Chapter 8 (PMI)

Question 1

What are the prescribed minimum benefits for PMI contracts? [1.75]

Answer 1

Emergency medical treatment✓✓

270 listed PMB medical conditions and their treatment,✓✓ classified into 15 broad categories✓

Diagnosis and treatment of 25 chronic conditions✓✓

Question 1

Describe a PMI contract. [4]

Answer 1

PMI aims to assist the PH in covering the cost of private medical care.✓✓
Individual PMI is a ST insurance contract, usually renewable annually.✓✓ The insurance provider therefore can review the premiums and change the T&Cs of the policy annually.✓✓
However, although the policy may be underwritten at outset, it will not be (re-)underwritten at subsequent renewals.✓✓
As these are ST policies, cover is NOT guaranteed from one year to the next.✓✓ However, in practice, so long as the conditions of the policies are met, eg, the PH keeps paying the premiums, the insurer would not cancel policies on an individual basis✓✓ – but it might decide to cease renewal of all the policies of a product.✓✓
There can be multiple claims. ✓✓ Claim amounts are generally unknown and can be volatile.✓✓
There can be delays in reporting and settling claims ✓✓ (although most PMI claims tend to experience relatively short delays.)✓
They may be sold to individuals or groups. ✓

Question 2

What is meant by “in-patient” and “out-patient” treatment? [2.25]

Answer 2

In-patient treatment generally involves the patient staying in hospital overnight.✓✓ This is likely to be the case where the patient is undergoing a major surgical procedure.✓✓
Out-patient treatment generally involves treatments received during day visits to the hospital✓✓, eg changing a dressing or having physiotherapy✓✓, which do not involve an overnight stay in hospital.✓

Question 3

Define a “Medical Savings Account”. [3.5]

Answer 3

Day-to-day medical expenses✓ like medication, GP and specialist consultations are self-funded by PHs through a MSA.✓✓✓✓

More comprehensive cover options will cover certain day-to-day expenses above a certain annual threshold as part of the risk benefit✓✓ rather than the MSA.✓

Once their MSA is depleted✓, these day-to-day costs must be met by the policyholder out of pocket✓. MSAs typically have an annual benefit cycle✓, which means that at the start of the new benefit cycle✓ the amount for the next benefit cycle✓ is added to the existing MSA balance✓.

Question 4

What are some of the general exclusions on PMI policies.[3]

Answer 4

Alcohol and
Drug abuse✓✓
Self-inflicted injuries ✓
Cosmetic surgery ✓
Frail care ✓
Infertility ✓
Experimental treatment ✓
War risk ✓
Criminal activities ✓
Search and rescue ✓
Any cost for which a 3rd party is responsible ✓
12. Hazardous pursuits
Many policies now cover types of treatments such as homeopathy and acupuncture. ✓✓ + Depression

Question 5

Describe how a “Policy Excess” work. [4]

Answer 5

An insured person is often happy to meet lesser costs him/herself, but is secured in the knowledge that the insurer will pick up any significant costs.✓✓
Thus for a lower premium, the insured is liable for the first tranche of any claim✓✓ (a pre-specified monetary amount known as the excess) ✓, which will be met from regular income or savings✓✓; the balance is met by the insurer✓. The premium discount increases as the level of excess rises.✓✓
A further advantage to the insurer is the likelihood that there is an incentive for the patient to seek his/her treatment in the public system to avoid the payment of the excess✓✓, unless the benefit (?) and severity (“BS”) of the procedures offsets this outlay.✓✓ Companies may market a range of such products allowing the applicant to choose the level of excess to suit his/her income levels.✓✓
A.k.a. as a deductible✓.

Question 6

Describe the Major Medical Expenses product. [4]

Answer 6

The product provides a lump sum when the PH undergoes surgery.✓✓ The size of the lump sum varies with the class or severity of the procedure✓✓ and is estimated to be sufficient to cover the in-patient costs with a balance for incidentals and recuperation expenses.✓✓ There is no guarantee that the benefit will cover extreme surgical complications within the class, unless the policy states this expressly✓✓ and the insurer has an agreement with particular hospital chains for fixed price surgery.✓✓ This sort of agreement is called a global fee basis.✓
The product does not cover out-patient episodes, and this may be seen as a serious marketing disadvantage✓✓; however the compensation is a significantly lower premium.✓✓ One big advantage to the insurer lies in the simplicity of a fixed benefit schedule that limits the work to be performed at claims stage.✓✓
It should be noted that in the US, the term “MME” is closer to the UK “PMI”.✓✓
MME could be either a ST annually renewable product✓, or
a LT product, albeit with reviewable premiums✓.

Question 7

Describe a Health Cash Plan. [6]

Answer 7

These are DB DP products.✓✓ For premiums as low as R50 per month✓, the subscriber and family✓ are entitled to a range of specified pay-outs depending on certain healthcare-related events.✓✓ Examples: hospitalisation; gap cover; dental; optical; physiotherapy; maternity; recuperation; hearing aids and consultations. [2]

Benefits may be be limited to a certain percentage of the medical bill.✓✓
The cash benefit is relatively small to the full cost of indemnity which reduces the risk of anti-selection.✓✓

The products are typically community-rated and a WP often applies.✓✓ Pre-existing conditions may be excluded.✓

These policies have relatively small benefits and premiums, and so their success depends on large volumes, high renewal rates and low-cost administration [1]. e.g. cost efficient claims admin procedures✓.

This product does not completely transfer the risk form the PH to the insurer.✓✓

Question 8

Describe Medical Gap Cover.[2.5]

Answer 8

These are designed to cover the difference between the cost of treatment and the amount covered by PMI.✓✓
These differences can arise due to the benefit limits or healthcare professionals charging higher fees than are covered by the PMI benefits.✓✓
Medical gap cover usually focusses on providing cover for in-hospital medical and surgical treatment✓✓ and out-patient treatment for chemotherapy, radiotherapy or renal dialysis.✓✓
Benefits are usually limited to an annual amount per health event.✓✓

Question 9

Describe a Dental Plan.[2.75]

Answer 9

Dental benefits can be part of PMI policies, or can be on a stand-alone basis.✓✓
Insurer work closely with dentists to ensure that applicants are screened initially for pre-existing conditions or imminent treatment✓✓ and to ensure that dental intervention thereafter is in accordance with risk expectation.✓✓

The two principal methods of providing dental cover are✓:
the capitation basis, where the dentist is paid an agreed fixed sum per insured mouth✓✓, and
an indemnity basis, where the insurer covers the actual cost of treatment delivered.✓✓

Question 10

Describe a Optical Plan. [2]

Answer 10

Optical plans can be part of PMI policies or can be on a stand-alone basis.✓✓

Optical plans provide cover for spectacles, contact lenses, eye tests and optical treatments.✓✓✓✓

WPs and PEC condition exclusions may apply.✓✓

Question 11

Describe a Waiting List Plan. [3.5]

Answer 11

Standard medical insurance benefits✓ where the public health service is not in a position to provide treatment within a spec’d period✓✓ (often 6 weeks).✓ If the PH can find free public healthcare for his/her condition in that period and within a reasonable radius of residence✓✓, the insurer will not reimburse private expense✓; otherwise, the policy operates as a normal comprehensive policy✓.

This approach supposedly meets the customer needs where the desire to buy insurance is to avoid waiting for treatment.✓✓ If the customer’s reasoning is different, this alternative is unlikely to be attractive.✓✓

The product is appropriate where the quality of service provided by the public healthcare system is satisfactory, but there may be long WPs for certain treatments.✓✓

Question 12

Describe travel insurance policies that offer health benefits. [5]

Answer 12

Many PMI products have limitations on benefits or excl’s on health claims that are incurred outside of the country in which they are underwritten.✓✓
Travel insurance policies therefore often have a health insurance component that covers EMT costs when the insured is away from their home country.✓✓
The insured will receive medical care in the foreign country until they are well enough to travel.✓✓ Medical evac and repatriation are also covered by the policy.✓✓
The insurer also usually has a MAP available who will liaise with the PH.✓✓
Benefits are usually limited to a max amount per trip and PHs are able to select the benefit limit that is most appropriate to them.✓✓
The premium will depend on the benefit limit selected.✓✓ Premiums are individually risk-rated and depend on various rating factors.✓✓
Hazardous activities are usually excluded unless a specialized policy incl. cover for sports is purchased.✓✓ Pre-existing medical conditions are usually excluded.✓
Travel insurance is usually sold through travel agents✓ and is usually combined with cancellation cover and lost baggage insurance in the product offering.✓✓

Question 14

List the rating factors that will typically be used to be used for a travel insurance policy. [2.5]

Answer 14

Age✓
Gender✓
Destination✓ - some countries have higher risks of traffic accidents and tropical diseases.✓✓
Cost of healthcare at destination✓✓
Length of trip✓
Type of trip✓ (e.g. a holiday involving snow sports will usually have a higher risk rating)✓

Question 15

Define chronic and acute conditions, and explain how an insurer can distinguish between an acute and a chronic condition. [5]

Answer 15

Acute condition – a cure is a reasonable prospect✓✓, e.g. as result of active treatment.✓
Chronic condition – there is no prospect that further treatment will improve a person’s health✓✓, although continuing treatment or medication may make life more comfortable.✓✓
A very precise definition is required, but may be difficult in practice to define this clearly.✓✓ Some suggestions are:
Require that the insurer authorizes a course of treatment before it begins.✓✓ The insurer could classify treatments as “active”✓ (ie designed to improve health)✓ or “passive”✓ (ie designed to alleviate ongoing symptoms.)✓
Passive treatments would then only be authorized after further enquiries of the insured’s doctor.✓✓ The insurer could ask the insured’s doctor or specialist about the purpose and likely outcome of a proposed treatment.✓✓
Require that an independent doctor, nominated by the insurer✓, examines the insured, in order to ascertain the LT prognosis for the illness.✓✓

Question 16

Why are PHs expected to self-fund day-to-day medical expenses? [2]

Answer 16

PHs often use more than they need✓ ito GP & specialist consult’s✓✓, medication✓, frames for spectacles✓ etc. when it is covered by insurance.✓

However, when these expenses are self-funded through a MSA✓, PHs treat the funds as their own✓ and are more careful about how they spend them.✓
The PH has to manage their expenses in order to ensure that there are enough funds to cover day-to-day medical expenses for the year.✓✓

The risk of not having enough funds to cover day-to-day medical expense claims is transferred from the insurer to the PH.✓✓

Question 17

Explain how community rating could lead to cross subsidy between PHs. [2]

Answer 17

Community rating means that individual rating factors are not used to determine premiums.✓✓
To the extent that community factors do not account for all the variation in claims between PHs✓✓, some PHs will pay premiums that exceed their expected claims costs plus expenses ✓✓, and some will pay premiums that are less than these costs.✓
To this extent there will be a cross subsidy between PHs.✓

Question 18

Discuss how the following risk mitigation factor allows the PMI insurer to control the costs of claims.
Medical Savings Account [1]

Answer 18

The MSA makes small frequent claims, e.g. GP consultations, the responsibility of the PH.✓✓

PHs may otherwise over-use these HC services if they were covered by the insurer.✓✓

Question 19

Advantages of combining products.

Answer 19

It is important to remember that, regulation permitting, it may be possible to combine products. This is cheaper than purchasing separate policies due to: l Streamlined underwriting and policy initiation l It is indicative of low levels of anti-selection.
The combined product may also meet consumer needs better and hence lead to higher satisfaction and better retention.

Question 20

In order to improve retention of lives with low-claims rates, the following may be adopted on PMI

Answer 20

In order to improve retention of lives with low-claims rates, the following may be adopted on PMI:
l Loyalty discounts, for policyholders who renew their policies with them for consecutive years without making any claims. These discounts typically increase over time.
l No-claim bonuses, with bonuses or cashback rewards to policyholders who do not make any claims during a specific policy term. This can be in the form of a lump sum payment or a reduction in future premiums.
General

Question 21

Some other examples of how out-patient cover may be restricted include:

Answer 21

l Limits on the monetary level of claims, for example, per year or per claim, or on the number of treatments covered, for example, two dental checkups a year
l Restrictions on the type of treatment covered, for example, only basic dental services l Only covering treatment directly related to in-patient treatment, often with a time restriction, for example, within 6 months of discharge from hospital
l Only providing initial consultations and diagnostic tests but no follow-up treatment

Question 22

Step-down care

Answer 22

Step-down care or intermediate care can be used as a bridge between in-patient and out-patient care. Hospital care is extremely expensive and in the case of patients requiring rehabilitation or who are seriously ill, the appropriate level of care may be provided more cost-effectively in a step-down facility, like a rehabilitation centre. PMI providers may include cover at step-down facilities or even provide nursing visits to the home as an extension of the in-patient treatment benefit to control costs and ensure appropriate care.

Question 23

Palliative care

Answer 23

which focuses on providing relief from the symptoms and stress of a serious illness. The goal of palliative care is to improve the quality of life for both the patient and their family. It is appropriate at any age and at any stage in a serious illness, and it can be provided alongside curative treatment. Palliative care benefits may also be included in PMI products

Question 24

risk–benefit component of PMI cover

Answer 24

PMI will usually cover in-patient treatment, where a stay in hospital is required, covering diagnostic tests, surgical procedures, hospital room or bed costs, all medications, and doctor fees. Out-patient treatment may be covered subject to benefit limitations. As these are paid from pooled funds, they are referred to as the risk–benefit component of PMI cover

Question 25

Explain how future developments in medicine may be expected to affect claim costs under the following health and care insurance contracts: i) Critical illness insurance ii) Private medical insurance.
(

Answer 25

If medical advances make more expensive treatments available, then this will increase claim costs.
l Previously expensive treatments may become more routine and so lessTreatments may become more effective, reducing the duration of treatment and the associated costs, such as the cost of hospital stays.
l Some advances may remove the need for treatment altogether, again reducing claim costs.
(Maximum 2)
Solution to expensive, thus reducing claim costs.

Question 26

Explain how future developments in medicine may be expected to affect claim costs under the following health and care insurance contracts: i) Critical illness insurance ii) Private medical insurance.
(

Answer 26

If medical advances make more expensive treatments available, then this will increase claim costs.
l Previously expensive treatments may become more routine and so lessTreatments may become more effective, reducing the duration of treatment and the associated costs, such as the cost of hospital stays.
l Some advances may remove the need for treatment altogether, again reducing claim costs.
(Maximum 2)
Solution to expensive, thus reducing claim costs.

Question 27

Question 8.3 Describe the social and economic influences on the demand for private medical insurance. (3)
Question

Answer 27

Economic pessimism and high unemployment will encourage some employees to claim for particular treatments under group PMI policies, in case they lose their jobs and are then no longer able to benefit from the insurance … l So this will increase claim costs (implication for demand covered below).
l High inflation will result in increasing claims costs, which will cause premiums to increase significantly. l This could reduce policy renewal rates and the demand for new business.
l Conversely, increasing prosperity will increase disposable income, resulting in an increased demand for PMI.
l Lower unemployment may mean tighter labour markets, resulting in an increased demand for group PMI schemes as employers seek to hire and retain key employees.
l Greater general health awareness (e.g. government campaigns) may increase demand for PMI.
l Improvements in state medical provision will reduce the demand for PMI. (Maximum

Question 28

Question 8.3 Describe the social and economic influences on the demand for private medical insurance. (3)
Question

Answer 28

Economic pessimism and high unemployment will encourage some employees to claim for particular treatments under group PMI policies, in case they lose their jobs and are then no longer able to benefit from the insurance … l So this will increase claim costs (implication for demand covered below).
l High inflation will result in increasing claims costs, which will cause premiums to increase significantly. l This could reduce policy renewal rates and the demand for new business.
l Conversely, increasing prosperity will increase disposable income, resulting in an increased demand for PMI.
l Lower unemployment may mean tighter labour markets, resulting in an increased demand for group PMI schemes as employers seek to hire and retain key employees.
l Greater general health awareness (e.g. government campaigns) may increase demand for PMI.
l Improvements in state medical provision will reduce the demand for PMI. (Maximum