Parsing the challenges for Shield insurers: higher premiums are not a panacea

AFTER suffering several rounds of premium hikes, it looks like policyholders of Integrated Shield plans (IP) will most likely have to brace for yet another increase.

Insurers reported a mixed bag of 2019 underwriting results for their IPs. Four managed to either post profits or reduced losses, but three other insurers turned in a worse performance. This is despite a slew of measures to tamp down escalating claims.

Prudential shows the most dramatic results. It was the first and sole insurer in 2018 to show underwriting profit of S$42.73 million. Its profit in 2019 rose 21 per cent to S$51.99 million, the strongest confirmation yet that its "claims based pricing" scheme is working. With this scheme, policyholders who do not make a claim enjoy a 20 per cent discount on premiums.

Income also showed a profit of S$4.1 million, compared to a loss of S$4.29 million in 2018. But Great Eastern's losses more than doubled to S$57.88 million, from a loss of S$25.83 million in 2018.

Prudential head of product management Stanley Ng says claims from private hospital plans have stabilised since claims-based pricing was introduced in 2017. Today, more than 80 per cent of policyholders under claims-based pricing do not make any claims under their review period.

"Such an approach encourages customers to lead healthy lives as those who stay healthy and claim less would be rewarded with lower premiums . . . If this trend continues, we believe healthcare costs would be better managed and medical insurance would become more affordable in the longer term," Mr Ng says.

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Under scrutiny

Costs and premiums are yet again under scrutiny following the MediShield Life Council's publication of its consultation document last week. The Council has proposed enhancements to MediShield Life so that nine in 10 subsidised bills may be covered. Its recommendations include an increase in the annual claim limit to S$150,000 from the current limit of S$100,000. But it also proposed to lower the proration factor for private hospitals from 35 to 25 per cent, to reflect the outsized cost of private hospital treatment and "ensure greater parity" in payouts between subsidised and private patients.

MediShield Life forms the basic plank of insured healthcare, and IP plans form a complementary layer. A decrease in proration factor means that private plans will have to bear a greater burden of claims.

Private hospital plans are a key culprit in poor IP performance, as pointed out in a seminal paper by the Health Insurance Task Force in 2016. Firstly, cost inflation in private hospitals is significantly higher. Between 2012 and 2014, private hospitals' overall bill size rose by 8.7 per cent per year, compared to 0.6 per cent for public hospitals. Second is the issue of over-consumption of healthcare by policyholders and "overcharging and inappropriate treatment" by healthcare providers.

IP insurers have implemented measures to dampen costs, such as a mandated redesign of riders to raise the co-payment portion; pre-authorisation prior to treatment; and setting up a "preferred" panel of doctors with whom insurers agree on "acceptable" fees and charges.

In a statement last week in response to the Council's MediShield Life review, the Life Insurance Association said: "With the use of a panel of preferred healthcare providers for IP plans with fees ascertained upfront, claims can be kept within a reasonable range and policyholders can have the assurance that their claims will be covered." The Health Ministry also published a benchmark of fees for surgical procedures in 2018.

But the reduction in the proration factor for private hospital plans deals a new blow.

Eddy Cheong of Providend says: "It has been an accepted fact that IP premiums will rise every other year with or without the enhancement to MediShield Life, and the key reasons are higher utilisation rate and rising medical inflation. And since MediShield Life is integrated into the IP, I think the overall premium would increase - though in concept the increased MediShield Life coverage should lower the risk exposure for IP, which then (may) maintain the premium. But I am being simplistic; the coordination of benefits and premium between IP and MediShield Life might be more complicated."

Sources say the persistently poor claims experience among private hospital plans cannot be blamed on any single factor, and it merits further study.

Higher claim rate

An insurer who declined to be named said the firm's claims experience over the past three to four years showed that cost inflation is driven more by a higher claim rate (the proportion of customers making claims) rather than an increase in the cost per claim. "An increasing proportion of our claims has also come from private hospitals. Private hospital costs are about double that of public hospital Class A ward costs for the same diagnosis. Patients who are seen in the private healthcare sector tend to get procedures at a higher rate than patients in the public sector. Private sector patients also have a higher probability of having multiple procedures done.

"However, based on claims data alone, it is not possible to say if this represents over-consumption of private hospital services or under consumption of public hospital services, or simply differences in medical practice approaches. This is something that the medical community and the relevant authorities would need to look into and advise on, as it has significant bearing on costs."

Meanwhile, insurers report progress in their efforts to contain costs. AIA said its system of pre-authorisation began in 2017, and was extended to all private hospitals and healthcare providers this year. It said the take-up of the pre-authorisation service has more than doubled year-on-year. It currently pre-authorises more than 80 per cent of claims under AIA HealthShield Gold Max A plan as at August.

Around 90 per cent of claims are fully reimbursed, said AIA. The balance of 10 per cent of claims are partially reimbursed or declined, usually due to a pre-existing condition the most common reason.

Aviva's IP incurred an underwriting loss of S$8.57 million, compared to S$19.2 million in 2018. It said the improved performance is due to higher premiums in 2019; higher usage of panel specialists; a closer review of inappropriate claims; and pre-authorisation on plans for private hospitals. One in three claimants uses specialists from its panel.

Automated processes

Aviva also invested in risk management systems with embedded clinical and claims administration rules. This enables automated processes and a more effective claims risk management. "This allows Aviva to implement a more consistent and effective decision making process, leveraging data analytics to identify patterns or trends earlier and help detect and minimise over-consumption without compromising necessary healthcare," it said.

"While there has been increased awareness among consumers of their shared responsiblity in the healthcare ecosystem, we still detect incidences of fraud, waste and abuse," Aviva said. It has not raised premiums this year, and is reviewing plans for 2021.

Income said it has seen "good traction" in the use of its specialist panel - a utilisation rate of 30-35 per cent - and this has had a positive impact on underwriting results.

Income adjusted premiums for riders for its private hospital plans earlier this year. "The premium adjustments continue to be pegged to our claims experience on the principle of sustainability to ensure we are able to cater to our policyholders' long-term medical needs," it said.

AXA Insurance managing director Sean Goh said the poorer showing in 2019 reflected "continued inflation of claims cost", in particular for full-pay riders. He said the impact of the newer co-pay riders, launched in mid-2019, would be gradual. About 40 per cent of customers request for pre-authorisation before hospitalisation.

Mr Goh said AXA has had to raise premiums for its highest plan for private hospitals and one of the full-pay riders this year, as medical costs - especially in private healthcare - continue to escalate. "We recognise that stability of premium rates is important for our policyholders and have been actively monitoring the claims experience of our Shield portfolio, while at the same time adopting a disciplined approach to any pricing adjustments to account for medical inflation. This is to ensure our premiums remain sustainable in the long run."

READ MORE: Most Integrated Shield insurers improve underwriting results in 2019