Chapter 7: Healthcare products Flashcards
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)
CPR S
1. Customer acceptability
2. Regulatory requirements
3. Price competitiveness
4. System capabilities
Types of underwriting for short-term contracts:
Full medical
pre-existing conditions excluded
Types of underwriting for short-term contracts:
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
Types of underwriting for short-term contracts:
Medical history disregard
No exclusions for pre-existing conditions. More likely to apply on group policy offerings
Types of underwriting for short-term contracts:
No worse terms
The new insurer agrees to cover at least as comprehensive as the policyholder’s current policy with no additional underwriting conditions
Types of underwriting for short-term contracts:
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
- wether to limit covered services to a network of healthcare providers
- Wether to provide out-of-hospital benefits
- Wether 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 customor 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
Does a group version of CI cover exist?
Yes.
The key requirements to establish a group scheme are:
* There is a definition of who is eligible for the benefits under the scheme
* The benefits under the scheme are clearly defined by:
-size
-definition of valid claim
-the period of the benefit
Factors to consider in good scheme design for group products
- Applying exclusions
- Setting free cover limits (no underwriting)
- Ensuring members are actively involved at work when cover begins
- Setting take-up rates on voluntary schemes (how many individuals can join)
- Laying down take over terms when the insurer accepts a scheme previously insured elsewhere
Difference between indemnity cover and state benefit cover
Indemnity cover provides benefits related to loss incurred on the occurrence of the health event.
For state benefit cover, the policy document defines the benefit that is payable on the occurance of a defined health event, regardless of the actual loss incurred.
Define long-term care insurance
LTCI can be defined as all forms of continuing personal or nursing care and associated domestic services for people who are unable to look after themselves without some degree of support, whether provided in their own homes, at a day centre, or in a state-sponsored care-home setting.
List 6 typical activities of daily living
WTF DMT
* Washing
* Toiletring
* Feeding
* Dressing
* Mobility
* Transferring
What needs does LTC insurance meet?
Usually aims to provide financial protection when a person becomes unable to look after themselves
Does a group version of LTCI exist?
Not commonly.
What is an affinity group?
A group of people who share a common interest, background or goal and are linked together by being members of the same organization.
Cash benefits:
Major medical expenses
This type of product provides a lump sum when the policyholder undergoes a surgery. The size of the lump sum may vary by class or severity of the procedure.
Needs
Aims to meet the in-patient costs associated with surgery, as well as provide for a balance to fund incidental and recuperation costs.
Cash benefits:
Hospital cash plans
Provides a defined benefit for a defined premium. They usuually pay a pre-stated lump sum per day in hospital, and it is usually paid from the first or second day in hospital.
Needs
Not to indemnify policyholder for actual medical expenses but rather provide cash for other expenses that arise due to policyholder being hospitalised.
Cash benefits:
Medical shortfall (gap) cover
To cover the difference between the cost of medical treatment and the amount covered by conventional PMI products. These differences arise due to benefit limits or healthcare professionals charging higher fees than are covered by PMI benefits.
Needs
Aims to help the policyholder not having to pay out of pocket for medical expenses that are not covered under PMI benefits
Cash benefits:
Personal accident
Provides a lump sum benefit to compensate for bodily injury suffered as a result of an accident. Sometimes the policy will have a rider benefit that pays additional benefits if the insured’s children suffer an accident or covers some of the medical expenses.
Needs
Aims to assist with meeting financial outgo when a policyholder is disabled or receiving treatment due to an accident.
