The cost of health insurance is a topic that has hit the global mainstream. It was one of the primary causes of the recent US Government shutdown.
In this article, we explore some of the ways that group Health insurers are attempting to mitigate these cost increases to keep access within reach for their customers.
There are a number of factors that are driving up the cost of health insurance worldwide.
In nearly every country in the world, the year on year cost of providing medical service is increasing at a much faster rate than the rate of inflation generally. Aon APAC information is sobering, showing 10% plus increases across most of the region.
For both health insurers and their customers, this creates real challenges. Health insurance is one of the few insurance products that is 'designed to be claimed against'. Consumers like that private health insurance can shorten wait times and limit the costs of their major medical expenses - but they love that they can claim routine medical costs back.
Most consumers try to maximise their legitimate use of health insurance policies by claiming back as much as they reasonably can. Many will plan their own personal care around their ability to make a claim on their health insurance plan for that expense.
Health insurers simply cannot absorb the full cost of medical inflation - it must get passed on to their policyholders. Their customers quite naturally are unhappy about that cost increase. So insurers use various techniques to reduce the premium customers pay, while sharing cost and risk with their customers in other ways.
A very common technique health insurers use is a 'claims excess'. If the customer agrees to cover a part of the cost of a claim, the insurer will offer a lower premium cost. If the insurer pays the full cost of a claim, the insurer will charge a higher premium costs. Insurers generally offer a range of different 'claims excess' levels to allow the buyer to find their right balance of lower premium cost but higher obligation to contribute to the cost of a claim.
In group Health insurance, the employer has traditionally covered the premium cost for all of their employees.
As premium costs increase, more insurers are offering Voluntary Payment group schemes. These plans share the premium cost between the employer, and the employee who is being covered. The employer gets lower premium costs by sharing the cost with their staff. The employee still gets health insurance coverage at a lower price than they would pay themselves, plus the benefit of automatic acceptance often offered in group health schemes.
Voluntary plans put an administrative burden on the employer (who often recovers the employee contribution via payroll deduction).
It also puts a large administrative burden on the Operations and Finance teams of insurers (who have to calculate employee-level charges, and manage a much higher volume of payment reconciliation. Imagine for a 1000 employee plan billed monthly. If the employer was paying for everything, that would be one invoice a month. But if they are sharing cost with employees, suddenly that becomes 1,001 invoices a month! (one for the employer, and one for each of the employees).
What the health insurance plan covers in terms of medical events is the major determiner of the cost of the insurance. Insurance that covers minor GP expenses is quite different than insurance that covers major surgeries and expensive treatments.
Insurers will often offer a 'base' package that covers a range of common everyday medical events, then offer 'optional modules' for other, more expensive events (like dental, major surgery, cancer treatments, etc).
While this provides choice for the consumer, it also puts a burden on them in terms of really understanding exactly what is covered and what is not. Most of the customer complaints in health insurance occur when a claimant misunderstands what is covered in their policy, and what is not.
Modular plans are also more administratively complex for the insurer to operate.
A variation on Claims Excess, a co-pay asks the claimant to pay a fixed amount out of pocket for each claimable service they receive (eg $25 for a GP visit that might cost $60). This is a very common technique used in the USA, and it is appearing more and more in other countries as well.
Managing co-pays puts a lot of administrative effort on health service providers, and on the claims systems of insurers.
Very common in the USA, some insurers negotiate prices with health service providers and pharmacists, and will only accept claims if the insured person uses these providers. In the US, this is often called 'in network'. This is a technique insurers use to manage costs, and can therefore reflect these savings in the price of their insurance premiums.
This places a large burden on the insurer to negotiate and manage these contracts, and also on the health service providers to manage.
There is no end in sight for medical cost inflation. We will continue to see health insurers use a range of techniques to manage the cost of the health services provided to the best of their abilities.
They will also offer customers different products, and claims payment options to retain customers who simply may not be able to afford a full-coverage package.
We built Sentro to enable group health insurers to offer and manage these more complex plans that today's consumers are demanding. We have always had the view that group insurers would offer more customer choice if it didn't mean more administrative complexity.
We offer Voluntary payment capability right out of the box. We can manage complex schemes and automate product assignment with data. We live and breathe group administration.
The health insurance market continues to track towards more choice and more options for consumers. Sentro stands ready to help group health insurers deliver in this changing landscape.