It’s time we indexed health insurance

Not unfamilar with this challenge, I somewhat agree.

I'm less concerned with retail products; they generally had competition, keeping them at higher cover levels to start with.

Where policy limits have been problematic is in the group space; in one case, one of my clients managed to spend $99,997 of their $100,000 annual policy benefit in the 3rd week after their anniversary on a single surgery, with prior approval before the anniversary.

Fortunately, in this case, the insurer also announced an increase in the policy coverage levels, at short notice, for that anniversary, meaning the client had scope for more treatment that year despite what had been advised with the prior approval and policy anniversary.

This isn't the same with most retail medical policies today; a couple have taken the approach of removing surgical limits and now state unlimited surgical cover, Southern Cross being one of them.

Something for covers that have been held for decades does need an answer; at the same time, most insurers have been mindful of this with their changes. Though they need to do it more often than 10-15 years in between!

With some products, we are getting to the upper limit of current benefit allowances, and I expect we will see a bump with these to limit the complaints that hitting limits will create for them.

End of the day, any answer that increases benefits is also going to open the door to increased premiums, something no one wants to hear about right at the moment.

This idea is not new. You will not beat the drivers of premium increases with enormous indexation, you will increase defaults and lack of purchase.

We have an aging population and medical technology being the 2 key drivers.

Some tax relief for those who choose medical insurance could help. We are paying twice, once through tax and also through premiums for cover. We are potentially taking pressure away from the public system and could or perhaps should get some relief for that.

Enormous estimations of future treatments and other waffle is fruitless. Insurers attempt to negotiate with suppliers, this is good. They underwrite, this is good. Some help clients with wellness offers. Indexation is as attractive as another TAX!

I’d like to see insurers pass back to obsolete products the improvements and limit increases they make when releasing new products. Some might argue that this would result in a dramatic rise in the cost of those older policies. However, almost without exception, insurers charge higher premiums for their older, poorer, obsolete policies than they do for new products that must compete in the open market.

Some examples from real clients of mine:

Client 1
Accuro Real Value - $150,000 claim limit for $532/mth
Vs.
Accuro SmartCare+ - $500,000 claim limit and $500k non-pharmac for $506/Mth

Clients 2
AIA MajorCare 2001 – $150,000 claim limit for $1,130/mth
Vs.
AIA Private Health – Unlimited claim limit and $500k non-pharmac for $976/mth *

*also included $200 excess increase but no Vitality

Insurers will come back with the “each product line has to stand on its own two feet, and so as policyholders exit, the remaining members have to share more of the cost” argument. However, this issue could be very easily corrected with a change in insurers' accounting practices.

It doesn’t stand up to scrutiny when a company like AIA allows a transfer to the better policy without underwriting. Other insurers like nib and Accuro create an unnecessary barrier to the new product by requiring full health evidence.

I suspect the obstacles are more ‘profit’ related than insurers let on.

Perhaps COFI and some more regulatory scrutiny will resolve this problem.

@37 Years too long, In someways, I agree. Part of the challenge is the approach of the old cover vs the new one, and the resulting claims they end up buying as a result.

The more permissive new policy on the back of less stringent old underwriting is a significant concern and one that is part of the reason for the higer premiums on the older products.

However, you do need to review the approach with AIA as that has had both some benefits passed back and updated over the years and the MajorCare policy was per admission or per surgery not per annum for the surgery benefit. (There is an excellent tool AIA has in their library on this difference between medical policy versions)

Making MajorCare substantially better than a modern policy in some of the more expensive surgical situations.

The non-surgical admission is limited to an annual limit, and this is where unfunded meds are usually paid from but would be under the surgery benefit if there was surgery at the time, and is low against the rest. Superior Health is another in the AIA stable that is substantially worse (but much cheaper than P/Health) that needs higher limits applied.

A few other features of the old MajorCare were prior to Nov 2001 preventative screening up to the policy limits is covered; want a colonoscopy or a full body MRI just because, the policy pays for that.

There is also an interesting one were some versions have picked up acute care some where in there and then passback of coverage in Aussie when they made changes after Private Health was released.

Making taking the old MajorCare to Aussie a possible option where the original cover was not portable and it picks up both emergency medicine costs as well as typical private medicine costs.

This old policy while being a bit pricy is still quite versatile in our present market. The annual cover level for non surgical and the S&T combined limit are getting close to not being enough, but that still applies to some of the onsale products too.

In terms of the last bit on profit drivers, absolutely. AIA is trying to extract people out of MajorCare, provided you were underwritten into the product with options to move to modern products. But group MajorCare is stuck where they are. (AIA Have a migrate kids coming of age into Private Health and limiting new borns on MajorCare, which is why they opened up Private Health to kids only)

nib in contrast is attempting to hold as many in Premier Health as they can to mitigate the toxic pool effect of healthy lives moving out. Making migration of kids to UHM limited to just ages 18-30 when it's often better for the kids to move as kids to a product that allows kids to be on their own...

Both have justificaiton but neither has it right from a customer perspective as some clients with AIA are far better to remain on the old product and plenty of nib clients are better off migrating.

Steve's comments have prompted me to pencil another missive into the weeds on this subject too, which should be with Philip in a week or so.

I think it could be time to focus forward and not get tangled up on old tolls that were ok at the time. The underlying assumption of all of this makes it sound like insurers have not tried to solve this problem. Believe me they have. They are not intentionally trying to hurt or punish clients with legacy products.

Shall I have IBM somehow upgrade me from my first computer I purchased which at the time functioned well. I mean they should have known about technology advancements?

Unfortunately, future proofing medical insurance so it will absolutely function in all circumstances forever is an hallucination. However I look forward to your thesis JP you should submit that for a PHD.

One day revenue and how to successfully build a practice will be back in the news!

@Backstage, I don't think that the IBM analogy is apt.

The sale of a computer involves a single transaction between the buyer and seller. Health insurance is a long-term contract that involves other customers within the risk pool - i.e. via cross-subsidies between these customers. For example, when a new customer purchases a health policy, their claims experience is significantly lighter because they have recently been underwritten and their premium cross-subsidises the claims costs of the wider pool, including the cost of enhancements provided to customers within the pool. In turn, it is fair and reasonable for these customers to (eventually) have their claims costs subsidised and their product enhanced.

Every insurer will weigh and address these questions of customer fairness in their product strategy, pricing approach, and internal transfer rules - however, ring-fencing clients into a closed health product priced for experience with no opportunity for subsidisation from newer customers doesn't strike me as fair.

Maybe a more accurate analogy might be a Netflix subscription, but where older subscribers watch old content and potentially pay higher subscription fees than newer subscribers.

@KeepThingsSimple At the time of purchase of the medical contract, it is fit for purpose. There are a couple if medical insurers that could be an exception.

At that time it likely meets current costs and factors in some future situations. Premium is built and other factors like supplier arrangements are struck. I think the problem that was trying to be solved is keeping up with treatment costs and keeping premium affordable.

I appreciate your view of fair. Tax relief is my view of fair.

I have worked for 2 medical insurers in my life and understand these simplistic arguments and can assure you, this problem has been looked at from all angles already mentioned. Looked at with the intent of assisting clients.

@Backstage, it might qualify for a PHD thesis by the time I’m done, while everyone critiques it here…

I agree with you on the focus forward, legacy policies are a bit of a ‘mare and no one has the right answer despite the time spent looking for solutions.

The single-pool approach ends up being more expensive for everyone and the multiple-pool one results in hammering older lives as they need the cover. Both suck in their own special ways.