths per 1,000 live births – more than twice the infant mortality of Japan).  Asthma death, cancer, diabetes and heart disease levels had also increased disproportionately to population levels.

Access to Health Care:

•    New Zealand residents have the highest levels of anxiety about health care of any OECD country surveyed:  42% of New Zealanders feared they wouldn’t be able to afford medical care in the event of illness, 38% worried they would be forced to wait too long for non-emergency care, 38% believed they won’t get advanced care if they become seriously ill. 6

•    In 1998 one out of every four 7 and in 2001 8 one out of every seven New Zealand residents reported going without needed health care due to costs.  In the same study, one out of every five US residents, one out of every 10 Australian residents, one out of every 12 Canadian residents and one out of every 25 UK residents reported going without needed health care due to costs.

•    In 2001 11% of New Zealand adults reported it was very or extremely difficult to see a specialist when needed.  In the same study 17% of US adults, 16 % of Canadians, 13% of Britons and 12% of Australians complained of difficulty seeing a specialist.  47% of New Zealand patients reported that costs posed a barrier to specialist care.  In comparison 49% of US residents, 33% of Australian residents and 5% of Canadian and UK residents reported a cost barrier to specialist care.  Canadian and UK residents were more likely to report long waiting times posing a barrier to specialist care (41% and 46% respectively).

Waiting Times (2001 Data): 9

•    69% of New Zealand patients reported being able to see their doctor the same day.  In comparison 62% of Australian patients, 42% of UK patients, 36% of US patients and 35% of Canadian patients were able to see their doctor the same day.

•    43% of New Zealand patients reported waiting one month or less for elective surgery.  In  comparison 63% of US patients, 51% of Australian patients, 38% of UK patients and 37% of Canadian patients waited one month or less for elective surgery.

•    26% of New Zealand patients reported waiting four months or more for elective surgery.  In comparison 38% of UK patients, 27% of Canadian patients, 23% of Australian patients and 5% of US patients waited four months or more.

The Private Tier: Emergence of Private Insurance

While New Zealand patients still have no difficulty with access to emergency procedures, the cutbacks in public funding for the health care system have resulted in fairly long queues for a variety of elective procedures.  Patients with financial resources avoid waiting by seeking treatment in private hospitals or clinics.  Private insurance, usually Southern Cross, is available to help pay for private medical care.  Because most insurance is purchased by individual patients (rather than employers), the private insurance market in New Zealand is still quite small (only 40% of residents have private coverage), and does not have the clout to dictate physician fees as in the U.S.  Patients are frequently shocked to discover a large gap between the physician or hospital charge and the insurance reimbursement.  Moreover Southern Cross is notorious for denials based “pre-occurring,” as well as “pre-existing” conditions.  Thus treatment for a new gastric ulcer would be denied if a patient had any prior lifetime treatment for gastric ulcer.  Likewise surgery for a recently diagnosed exotropia in a four year old child would be denied – because it’s presumed to be congenital.

Southern Cross subscribers are also extremely unhappy about premium increases between 10 and 50 per cent in 2002.  The company blames premium increases on “escalating claims, computer system glitches and the emergences of two strong competitors in the market.” 10

Mental Health in New Zealand

As in the U.S., Mental health services have traditionally been the Cinderella of the New Zealand health service, characterized by underfunding and national scandals (typically related to violent death attributed to

mental illness).  In the early 1990s a National Mental Health Strategy was introduced, all major New Zealand political parties agreeing that mental health had been underfunded.  Despite improvements in many mental health services, developments have been patchy and there have been major problems recruiting psychiatrists and psychiatric nurses.  Before the 1970s New Zealand trained few psychiatrists and even then part or most of the training took place in Australia, the UK or North America – and most failed to return to practice in New Zealand after their training overseas.

The founding of the Royal Australian and New Zealand College of Psychiatrists in 1978 resulted in an increased number of local psychiatric training posts.  New Zealand now has four academic departments of psychiatry, in Auckland, Wellington, Christchurch and Dunedin, and is probably training sufficient numbers at present to sustain an adequate workforce in the future.  However for at least the next five years there will continue to be many vacancies, which is why most New Zealand mental health services are constantly advertising posts in the UK and North America.

Private Practice Psychiatry

Private psychiatry is extremely limited in New Zealand, primarily because insurance coverage for private psychiatric treatment is virtually non-existent.

Psychiatric Research

Disputes between PHARMAC and several pharmaceutical companies have resulted in less pharmaceutical funding of research in New Zealand than in North America and Europe. Thus New Zealand may be spared the toxic effects of drug company research funding on “evidence based” psychiatry.  Pharmaceutical companies are narrowly focused on newer, higher priced medications with remaining patent life.  Because information about long term effects will not be helpful until after the patent expires, drug companies are primarily interested in 6 to 24 weeks double blind studies.  Information from these studies is helpful in the early marketing of drugs.  There is no incentive for drug companies to fund studies monitoring patients’ long term response or long term side effects of medication.  This is a world-wide problem.

Sydney Wolfe, who edits the Public Citizen Health Letter in the US, has been monitoring frank abuses of drug company funding of research. 11  Examples include so-called “clinical research,” in which psychiatrists are paid, in essence, to recruit patients to take specific medications, and the recent Neurontin scandal (which may result in criminal prosecution of Warner Lambert), in which the company paid doctors to appear as authors of journal articles on off-label uses of Neurontin, when in fact the articles were actually written by non-physicians working under the direction of the company’s marketers.

With little or no pharmaceutical company funding, the Department of Psychological Medicine at the Christchurch School of Medicine receives research funding from the Health Research Council of New Zealand, the University of Otago (the parent university of the school of medicine) and the Mental Health Division of Canterbury DHB.  This department completed major epidemiological studies in the 1980s (based the American National Institute of Mental Health Epidemiological Catchment Area Studies), and clinical trials on depression, bulimia nervosa and anorexia nervosa in the 1990s.  Academic research can continue without major drug company funding.

1 Chernichovsky, Health System Reforms in Industrialized Democracies:  an Emerging Paradigm, Milbank Quarterly, Fall/1995. 2 Political Football, Christchurch Press, Oct. 19, 1999. 3 Joyce, Focus on Psychiatry in New Zealand, British Journal of Psychiatry (2002), 180, 468-470. 4 National Business Review (, Dec. 6, 2002, page 1. 5 Anderson and Hussey, Multinational Comparisons of Health Systems Data 2000, Commonwealth Fund. 6 Commonwealth Fund 1998 International Health Policy Survey. 7 Ibid. 8 Blendon, DesRoches, Osborn, Schoen, Comparison of Health Care System Views and Experiences in Five Nations 2001: Findings from the Commonwealth Fund 2001 International Health Policy Survey. 9 Ibid. 10 Insurer Reviews Premiums But No Guarantee, Christchurch Press, 10/17/02. 11 Big Pharma Buys Psychiatry:  An Aura of Scandal, Public Citizen Health Letter, 18:7, July 2002.