Chapter 7: Healthcare products

Question 1

What is health?

Answer 1

Health is a state of complete physical, mental and social well-being and not merely the absence of disease or infirmity.

Question 2

Who are the stakeholders of health insurance?

Answer 2

• Public (both covered/uncovered)
• State (Funding/Supplying/Regulating)
• Insurers
• Healthcare providers
• Employers & Employees

Question 3

What are the consumer needs in health insurance?

Answer 3

• Medical expenses
• Loss of income
• Cost of lifestyle changes
• Debt/Reduced savings
• Nursing/Frail care

Question 4

What are the main health insurance products?

Answer 4

• Income protection
• Critical illness
• Long-term care
• Private medical insurance (short-term products)

Question 5

Characteristics of health insurance products:

Answer 5

• Group versions of products, i.e. employer buys policy
• Typically without profits
• large anti-selection/moral hazard risk
• Waiting periods and/or exclusions, excesses and co-payments are common
• Mostly offer protection only (RISK) and not savings, except Long-Term Care
• Often short-term
• Complex products (principal agent issue)
• Claim events are not as clear cut as with other categories of cover – many perils which can trigger claims
• Clear relationship between health risk and age (sometimes this risk may not be priced for see mutuality vs solidarity)

Question 6

What does health insurance have in common with general insurance?

Answer 6

• May be short term
• Uncertainty over frequency of claims or amount of these claims
• Can apply similar reserving techniques (run-off triangles)
• Claims seasonality
• Often regularly renewable with reviewable premiums

Question 7

What does health insurance have in common with life insurance?

Answer 7

• May be long term (CI, Long-term care, IP)
• Usually then one claim of known amount (or annuity-type)
• Similar investment and reserving requirements
• Often also sold by life insurers

Question 8

Mutuality vs Solidarity

Answer 8

Mutuality - Pooling of risks after individual risks are assessed – premiums paid according to the assessed risk
Solidarity - Risks pooled before being assessed; premiums determined without reference to individual risks; may be linked to ability to pay, or overall risk of pool

Question 9

Why does demand for healthcare keep increasing as time goes by?

Answer 9

• Technological developments
• Demographic changes e.g. ageing populations in many countries
• The burden of disease e.g. lifestyle diseases
• Increased exposure, access and expectations
• Supplier induced demand
• Existence of a third party payer
• Information asymmetry
• Cultural overlay (C-section vs natural births)

Question 10

The impact of information asymmetry in healthcare

Answer 10

• Healthcare pays for consults, cannot get a second opinion
• Difficulty making comparisons or questioning advice
• Difficulty assessing quality of treatment
• Emotional situations
• Making decisions in life threatening situations

Question 11

Private medical insurance (PMI)

Answer 11

Indemnity-based product that seek to provide compensation for the cost of private medical treatment.

Question 12

Critical illness cover (CI)

Answer 12

Provides a lump sum/regular income if policyholder suffers one of the defined conditions

Question 13

Long-term care insurance

Answer 13

All forms of continuing personal or nursing care and associated domestic services for people who are unable to look after themselves.

Question 14

Cash benefits

Answer 14

1. Major medical expenses
2. Hospital cash plan
3. Medical shortfall cover
4. Personal accident