Chapter 7: Healthcare Products Flashcards
Main types of healthcare products
- Private medical insurance (PMI)
- Critical illness (CI)
- Long-term care (LTC)
- 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 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) - 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 sd existed under the previous insurance policy
Explain how the benefits for medical expenses may vary under PMI cover
PMI products will vary according to:
- Overall financial limits and/or sub-limits
- The level of the reimbursement rate for specific healthcare services
- Whether to limit covered services to a network of healthcare providers
- Whether to provide out-of-hospital benefits such as hearing aids and over-the-counter medicine
- Whether to include medical savings accounts (used for day-to-day medical expenses)
- Benefits required by legislation
- Risk transfer mechanisms
Key features of short term contracts
- Cover is typically provided for a single year and can then be renewed
- There can be multiple claims
- Claims are generally unknown and can be volatile
- There can be delays in the reporting and settling of claims
Key features of long term contracts
- They are long term (ie cover may be provided for 20 years)
- Cover usually ceases on a claim
- The claim amount may be known with certainty (ie fixed SA)
- They are used for protection against ill-health or death, as well as savings
- Group versions are typically for 1 or 2 years, but can then be renewed
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.
Disadvantage:
While the risk pool is not sensitive to policyholders entering and leaving since each is contributing to their risk, high-risk lives will not be able to access cover due to affordability and this could have adverse social implications
Describe the principle of solidarity in healthcare
Solidarity is similar to mutuality in that they both involve the concept of sharing losses.
However, the main differences are:
- Under solidarity principles, the premiums are not based on risk, but rather on the ability to pay, or are set equally.
- Under solidarity principles, losses are paid according to need.
Why may short-term insurers require reinsurance?
- They need to protect against large claims
- They will be able to take on larger risks and more risks than they otherwise could, due to capital constraints.
- They can reduce the impact of accumulations 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 the key risks under healthcare products
- Claim frequency, benefit amount, volatility and settlement delays
- Accumulations of risk, catastrophes, and a large number of large risks
- Investment 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 ie failure to disclose pre-existing conditions
- Credit risk
- Operational risk
- Availability of claims data
Reimbursement mechanics for healthcare providers
- Fee-for-service
- Negotiated fee-for-service
- Global fee
- Capitation
Fee-for-service (reimbursement mechanics for healthcare providers)
Providers are reimbursed for each service provided.
No restrictions apply on the cost of the service.
Negotiated fee-for-service (reimbursement mechanics for healthcare providers)
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 (reimbursement mechanics for healthcare providers)
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 (eg maternity or a knee replacement)