Higher premiums work, but they're no magic pill

POLICYHOLDERS of Integrated Shield plans (IP), particularly those catering for private hospitals, have suffered relatively steep premium hikes over the past few years - both for their base plan and riders - especially at older ages.

Are there more hikes in the offing? The good news is that IP insurers have made strides to shore up their health portfolios. Most have significantly reduced underwriting losses in 2018. Prudential, a leading IP provider, is the only insurer to report a dramatic rebound into the black - a profit of S$42.73 million in 2018, vs losses of S$14.95 million in 2017 and S$18.67 million in 2016.

The improvement in insurers' underwriting results for their individual medical expense portfolios - understood largely to comprise Shield plans - is good news, as it suggests that costs pressures in the form of outsized claims may be mostly under control. The results for 2018 reverse the trend in 2016 and 2017 of deepening losses and higher claims.

The not-so-good news is that based on 2018 data, it is likely that most of the gains were due to premium hikes, which by themselves do not address the core issues of over-consumption of healthcare services and over-charging among healthcare providers.

Insurers are also non-committal when asked if more premium hikes might be in store. In any case, it appears that premiums have largely held steady in 2019.

The differentiating factor for Prudential is its claims-based pricing system for riders.

But first, some background: Cash-funded riders are available to cover the deductible and co-payment portions of a hospital bill. Prior to April this year, you could buy riders to cover the full amounts, which effectively gives you cover from the first dollar of hospital costs.

But since April, new-design riders as mandated by the Health Ministry have a co-payment element of at least 5 per cent of a hospital bill, capped at S$3,000 a year. This is to encourage policyholders to exercise greater responsibility.

The Health Insurance Task Force found in its 2016 report that policyholders with IP riders incurred 20 to 25 per cent higher medical bills compared to those with IPs only.

Prudential's claims-based pricing gives a 20 per cent discount on rider premiums to those who do not make a claim. Those with private hospital plans who make a claim, however, will pay higher future premiums depending on claim amount. Claims from the riders of between S$1,000 and over S$5,000 will cause a premium increase of between 1.6 and up to two or three times.

This is yielding results. Agnes Choy, Prudential head of group business and medical products, says claims-based pricing rewards customers who stay healthy and encourages them to use healthcare services more prudently.

"Today more than 80 per cent of our customers under claims-based pricing do not claim, and enjoy 20 per cent savings on their premiums. If this positive trend continues, healthcare costs would be better managed, resulting in more affordable medical insurance in the longer run.''

Prudential did not raise premiums of IP plans in 2018.

Showing results

Insurers report that the greatest improvement in results was seen in their private hospital IP plans. Some cited the increased usage of "preferred'' panel of doctors and a pre-authorisation system.

AIA, for instance, established the "AIA Quality Healthcare Partners'' (AQHP) network of more than 300 medical professionals. It also has a personal medical case management service to help clients with serious medical conditions. It uses analytics to look into trends and detect outliers and use of medical expertise for case assessment.

"It is AIA Singapore's responsibility to ensure that the claims we pay are for bona fide treatments that are medically necessary, and that the charges are reasonable and customary.''

It says its AQHP panel is "not primarily a cost containment measure'' but to ensure that clients enjoy quality and affordable healthcare. Between 2017 and 2018, usage of AQHP has risen more than 50 per cent.

AXA Insurance's underwriting results show a greater loss in 2018 (-S$10.48 million vs -S$7.25 million in 2017). Managing director Sean Goh says this was due to one-off reinsurance adjustments. Excluding the adjustment, performance over the past two years was similar. "Our ratio of claims to in-force business has also improved.''

Mr Goh says claims which went through AXA's medical panel are on average 30 to 40 per cent less than non-panel claims. AXA's preferred panel comprises over 340 general practitioner clinics and 400 specialist clinics.

"We encourage our policyholders to utilise our panel specialists and to go through claims pre-authorisation... We're optimistic claims costs will be better managed and premiums kept affordable in the long run as awareness and utilisation of panel services continue to grow.''

AXA raised IP premiums last year.

More awareness

Aviva, which showed improved 2018 underwriting results (-S$19.2 million vs - S$24.98 million in 2017), also attributed the improvement to higher premiums - mainly riders - and greater usage of its medical panel. "Encouraging customers to use specialists from our panel or from restructured hospitals helps to curb over-consumption.''

It is optimistic that FY2019 results will continue to improve. It cites a number of factors including increased awareness among consumers of their "shared responsibility'' in the healthcare ecosystem; increased use of panel specialists and pre-authorisation; surgical fee benchmarks from the Health Ministry; and the mandatory co-payment feature of new riders.

"However we still see a high proportion of over-servicing and abuse, in terms of frequency and bill size. All parties in the ecosystem - insurers, consumers, doctors, hospitals and the government - will need to continue working together to tame escalating medical inflation.''

NTUC Income chief executive Andrew Yeo said the cooperative's reduction in underwriting losses was due to premium adjustments for IP and riders for private hospitals. Income posted the second-best improvement in results of -S$4.29 million in 2018, against -S$19.98 million in 2017.

He said Income's premium increases were in line with the market. "Our pricing approach is pegged to our claims experience on the principle of sustainability to ensure we are able to cater to our policyholders' long-term medical needs.''

He added that it was premature to say if Income's specialist panel, introduced in the middle of last year, had a direct impact on 2018 underwriting results.

"Nevertheless we are stepping up efforts to drive higher utilisation of our panel of preferred healthcare providers through continuous education and engagement activities, as this is not only helpful in the long term management of medical claims, but also in achieving the best outcomes for our policyholders as panel healthcare providers' clinical indicators are closely monitored.''

Great Eastern says it has seen "slight improvement'' in underwriting results across all its Shield plans. It believes this is due to increased awareness among consumers of the healthcare system and insurance.

READ MORE: Integrated Shield scheme insurers nursing their results back to health