Chapter 7 - Healthcare products Flashcards
Briefly describe legislation pertaining to healthcare products (in general and in SA).
Highly regulated environment
Covers the provision of healthcare services, as well as the nature of health insurance
State often plays role in provision by having mandatory requirements for health cover
In SA:
Indemnity medical expense cover is only permitted to be provided by medical schemes which are mutual funds.
Long-term and short-term insurers are permitted to offer certain healthcare products, but which are not indemnity cover
What is the difference between indemnity cover and stated benefit/stated sum cover?
Indemnity cover provides benefits related to to the amount of the loss incurred, or even provide access to health care in the case of health insurance products.
Stated benefit cover defines the benefits that is payable on the occurrence of a defined health event in the policy document, regardless of the loss amount incurred.
What are the key features of short-term healthcare contracts?
Annual cover which can be renewed
Could be several claims from one policy
Claim amounts are unknown and volatile (indemnity cover)
Can be delays in reporting and settlement of claims
What are the key features of long-term healthcare contracts?
Term is much longer than a year
Cover usually ceases on claim
Claim amount may be known with certainty (stated benefit cover)
Typically used for protection against ill health and death
Group versions are typically only for 1/2 years, but can then be renewed.
What is the main structure of long-term healthcare contracts?
Unit-linked
Discuss the main types of medical underwriting performed by healthcare companies?
Full medical underwriting
- Any pre-existing conditions will be excluded from cover
Moratorium underwriting
- Any conditions which existed in a pre-specified period before policy instantiation will not be covered
Medical history disregard (MHD)
- No exclusions for pre-existing conditions
- Common for group policy offerings
No worse terms
- Agree to cover at least as comprehensive as the policyholder’s current policy without further underwriting conditions
Continued personal medical exclusion (CPME)
- New insurer promises only to carry forward such cover for medical conditions as existed under the previous insurance policy
Briefly discuss the main types of healthcare products.
Private medical insurance (PMI)
- Benefits provide for cover of medical expenses (indemnity)
- Could also include access to healthcare benefits
Critical illness (CI) - Benefits provide for a sum assured to be paid on diagnosis of one of a specified list of conditions (stated benefit)
Long term care (LTC)
- Provide for custodial care where a policyholder has diminished capacity with regards to ADLs
Other products
- Offer some benefit contingent on occurrence of health event
Define provisions and outline the typical features of provisions of healthcare providers.
Money set aside to meet future liabilities.
Mainly incurred but not yet reported reserve (IBNR)
- Claim events which have occurred but which the healthcare provider does not yet know about
Run-off triangles used to calculate provision levels
Briefly discuss the insurance principles of mutuality and solidarity.
Mutuality
- Pooled fund is created from premiums of policyholders
- Premium paid is determined by risk presented by policyholder
- Claims are paid out of the pooled funds in accordance with the policyholder agreement
- High-risk lives might not be able to access cover due to affordability, which could have adverse social implications
Solidarity
- Pooled fund is created from premiums of policyholders
- Premiums are set based on ability to pay, or equally for all
- Claims are paid according to need, e.g. sicker will claim more even though they contributed same amount as others
- Open enrolment of medical schemes is an example of solidarity principle in SA
List the main providers of healthcare insurance products.
State (Proposed NHI in SA)
Donor organisations
Mutual organisations (medical schemes in SA who provide indemnity cover)
Insurance companies (only stated benefit cover in SA)
List the key risks for healthcare insurance product providers
Claim volatility
- frequency
- amount, volatility
- delays in settlement
Accumulations of risk due to high correlations in claim frequency
Investment risks
Expenses risk
Poor persistency (lapses and renewals)
Poor business mix due to upgrades, downgrades and anti-selection
Underwriting risk
Credit risk
Operational risks
Availability of claims data
Discuss the main reimbursement mechanisms in order of least risk transfer to most risk transfer (to the actual healthcare provider.)
Fee-for-service
- Provider reimbursed for each service provided, with no restrictions on cost of the service
Negotiated fee-for-service
- Remuneration rate for each type of service is defined through negotiations, or being defined in advance
- May lead to policyholders covering part of the cost
Global fee
- Fixed tariff or fee per occurrence of care required
Capitation
- Fixed amount is paid per policyholder who has the option to use the service
- Fee is paid whether service is used or not
Outline some of the important trends which have been observed in the healthcare industry.
Public good characteristics and universal access
- Healthcare is often regarded as a basic human right
- Demand for private provision is driven by state budgetary constraints
Information asymmetry
- Quality information about range and quality of healthcare is difficult/impossible to obtain
Over-supply and over-demand
- Leads to unnecessary services (over-supply) and individuals believing they require unnecessary treatment (over-demand)
High medical cost inflation
- Driven by rapid and expensive technological advances, as well as high demand
Uncertainty of timing and nature of healthcare services needed
- Individuals likely to underestimate need for planning financially for healthcare needs
- Adds pressure to employer-funded and state-funded systems
Discuss PMI
Definition of benefits:
- Usually indemnity cover
- Provide compensation for cost of private medical treatment
- Extent of cover will depend on level and quality of state services offered in the country
- PMI is known as medical aid or medical scheme cover in SA (PMI in UK)
Use to meet customer needs:
- Provide for all forms of healthcare needs beyond those offered by the state
- These extra needs could include:
1) immediate care (no waiting)
2) higher standard of accommodation
3) Doctor of choice
4) Access to local or private hospital
Existence of a group version:
- Used by employers to cover medical needs of several employees
- Pre-existing conditions are more likely to be covered under grouped products, especially if membership is compulsory, due to a lower degree of anti-selection
List the main risks that arise with offering healthcare cover on an indemnity basis.
Fraud
- claim for more expensive benefits than are necessary
Moral hazard
- Possibly act in more unhealthy ways since medical costs will be covered
- Opt for more frequent and more elective procedures
Insurer exposed to selective lapses, which increases the burden on the risk pool
Could also mention
- liquidity risks
- inflation risks (especially medical inflation, but mitigated through short term of contracts)
