Chapter 7 - Healthcare Products Flashcards
(36 cards)
Main types of healthcare products
Private medical insurance
Critical illness
Long-term care
Other products and cash benefits
Aspects to consider in product design (Healthcare)
- Customer acceptability
- Regulatory requirements
- Price competitiveness
- System capabilities
Types of underwriting for short-term contracts:
Full medical: pre-existing conditions excluded
Moratorium: 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: 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: The new insurer promises only to carry forward such cover for medical conditions as existed under the previous insurance policy
How can medical expenses cover be limited under PMI?
Overall annual financial limits
The level of reimbursement rate for specific healthcare services
Whether to limit covered services to a network of healthcare providers
Whether to provide out-of-hospital benefits
Whether to include medical savings accounts
Benefits required by legislation
risk-transfer mechanisms
Key features of short term contracts
Cover is typically provided for a year and can then be renewed
There can be multiple claims
Claims are generally unknown and can be volatile
There can be delays in reporting and setting of claims
Key features of long-term contracts
They are long-term
Cover usually ceases on claim
The claim amount may be known with certainty
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 values need to be determined when setting premium / contribution rates?
Claims
Expenses
Commision
Risk transfer arrangements
Non-premium income (i.e. investment yields)
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 policyholders 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 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 occurred but which the healthcare provided does not yet know about.
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
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, due to capital constrains
They can reduce the impacts of accumulation of risk and catastrophes
Why may long-term insurers require reinsurance?
They need to cope with claims fluctuations
They need to finance new business strain
They need to obtain technical assistance and data for pricing new contracts
List 4 entities that may be involved in the provision of healthcare services and health insurance
State provision and national health insurance
subsidised healthcare through donor organizations
Mutual companies (medical schemes in SA)
Insurance companies
List the key risks under healthcare products
claim frequency, benefit amount, volatility and settlement days
accumulation of risk, catastrophes, large number of large claims
investment risk, e.g. poor volatile returns, falls 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
operational risk
avialability of claims data
List the 4 reimbursement mechanisms for healthcare costs. (Low risk to most risk transfer)
Fee for service
Negotiated fee for service
Global fee
Capitation
Discuss reimbursement mechanisms
Fee-for-service
Providers are reimbursed for each service provided. No restrictions apply on the cost of service.
Negotiated fee-for-service
The tarrif or remuneration rate for each type of service is defined- through negotiations or being defined in advance. This may lead to ph having to cover part of the costs through out-of-pocket payments.
Global fee
This is a fixed tariff / fee per episode of care with the service provider assuming some risk for the level of services required per patient (e.g. maternity or knee replacement).
Capitation
A fixed amount 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. This tranfers the risk from the insurer to the providers of services.
Aspects of healthcare markets that distinguish it from other markets: Medical trends
Public good characteristics and universal access (basic human right)
Information asymmetry, over-supply and demand
Information about the range and quality of healthcare services relative to cost is difficult, if not impossible, for consumers to obtain.
Rapidly increasing costs of healthcare services
Importance of health insurance
Define 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.
The extent of the cover will depend on the level and quality of State services offered in a specific country.
What customer needs does PMI meet?
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 care such as:
* medical attention without waiting
* medical attention in a higher standard of accommodation
* medical attention with a doctor of choice
* medical attention in a local or private hospital
Does a group version of PMI exist?
Yes.
Employers often use them to cover several employees.
Benefits and exclusions are generally similar between group and individual contracts.
Pre-existing conditions are more likely to be covered under group business due to a lower degree of anti-selection.
Describe the importance of health insurance
There is a high level of uncertainty surrounding future health, and thus uncertainty around timing and nature of services needed.
Healthcare needs increase with age.
Individuals can provide for these costs through savings and insurance products. They are likely to underestimate the need to plan financially.
This adds extra preasure to employer-funded or state-funded systems.
Define critical illness cover
Known as dread disease, serious illness, crisis cash, living assurance or critical illness cover.
A lump sum, but can be structured as regular income, payable if the policyholder suffers one of the defined conditions.
Characteristics of an illness or condition:
It is a condition perceived by the public to be serious and to occur frequently.
Each condition covered can be defined clearly so that there is no ambiquity at the time of claim.
There is sufficient data avialable to price the benefit.
What customer need does CI cover meet?
This product is not designed to indemnify the policyholder.
To provide a source of income if unable to work
Can assist with repaying a loan or martgage
Medical costs can be funded when surgery or expensive treatment is required
Could be used by business partners to buy out a partnership stake in a business when CI arises
Can be used to fund a change in lifestyle that is required
Can provide for recuperation after illness
