The STAR online
Sunday February 10, 2008
Learn about the nuances of private health insurance and managed care. Don’t leave it until the time when there is need to utilise the benefits of the policy.
ANYONE can fall sick at any time. Diagnosis and treatment can be obtained at any of the clinics and hospitals of the Health Ministry or public universities or similar facilities of the private sector. Private clinics are found in urban and rural areas, and private hospitals in most major towns.
Currently, the private hospitals provide about a quarter of all hospital beds in the country.
Although there are no differences in the technical quality of care provided by the public and private sectors, there are many in the population who seek care from the private sector for various reasons, including access, ambience and choice.
As the private sector does not receive subsidies from the state, those who seek care from the sector have to pay for these services out of their own pocket, or through private health insurance.
Private health insurance is a mechanism that provides for expenses incurred as a result of an illness, accident and/or disability. It covers the cost of medical care and/or nursing care, and in some instances, provide an income during hospitalisation and/or disablement.
As the medical expenses incurred may be substantial, health insurance protects the insured from potentially heavy financial loss.
It is difficult to predict what medical expenses will be like. In some years, it may be low. In other years, it may be high, especially the older one is.
During the past decade, there has been an increase in the population having private health insurance.
As a healthcare provider and as a consumer of health care, I have learnt much about the nuances of private health insurance and managed care, which most consumers are unaware of until the time when there is need to utilise the benefits of the policy.
Health insuring companies
These companies may be health insurance companies, which are regulated by Bank Negara. The medical aspects of insurance come under the purview of the Health Ministry. These companies are owned by shareholders or are mutual companies, which are owned by their policyholders. Both types of companies may distribute their profits as dividends, particularly the former.
Managed care organisations (MCOs) are registered companies regulated by the Registrar of Companies. The Health Ministry regulates the medical aspects of managed care. The MCOs make arrangements for the healthcare of their enrollees.
MCOs in some countries, for example, in the United States, provide care directly to their enrollees. Some MCOs purchase insurance from one or more insurance companies. Others are subsidiaries of insurance companies.
As managed care techniques become more prevalent, it is often difficult to distinguish between the different types of coverage for the insured persons.
Private health insuring companies pool the healthcare risks of a large group of people so that individual risks are predictable and manageable. The risk pooling should lead to the expected medical expenses of the group of people to be reasonably predictable for the insurer and to be relatively stable over time. The larger the pool of insured persons, the less will be the risk exposure for the companies.
The health insuring company will have a contract (policy) between itself and the policyholder, which may be an individual or an organisation, for example, an employer.
Group and individual insurance
Many employers usually offer group health insurance as a part of the compensation package. It is also provided by membership of an association, union or other groups.
Employees may have a choice of plans or no choice at all. The plans may be indemnity insurance or managed care. The employer usually pays a part or all of the premiums, which will be lower than that of an individual. If one gets group insurance through membership of a group, the advantage is that the premium will be less than what an individual will pay.
Any person can purchase individual insurance directly from the insurance or managed care companies. The premium is entirely paid by the individual and is tax deductible, up to a limit.
Indemnity insurance and managed care
There are similarities between indemnity insurance and managed care. Both cover a wide range of medical services in clinics and hospitals. Medications are usually covered. Some provide coverage for maternity and dental services.
The primary difference between indemnity insurance and managed care is that of choice of doctors, hospitals and healthcare providers, how medical bills are paid and payments out of one’s pocket.
Indemnity insurance offers more choice of doctors and hospitals. In most instances, an insured person can choose the doctor and even change the doctor at any time. A specialist may be consulted with or without a referral.
However, the policy does not pay for all the medical expenses. The insured person has to pay the rest of the medical expenses. Most policies have a maximum for expenses to be paid by the insured person. Claim forms will usually have to be filled. The medical expenses may have to be paid first and then claimed back from the insurer.
Managed care offers a limited choice of doctors and hospitals. It is usual for a referral to be obtained from a general practitioner before a specialist can be consulted.
The medical services covered are usually more limited than indemnity insurance. Most managed care companies provide a medications list to the doctor for which they will cover. There may or may not be out-of-pocket expenses. In many instances, there are no insurance forms to be filled or claim forms to be submitted.
Inherent problems with health insurance
All health insurers attempt to ensure that those in their risk pool have the same risk as that of the general population i.e. they take measures to ensure that there is no disproportionate number of people with poor health in their risk pools.
The term adverse selection is used to describe the tendency for people with a higher than average risk of needing medical care than healthier people to seek health insurance, because they anticipate possible large medical expenses.
If adverse selection is not managed well, it would result in the company having many insured persons with ill health and consequent difficulty in balancing out their medical expenses with that of a large number of healthy insured persons.
People in better health will less likely join the risk pool because of the higher premiums or they may leave to join another risk pool, which has a lower premium.
Another problem with health insurance is that of moral hazard. This occurs when the insurer and insured person enter into a contract but one party takes action, which is not taken into account in the contract.
A common example of moral hazard is that of a situation in which additional tests are carried out. The patient benefits from greater certainty of diagnosis and treatment. The doctor’s risk of allegations of medical negligence is reduced. The costs of these additional tests are borne by the insurer, which has little or no say in the decision.
There are several techniques used to address the problems of adverse selection and moral hazard. Most companies do not have one risk pool but instead have multiple risk pools. Product differentiation protects the companies, as problems in one risk pool will not impact directly on the insured in another risk pool.
Medical underwriting is a technique used by insurer to maintain a predictable and stable level of risk in their risk pools, and also to set the terms of coverage for those of different risks within a risk pool.
With underwriting, a decision is made whether or not to accept an applicant for coverage. Premiums are varied according to factors associated with differences in expected medical expenses like age, gender, health status, occupation, and lifestyle habits.
In general, applicants who are likely to incur large amount of medical expenses are denied coverage or charged high premiums to compensate.
An effective underwriting mechanism to avoid adverse selection is to provide coverage to already formed large groups of people e.g. employees of a large organisation. The insuring company knows that the individual members of the group did not join to obtain coverage for medical expenses, so there is a lower likelihood that there is a disproportionate number of individuals with poor health in the group.
In such situations, the underwriting focuses on the group – its claims history, age distribution, industry etc – and not on individual members of the group.
Additional measures to avoid adverse selection include requiring a minimum number of enrollees and/or requiring the employer to contribute a minimum premium.
Another technique used to avoid adverse selection is to exclude coverage for a defined period of time for the treatment of medical conditions that the companies determine to have existed within a specific period prior to the beginning of coverage (pre-existing medical condition).
Moral hazard is addressed by co-payments and deductibles. Co-payments refer to the amount the insured person has to pay each time medical care is provided e.g. a certain amount is paid each time the doctor is consulted, with the insuring company paying the balance. Deductibles refer to the amount that must be paid annually before the insuring company begins paying.
MCOs attempt to influence medical decisions by various techniques, e.g. financial incentives or disincentives for the insured and/or healthcare providers, prior authorisation for certain services, e.g. operations, treatment protocols and so on.
What to consider in private health insurance coverage
There are a number of factors that must be considered prior to obtaining private health insurance coverage, whether as individuals or members of a group. It is essential to understand the policy even if the employer arranges it. Having a copy of the policy and perusing it will be helpful to understand how it works. Questions should be asked before one has to seek medical attention.
Most health insurance products are not available to people above a certain age. It may be better to sign on the policy when one is younger and still healthy.
One should choose a product with a length of coverage that suits one’s needs. For example, retired government servants who are eligible for medical care in public sector facilities may not need private health insurance unless they desire treatment in the private sector.
There are different premiums for different products. Regular premium plans require periodic, regular payments throughout the duration of the policy. Single premium plans require a single premium to be paid at the commencement of coverage.
Many insuring companies change the regular premiums as the insured person gets older. It would be prudent to check whether the policy being considered permits the insurer to do so.
Regular premiums have to be paid when they become due in order to ensure continuing coverage.
Coverage and exclusions
Different policies provide different coverage. It is difficult to find a policy that provides coverage for all medical problems. So it is important to know what circumstances or medical conditions are covered by the policy.
All products contain exclusions that set out circumstances or medical conditions that are not covered. The exclusions vary from product to product. The most common exclusion is pre-existing medical condition(s). The definition of pre-existing medical condition(s) may vary from product to product. The insured person will have to pay out of his or her own pockets for services that are exclusions in the policy.
It is therefore important to read the policy document carefully to be sure of what circumstance or medical condition(s) is covered or not covered, and whether the coverage is limited to one country, several countries or worldwide.
Access to doctors and hospitals
It is important to know how the product provides for access to doctors and hospitals. Is a referral from a general practitioner necessary before consultation with a specialist? What hospital can one be admitted to? Can one change the attending doctor or hospital? Does the insurer provide a list of doctors and hospitals? What steps need to be taken to enable one to get the care needed? Is prior approval needed to ensure coverage, for example, hospitalisation for elective surgery?
Does the policy permit the insurer to stop the insured from consulting a general practitioner or specialist who has been providing care to the insured? This question is of particular relevance as it impacts on the continuity and quality of care.
Recently, a large MCO arbitrarily decided and instructed general practitioners not to refer patients to certain hospitals because the latter did not agree to the MCO’s request to give discounts.
According to feedback from general practitioners, this disrupted care to many patients. Fortunately, after intervention by the Health Ministry and Bank Negara, the MCO relented.
Access to care after office hours and in an emergency should also be clarified. Can one go to any healthcare facility even if it is not on the insurer’s list? Is prior approval necessary, and if so, how is it to be obtained after office hours or in an emergency?
Out of pocket payments
Some products require co-payments and/or deductibles. This information should be provided in the policy
Making a claim
The process of making a claim should be clear. There are documentary requirements required to support the claim e.g. hospital bills, investigation results, medical reports and so on.
Most policies set a time limit for submission of claims. It is advisable to make a claim as soon as possible.
When one is hospitalised in a private hospital, one needs to check the estimated costs of medical treatment recommended, whether the policy covers the costs and the extent to which it does, consider the options available and choose the ward or treatment according to what is affordable.
Complaints and appeals
There should be mechanisms stipulated to address complaints and appeals from those who feel aggrieved by the actions of the insuring companies.
All insuring companies require health information about the individuals or groups to be insured. This is particularly so if one is applying for indemnity insurance. The information include age, gender, occupation, medical and surgical history, any disability, lifestyle habits and so on. If the information provided is incomplete or false, the policy taken up may not provide cover.
At the same time, the insured individuals or groups should check on the information disclosed by the insurance companies or MCOs. All members of a group should ensure that they get a copy of the group policy for each individual’s retention. It is prudent to remember that the small print is as important, if not more important, than the rest of the policy document.
This article is intended to help the consumer sort through private health insurance by providing general information. Irrespective of whether one has indemnity insurance or a managed care plan, it is important to study the policy carefully so that one is not caught out when ill health occurs.
In summary, one needs to remember the aphorism, caveat emptor i.e. let the buyer beware.