Chapter 7: Healthcare products Flashcards
What are the key features of healthcare products?
Short-term contracts:
* Cover is typically provided for a single year and can then be renewed
* There can be multiple claims
* Claim amounts are generally unknown and can be volatile
* There can be delays in reporting and settling claims
Long-term contracts:
* They are long term
* Cover usually ceases on claim
* The claim amount may be known with certainty
* They are 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
Discuss the types of underwriting on short-term contracts
- Full medical underwriting: Any pre-existing conditions will be excluded
- Moratorium underwriting: Instead of medical underwriting, 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): There are 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 as existed under the previous insurance policy.
List the main types of healthcare products
- Private medical insurance
- Critical illness
- Long-term care
- Other products
How can medical expenses cover be limited under PMI?
PMI products will vary according to:
* overall annual financial limits and/or sub-limits
* the level of the reimbursement rate for specific healthhcare 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 regulations
* risk-transfer mechanisms
What values need to be determined when setting premium / contribution rates?
- Claims
- Expenses
- Commission
- 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 policyholder 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 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.
What is the main type of reserve required in healthcare?
Incurred but not yet reported (IBNR)
This is a reserve for claim events that have occurred but which the healthcare provider 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.
Describe the need for reinsurance for healthcare products?
Short-term insurers may need reinsurance because:
* They need protection against large claims
* They will be able to take on larger risks and more risks than they otherwise could
* They can reduce the impact of accumulations of risk and catastrophes.
Long-term insurers may need reinsurance because:
* They need to cope with claim payout fluctuations
* They need to finance new business strain
* They need to obtain technical assistance and data for pricing new contracts
List the 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 organisations
- Mutual organisations
- Insurance companies
List the key risks under healthcare products
- Claim frequency, benefit amount, volatility and settlement delays
- Accumulations of risk, catastrophes, and large number of large claims
- Investment risks
- Expenses being higher than expected
- Poor persistency
- Poor plan mix due to upgrades, downgrades and anti-selection
- Underwriting risk
- Credit risk
- Operational risk
- Availability of claims data
Describe the 4 reimbursement mechanisms for healthcare costs. (Low risk to most risk transfer)
- Fee-for-a-service: Providers are reimbursed for each service provided. No restrictions apply on the cost of service
- Negotiated fee-for-service: 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: 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
- Capitation: A fixed amount is 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.
Aspects of healthcare markets that distinguish it from other markets
- Public good characteristics and universal access
- 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.
Private medical treatment refers to medical expenses that would otherwise be funded by individuals or employers outside of the state-funded services in a country.
The extent of this sort of cover will depend on the level and quality of state services in a specific country.
What customer 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, the PMI is usually bought when an individual requires a higher level of care such as:
* medical attention without waiting
* medical attention in a higher standard of accomodation
* medical attention with doctor of choice
* medical attention in a local hospital
Does a group version of PMI exist?
Group versions of PMI do exist, and employers often use them to cover several employees.
Benefits and exclusions are generally similar between group and individual products, although pre-existing conditions are more likely to be covered under group business due to a lower degree of anti-selection.
This will especially hold if cover for the group is on a compulsory basis.
Define Critical illness cover
This product may also be known as dread disease, serious illness, crisis cash, living assurance or critical illness cover.
The benefit under this policy is typically a lump sum, but can be structured as regular income, payable if the policyholder suffers one of the defined conditions.
The characteristics of an illness or condition that make it appropriate for inclusion in a critical illness product are:
* 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 ambiguity at the time of claim
* There is sufficient data available to price the benefit.
What customer needs does CI cover meet?
This product is not designed to indemnify the policyholder, however, there are a variety of other needs met by critical illness cover.
These include:
* to provide a source of income if the policyholder is unable to work
* can assist with repaying a mortgage or loan when the policyholder’s health is in question
* medical costs can be funded when the critical illness requires surgery or expensive treatment
* could be used by business partners to buy out a partnership stake in the business when critical illness arises
* can assist with funding a change in lifestyle that is required
* can provide for recuperation after illness
Does a group version of CI cover exist?
Group versions do exist, and are often seen as a valuable benefit by staff when offered as part of an employee’s benefit package.
The key requirements to establish a group scheme are:
1. there is a definition of who is eligible for benefits under the scheme
2. the benefits under the scheme are clearly defined by:
- size
- definition of valid claim
- the period of benefit
Factors to consider in good scheme design for group products
- applying exclusions
- setting free cover limits
- ensuring members are actively at work when cover begins
- setting take-up rates on voluntary schemes
- laying down take-over terms where the insurer accepts a scheme previously insured elsewhere.
Define long-term care insurance
LTCI may 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 or care-home setting.
List 6 typical activities of daily living
- washing
- dressing
- feeding
- toileting
- mobility
- transferring
What need does LTC insurance meet?
Long-term care insurance usually aims to provide financial protection when a person becomes unable to look after themselves.
Does a group version of LTCI exist?
This is not commonly offered as a group product.
Describe 4 other types of PMI-related products
- 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
- Hospital cash plans: This product provides a defined benefit for a defined premium. They usually pay a pre-stated lump sum per day in hospital, and it is usually paid from the first or second day in hospital. Often there is a minimum length of stay required
- Medicla shortfall (gap) cover: This product is designed to cover the difference between the cost of medical treatment and the amount covered by conventional PMI products.
- Personal accident: This type of policy provides a lump sum benefit to compensate for bodily injury suffered as a result of an accident.
What is an affinity group?
An affinity group is a group of people who share a common interest, background or goal and are linked together by being members of the same organisation.
