Chapter 7: Healthcare products Flashcards
(23 cards)
What are the key features of short-term healthcare contracts?
- Cover is typically provided for a single year and can then be renewed
- There can be multiple claims
- Claim amounts are generally unknown and can be volatile
- There can be delays in reporting and settling claims
What are the key features of long-term healthcare contracts?
- They are long term
- Cover usually ceases on claim
- The claim amount may be known with certainty
- They are used for protection against ill health or death, as well as savings
- Group versions are typically only for 1 or 2 years, but can then be renewed.
What are the different types of underwriting for short-term contracts?
- Full medical underwriting: Any pre-existing conditions will be excluded
- Moratorium underwriting: Instead of medical underwriting at the time of application, the insurer states the cover will not cover any medical conditions that existed during a pre-specified period prior to the policy commencing
- Medical History Disregard (MHD): There are no exclusions for pre-existing conditions. More likely to apply on group policy offerings
- No worse terms: The new insurer agrees to cover at least as comprehensive as the policyholder’s current policy, with no additional underwriting conditions.
- Continued Personal Medical Exclusion (CPME): The new insurer promises only to carry forward such cover for medical conditions as existed under the previous insurance policy.
Aspects to consider in product design
- Customer acceptability
- Regulatory requirements
- Price competitiveness
- System capabilities
Main types of healthcare products
- Private medical insurance (PMI) - Benefits provide for cover of medical expenses
- Critical illness (CI) - Benefits provide for a sum assured to be paid on the diagnosis of a specified list of conditions
- Long-term care (LTC) - Benefits provide for custodial care where a policyholder has diminished capacity, usually measured with reference to activities of daily living
- Other products - These usually offer some benefit (possibly a cash amount) contingent on the occurrence of a health event.
How can medical expenses cover be limited under PMI?
- Overall financial limits and / or sub-limits
- The level of the reimbursement rate for specific healthcare services
- Whether the limit covered services to a network of healthcare providers
- Whether to provide out-of-service hospital benefits
- Whether to include medical savings accounts
- Benefits required by legislation
- Risk transfer mechanisms
What values need to be determined when setting premium / contribution rates?
- Claims
- Expenses
- Commission
- Risk-transfer arrangements
- Non-premium income
- Reserve loading requirements
Describe the principle of mutuality in healthcare
A pooled fund is created and premiums are paid into the fund by policyholders
The premium paid by the policyholder is determined by the risk presented by the policyholder at the time of taking out the contract.
Claims are paid out of the pooled funds in accordance with the policyholder agreement.
What is solidarity?
Solidarity is similar to mutuality in that they both involve the concept of sharing losses.
However, the main differences are:
1. Under solidarity principles, the premiums are not based on risk, but rather on the ability to pay, or are set equally.
2. Under solidarity principles losses are paid according to need.
What is the main type of reserve required in healthcare?
Incurred but not yet reported (IBNR)
This is a reserve for claim events that have occurred but which the healthcare provider does not yet know about.
Why may short-term insurers require reinsurance?
- They need protection against large claims
- They will be able to take on larger risks and more risks than they otherwise could
- They can reduce the impact of accumulations of risk and catastrohpes.
Why may long-term insurers require reinsurance?
- They need to cope with claim payout fluctuations.
- They need to finance new business strain
- They need to obtain technical assistance and data for pricing new contracts.
What are open medical schemes?
Open medical schemes are obliged to accept anyone who wants to become a member at standard contribution rates, and a minimum benefit package is prescribed under legislation.
List 4 entities that may be involved in the provision of healthcare services and health insurance
- State provisions and NHI
- Subsidised healthcare through donor organisations
- Mutual organisations
- Insurance companies
List the key risks under healthcare products
- Claim frequency, benefit amount, volatility and settlement delays
- Accumulations of risk, catastrophes and large number of large claims
- Investment risks, e.g. poor or volatile returns, falls in asset values, default risk
- Expenses being higher than expected
- Poor persistency, i.e. high lapses and low renewals
- Poor plan mix due to upgrades, downgrades and anti-selection
- Underwriting risk, i.e. failure to properly disclose pre-existing conditions credit risk, i.e. failure of a counterparty such as a provider, reinsurer or a broker.
- Operational risks, e.g. fraud, systems failure, regulatory changes
- Availability of claims data
Discuss the 4 reimbursement mechanisms for healthcare costs
- Fee-for-service: Providers are reimbursed for each service provided. No restrictions apply on the cost of service
- Negotiated fee-for-service: The tariff or remuneration rate for each type of service is defined - through negotiations or being defined in advance. This may lead to policyholders having to cover part of the costs through out-of-pocket payments
- Global fee: There is a fixed tariff / fee per episode of care with the service provider assuming some risk for the level of services required per patient.
- Capitation: A fixed amount is paid per policyholder / beneficiary who has the option to use the service. The fee is paid regardless of whether the service is used or not.
Aspects of healthcare markets that distinguish it from other markets
- Public good characterisitcs and universal access.
- Information asymmetry, over-supply and demand
- Information about the range and quality of healthcare services relate to cost is difficult, if not impossible, for consumers to obtain.
- Rapidly increasing costs of healthcare services
- Importance of health insurance
Private medical insurance (PMI)
PMI and related products are usually indemnity-based products that seek to provide compensation for the cost of private medical treatment. Private medical treatment refers to medical expenses that would otherwise be funded by individuals or employers outside of the state-funded services in a country. The extent of this sort of cover will depend on the level and quality of state services offered in a specific country.
If no state-funded care exists, then PMI will usually provide for all forms of healthcare needs on an indemnity basis.
If the state provides some level of healthcare to all, then PMI is usually bought when an individual requires a higher level of care.
Group versions of PMI do exist, and employers often use them to cover several employees. Benefits and exclusions are generally similar between group and individual products, although pre-existing conditions are more likely to be covered under group business due to a lower degree of anti-selection. This will especially hold if cover for the group is on a compulsory basis.
Critical illness cover
The benefit under this policy is typically a lump sum, but can be structured as regular income, payable if the policyholder suffers one of the defined conditions.
This product is not designed to indemnify the policyholder, however, there are a variety of other needs met by critical illness cover. These include:
* to provide a source of income if the policyholder is unable to work
* can assist with repaying a mortgage or loan when the policyholder’s health is in question
* medical costs can be funded when the critical illness requires surgery or expensive treatment
* could be used by business partners to buy out a partnership stake in the business when critical illness arises.
* can assist with funding a change in lifestyle that is required
* can provide for recuperation after illness.
Group versions do exist, and are often seen as a valuable benefit by staff when offered as part of an employee’s benefit package.
Factors to consider in good scheme design for group products
- there is a definition of who is eligible for benefits under the scheme
- the benefits under the scheme are clearly defined by size, definition of valid claim and the period of benefit
- applying exclusions
- setting free cover limits
- ensuring members are actively at work when cover begins
- setting take-up rates on voluntary schemes
- laying down take-over terms where the insurer accepts a scheme previously insured elsewhere.
Long-term care
Long-term care insurance (LTCI) may be defined as all forms of continuing personal or nursing care and associated domestic services for people who are unable to look after themselves without some degree of support, whether provided in their own homes, at a day centre, or in a state-sponsored or care-home setting.
Note that Activities of Daily Living (ADLs) are often used to measure dependency, and as a result are used when defining claims triggers.
LTCI usually aims to provide financial protection when a person becomes unable to look after themselves.
This is not commonly offered as a group product.
List 6 typical ADLs
- Washing
- Dressing
- Feeding
- Toileting
- Mobility
- Transferring
What are 4 other types of PMI-related products?
- Major medical expenses
- Hospital cash plans
- Medical shortfall (gap) cover
- Personal accident
