Chapter 7: Healthcare products Flashcards
Definition of a health event
What is the difference between indemnity cover and stated benefit cover for health events?
1> Indemnity cover provides benefits related to loss incurred on the occurrence of a health event
> This may be the medical expense or the loss of income
> some cases, health insurance products will provide access to the care itself
2> For stated benefit cover - the policy document defines the benefit that is payable on the occurrence of a defined health event, regardless of the actual loss incurred
Short-term vs long-term contracts
Short-term
> Annually renewable an reviewable
> Multiple claims
> Claims unknown - timing and cost
> Emphasis on bodily protection
> Delays in reporting and settlement
> E.g. Medical Aid
Long-term
> Greater than a year - less flexibility
> Cover usually ceases on claim
> Claim amount may be known with certainty
> Emphasis on financial protection (link to savings, life insurance and investment)
> Waiting/deferred periods
> E.g. Critical illness
Underwriting
> Assessment of risk, what premium should be charged
Cost vs benefit of underwriting (compare to premium/claim amounts)
Highly regulated
LT: medical underwriting (risk factors)
- gender, age, smoker status, weight, height, existing health conditions, family history
ST
1> Full medical underwriting: pre-existing conditions will be excluded
2> Moratorium: not common
- underwriting at claim stage
3> Medical History Disregard (MHD): apply mostly to groups
- no exclusion for pre-existing conditions
4> No Worse Terms: amalgamation
- no additional underwriting conditions
5> Continued Personal Medical Exclusion (CPME): NWT with no upside
Private medical insurance (PMI)
> Aims to indemnify policyholders from medical cost incurred according to the benefit rules
Short term
Indemnity (state provision)
Need to manage costs (long-tail)
Risks
> Moral hazard - claim for more benefits than necessary
> Fraud
> Selective lapses
> more frequent, more elective procedures
Group versions do exist
Critical Illness (Dread disease): CI
> Provides lump sum benefit in the event of contracting a defined critical illness
Long term
Sum assured or income
Diagnosis of condition
Rider on Life Insurance
Use:
1> provide source of income if policyholder unable to work
2> can assist with repaying a mortgage or loan
3> medical cost- surgery or expensive treatment
4> buy out a partnership
5> funding a change in lifestyle
6> provide for recuperation after illness
Group exist
- staff
Long term care insurance: LTCI
✓ Helps provide for care in old age
✓ With the extent of cover depending on the level of incapacity
✓ Measured through ADLs
✓ Cover provided for an immediate needs or pre funded basis
Long-term
Investment lens
What are cash benefits?
✓ Alternative to medical aid to help cover medical costs that may arise due to certain unexpected events.
i. Major medical expenses
ii. Hospital cash plans
iii. Medical shortfall(gap) cover
iv. Personal accident
Group vs individual
1> Primary consideration: anti-selection
2> When considering a group scheme:
- Clear eligibility definitions
- Applying exclusions
- Free cover limits
- Members are actively at work when cover begins
- Voluntary vs compulsory
- Take-over terms
3> PMI and CI (major players in group health products – employee benefits
Reinsurance
Proportional vs non-proportional
Short term
- Large claims
- Take on larger risks
- Reduce the risk of accumulation of risk and catastrophes
Long-term
- Claim payout fluctuations
- New business strain
- Technical assistance
Key risks
- Claim frequency
- Claim amount
- Catastrophes (accumulation)
- Investment
- Expenses
- Lapses
- Operational
- Credit
- Underwriting
- Data
- Settlement delays
- Anti-selection
Reimbursement mechanisms
> Help manage risk associated with providing indemnity cover
PMI products
FFS - Negotiated FFS - Global fee - Capitation
(Fees-for-service)
FFS - providers are reimbursed for each service provided. No restrictions apply on the cost of service
Negotiated FFS -
The tariff or renumeration rate for each type of service is defined - through negotiations or being defined in advance
Global fee
- fixed tariff/fee per episode of care
- service provider assuming some risk for the level of services required per patient
Capitation
- Fixed amount is paid per policyholder/beneficiary who has the option to use the service.
- Fee is paid regardless pf whether the service is used or not
