Ch7: Healthcare products

Question 1

Medical scheme vs Health insurance quick differences (3)

Answer 1

• Different regulation
• Different products and benefits
• Indemnity vs stated benefit cover

Question 2

Types of medical underwriting (5)

Answer 2

• Full medical underwriting (Any pre-existing conditions will be excluded)
• Moratorium underwriting (Instead of medical underwriting at time of application, insurer states that cover will not cover any medical conditions that existed during a pre-specified period prior to the policy commencing)
• Medical History Disregard (MHD) (No exclusions fro pre-existing conditions - likely to apply to group policies
• No Worse Terms (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) (New insurer promises only to carry forward such cover for medical conditions as existed under the previous insurance policy)

Question 3

Main types of healthcare products

Answer 3

• Private medical insurance (PMI) - Benefits provide for cover of medical expenses incurred or access to healthcare benefits
• 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 a custodial care where a policyholder has diminished capacity, usually measured with reference to activities of daily living (ADL)
• Other products - usually offer some benefit (possibly cash amount) contingent on occurance of a health event

Question 4

How benefits may be limited under PMI cover (7)

Answer 4

• Overall annual financial limits
• 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 regulation
• Risk-transfer mechanisms

Question 5

Solidarity principle

Answer 5

• Premiums are not based on risk but rather on the ability to pay or are set equally
• Open medical schemes: Obliged to accept anyone who wants to become a member at standard contribution rates and a minimum benefit package is prescribed by regulation

Question 6

Key risks under healthcare products (10)

Answer 6

• Claim frequency, amount, volatility and settlement delays
• Accumulations of risk, catastrophes and large number of large claims
• Investment risks - poor or volatile returns; falls in asset values, default risk
• Expenses higher than expected
• Poor persistency - high lapse; low renewals
• Poor business mix due to downgrades, upgrades and anti-selection
• Underwriting risk - failure to properly disclose pre-existing conditions
• Credit risk - failure of counterparty
• Operational risks - fraud; systems failure; regulatory changes
• Availability of claims data

Question 7

Reimbursement mechanisms

Answer 7

Fee-for-service
* Providers are reimbursed for each service provided
* No restrictions on the cost of the service

Negotiated fee-for-service
* Renuneration rate is defined for each type of service through negotiations
* May lead to policyholders having to cover part of the costs out-of-pocket

Global fee
* Fixed fee per episode of care with service provider assuming some risk for the level of service required per patient E.g. Maternity or knee replacement

Capitation
* Fixed amount is paid per policyholder who has the option to use the service
* Fee is paid regardless of whether service is used or not

Question 8

Characteristics of a condition that make it appropriate for inclusion in CI policy

Answer 8

• Condition perceived by public as being serious and to occur frequently
• Each condition can be defined clearly - no ambiguity at the time of claim
• Sufficient data available to price the benefit

Question 9

Customer needs met by CI

Answer 9

• Provide a source of income if the policyholder is unable to work
• Assist with repaying a mortgage or loan when policyholder’s health is in question
• Medical costs can be funded when critical illness requires surgery or expensive treatment
• Could be used by business partners to buy out a partnership stake in a business when critical illness arises
• Assist in funding a change in lifestyle that is required
• Provide for recovery after illness

Question 10

Activities of daily living covered by LTCI

Answer 10

• Washing
• Dressing
• Feeding
• Toileting
• Mobility
• Transferring

Question 11

Cash benefits (Medical insurance) types

Answer 11

Major medical expenses
* Provides a lump sum when the policyholder undergoes surgery
* Size may vary depending on class or severity of procedure

Hospital cash plans
* Defined benefit for defined premium
* Usually pay a pre-stated lump sum per day in hospital
* Usually paid from first or second day in hospital
* Often minimum length of stay required say 2 days
* Not for medical expenses - rather for other expenses that arise due to being hospitalised

Medical shortfall (gap) cover
* Cover differnece between cost of medical treatment and amount covered by conventional PMI products
* Differences arise due to cover limits and higher fees charged by professionals than covered
* Help policyholder not to have to pay out-of-pocket for medical expenses

Personal accident
* Lump sum benefit to compensate for bodily injury as a result of an accident
* May have a rider benefit that pays additional benefits if insured’s children suffer accident or covers some of the medical expenses
* Aims to meet financial outgo when a policyholder is disabled or is receiving treatment due to an accident