Health insurance, like most insurance, can be
priced using risk ratings, where premiums are set based on the relative risk of
insured lives and the propensity to claim. This may result in unaffordable health
insurance for the most high-risk members of society. As a result, many
governments restrict the use of risk ratings in health insurance markets in
favour of “community rating.”
In a community-rated system where all consumers
are charged the same premium, many high-risk consumers are protected from
paying unaffordable premiums. Other consumers, such as healthier or younger
individuals, will generally pay a higher premium to subsidise sicker and often
older individuals. Consequently, premium revenue collected by insurers or other
risk-bearing entities may no longer truly reflect the underlying risk
associated with their insured populations.
In many healthcare systems and health insurance markets around the world where risk rating is not allowed, risk equalisation is used to enhance consumer protection and market stability. Its aim is to compensate for the risk profiles of different groups of the population such that the additional medical expenses associated with high-risk members are shared amongst healthcare providers or insurance companies.
In this paper, Milliman consultants have set out a “how-to” guide to risk equalisation, or risk adjustment. They use illustrative examples from around the world to explain the challenges and practicalities that should be considered in the design and management of a risk equalisation program.
China ranks only behind the United States in total healthcare expenditures. It has at least 95% of its 1.4 billion people covered by basic, government-sponsored health insurance. But China’s annual per capita health expenditure is relatively low at around $425, or just over 5% of GDP, though it has been on the rise over the past decade.
In China, there are three types of publicly financed basic medical insurance: For the urban employed population, for the urban non-employed population, and for rural residents regardless of employment status. Funding of health coverage comes from the central government, local governments, employers, and the participants, and the level of funding varies by geographic area. On average, out-of-pocket spending accounts for 32% of China’s total health expenditures and varies greatly by geographic area.
China’s public insurance programs are facing pressure from all sides of the healthcare ecosystem. Population aging, urbanization, environmental issues, increasing disease burden due to chronic conditions and cancers, escalating unit cost in healthcare, waste, and low-value services are all adding to the growing demand for better and more efficient healthcare.
At the same time, the growth in social insurance funding, part of which is used to fund basic medical insurance, has slowed due to an aging population. And the role of commercial health insurance in China has changed significantly over the past 15 years and continues to evolve as the Chinese government implements reforms that affect the overall healthcare ecosystem.
To learn more about the health insurance market in China, read this article by Milliman’s Rong Yi and Sharon Huang, which discusses recent trends and how data and analytics could be used to address some of the challenges and support market growth.
Kenya’s public health insurance scheme—the National Hospital Insurance Fund (NHIF) provides much of the country’s health insurance. However, the percentage of citizens covered by the NHIF falls short of Kenya’s national goals related to healthcare access. One key way that the NHIF can improve participation rates is by partnering with health microinsurers (HMIs).
HMIs offer simple and affordable benefits that, when paired with public schemes such as the NHIF, can encourage beneficiaries to participate in and use their public insurance benefits when necessary. An example of such a benefit offered by many HMIs is ‘hospital cash.’ Hospital cash pays a fixed amount of money to the beneficiary when a qualifying inpatient hospital stay is triggered. This money can be used to pay for costs related to seeking treatment such as transportation, food and partial replacement of lost income. These costs aren’t covered by the NHIF and would present a barrier to some individuals seeking treatment. The SAJIDA Foundation in Bangladesh and the Microfund for Women in Jordan are examples of organisations that have successfully launched hospital cash products.9
A second way in which the NHIF can increase its reach is by pairing its benefits with an HMI policy that provides value-added services. Examples of such services may include access to discounted medication and access to preventive services such as free health check-ups. Value-added services are included in some HMI policies in order to increase client value by making the benefits more tangible. Beneficiaries don’t have to wait for catastrophic events such as an inpatient admission in order to use their benefits. An example of an HMI that has successfully implemented value-added services is Uplift in India. Its ‘dial-a-doctor’ service is popular among beneficiaries.10
The government can also partner with HMIs in order to increase awareness of the NHIF programme. The Impact Insurance Facility describes the lack of awareness of public benefits as a key emerging lesson in Ghana. In discussing a field test conducted to gauge citizens’ awareness of the country’s National Health Insurance Scheme, the Facility states that the test group did not know about the costs and eligibility requirements of the programme. It went on to state that ‘this lack of understanding is an initial barrier to enrolment and a factor in low retention in the scheme – even with a government sponsored scheme intended to provide universal cover.’11 In order to distribute their products effectively, HMIs typically build valuable partnerships with entities such as local community groups, unions and cooperatives. The NHIF can leverage these partnerships in order to promote the programme effectively in remote areas that the government would otherwise be unable to reach.
Although there is an increasing recognition of the value of microinsurance in developing countries, health microinsurance products are still relatively new. In 2016, Milliman joined PharmAccess Foundation, a non-government organisation (NGO) based in the Netherlands, to do an analysis involving the establishment of a health insurance pricing scheme in a state in an African country. Milliman’s role in this initiative was to provide actuarial, clinical and financial review of PharmAccess’s modelling of the anticipated costs under the health insurance pricing scheme.
In this article, Milliman authors Lynn Dong, Briana Botros, and Judith Houtepen write about this most recent microinsurance project and the way in which the firm was able to provide tools and analysis to help support this health insurance scheme.
International private medical insurance (IPMI) provides employees with long-term travel obligations access to broader healthcare services. The global IPMI market has become very competitive. Expectations are that the market will continue to grow. In this article, Milliman’s Joanne Buckle and Neha Taneja take a look at some key pricing and experience rating items for group IPMI issuers to consider.
Here is an excerpt:
Dealing with multiple geographies, changing regulations, various health systems, diverse demographics and movement of the insured population results in a number of additional complexities when compared to rating a traditional PMI policy. Here are some of the key factors IPMI providers need to consider:
Local data limitations: The wealth of data that a traditional health insurer holds on domestic PMI policies is usually insufficient for pricing an IPMI product, because:
IPMI policies usually offer a more much comprehensive benefit package.
Differences in the socio-economic profile of the target market, resulting in markedly different benefit features and claims experience.
Distinct claiming patterns due to the international nature of the benefits.
Variation in utilisation patterns by country and nationality.
Portability offered under an IPMI policy allows full access to benefits wherever the employees are and it is difficult to predict where different services will be consumed.Obtaining reliable and relevant data with a desired level of granularity can be challenging making it difficult to get any credible results on which to base sound conclusions.
Geographical area of coverage: This is considered one of the key rating factors for an IPMI policy as claims costs can vary significantly between countries. For example, most insurers provide separate cover for ‘worldwide excluding US’ and ‘worldwide including US’, because healthcare costs are typically much more expensive in the United States than anywhere else in the world. Most insurers would classify countries into different regions/levels/zones that have broadly similar costs and healthcare systems for more accurate rating. However, constructing such classifications is difficult because:
Limited claims experience for some countries and lack of data for others makes the classification statistically less sound.
Even countries with similar costs may have different types and quality of healthcare services, disease trends and state healthcare systems which can make it difficult to group countries into particular zones. For example, insurers may experience lower claims ratio in countries with well-functioning state healthcare systems, which allow access for temporary residents. The rules on whether an overseas national is eligible to access the local state healthcare system are complex and vary by destination country, as well as nationality. In addition, the likelihood that an employee will access state coverage depends on the quality of the state healthcare system, as well as the nationality and cultural preferences of the employee.
Volatility in exchange rates can result in the pricing zone relativities becoming rapidly obsolete.
All of these factors are likely to have a significant impact on the claim frequencies and costs. As a result, trying to price cover accurately for a multinational company with employees residing in multiple countries across the globe is quite a task.
A.M. Best recently provided coverage of the 2016 International Insurance Society’s Global Insurance Forum in Singapore. In this video segment, Milliman consultant Joanne Buckle talks about the Asian health insurance market.
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