What is health?
Health is a state of complete physical, mental and social well-being and not merely the absence of disease or infirmity.
Who are the stakeholders of health insurance?
- Public (both covered/uncovered)
- State (Funding/Supplying/Regulating)
- Healthcare providers
- Employers & Employees
What are the consumer needs in health insurance?
- Medical expenses
- Loss of income
- Cost of lifestyle changes
- Debt/Reduced savings
- Nursing/Frail care
What are the main health insurance products?
- Income protection
- Critical illness
- Long-term care
- Private medical insurance (short-term products)
Characteristics of health insurance products:
- Group versions of products, i.e. employer buys policy
- Typically without profits
- large anti-selection/moral hazard risk
- Waiting periods and/or exclusions, excesses and co-payments are common
- Mostly offer protection only (RISK) and not savings, except Long-Term Care
- Often short-term
- Complex products (principal agent issue)
- Claim events are not as clear cut as with other categories of cover – many perils which can trigger claims
- Clear relationship between health risk and age (sometimes this risk may not be priced for see mutuality vs solidarity)
What does health insurance have in common with general insurance?
- May be short term
- Uncertainty over frequency of claims or amount of these claims
- Can apply similar reserving techniques (run-off triangles)
- Claims seasonality
- Often regularly renewable with reviewable premiums
What does health insurance have in common with life insurance?
- May be long term (CI, Long-term care, IP)
- Usually then one claim of known amount (or annuity-type)
- Similar investment and reserving requirements
- Often also sold by life insurers
Mutuality vs Solidarity
Mutuality - Pooling of risks after individual risks are assessed – premiums paid according to the assessed risk
Solidarity - Risks pooled before being assessed; premiums determined without reference to individual risks; may be linked to ability to pay, or overall risk of pool
Why does demand for healthcare keep increasing as time goes by?
- Technological developments
- Demographic changes e.g. ageing populations in many countries
- The burden of disease e.g. lifestyle diseases
- Increased exposure, access and expectations
- Supplier induced demand
- Existence of a third party payer
- Information asymmetry
- Cultural overlay (C-section vs natural births)
The impact of information asymmetry in healthcare
- Healthcare pays for consults, cannot get a second opinion
- Difficulty making comparisons or questioning advice
- Difficulty assessing quality of treatment
- Emotional situations
- Making decisions in life threatening situations
Private medical insurance (PMI)
Indemnity-based product that seek to provide compensation for the cost of private medical treatment.
Critical illness cover (CI)
Provides a lump sum/regular income if policyholder suffers one of the defined conditions
Long-term care insurance
All forms of continuing personal or nursing care and associated domestic services for people who are unable to look after themselves.
- Major medical expenses
- Hospital cash plan
- Medical shortfall cover
- Personal accident