When the consumer prices index topped 5% last year, the public squealed with pain. It always hurts when prices rise faster than incomes.
Companies and individuals buying international private medical insurance (iPMI) have been squealing for years. Medical inflation routinely runs at two or three times standard inflation, leading to double-digit premium hikes, year after year. It is the beast that can’t be tamed, but what are insurers doing to keep it under lock and key?
Medical inflation is an almost mystical term, says John Hunt, international consultant at Bluefin Corporate Consulting.
“People assume it refers to new medicines and technology, and the rising cost of treatment,” he says. “In fact, there is no equation that states medical inflation = X+Y. It isn’t that simple.”
If it was, he says we would see uniform premium hikes, but they differ wildly from insurer to insurer.
“Individual insurers look at their own portfolio performance, predicted costs and targeted profit margins, and set their premiums accordingly,” Hunt continues. “The result is that premiums can increase by anything from 8% to 20% a year.”
Insurers are also engaged in a policy benefits arms race, fighting a constant battle to outdo their competitors, Hunt says.
“As they throw in ever more value-added benefits,such as chronic conditions, optical and wellness tests, claims and costs inevitably rise. Benefit limits have also crept up, partly due to rising medical costs, partly because insurers are trying to offer more than the competition.”
Clients must understand they can not have it both ways
“They need to exercise some control over policy benefits, perhaps by accepting an excess, or co-insurance,” Hunt says. “This is particularly relevant to larger groups paying experience-based premiums, which reflect claims made by their employees. A good employee benefit consultant can help.”
The alternative is to face severe premium hikes. Some 5% of international customers saw their premiums rise an incredible 20% or more at last renewal, according to the 2011/2012 expat survey by employee benefits consultancy Mercer.
Nearly one in four saw premium hikes of between 11% and 20%, with a similar number paying between 6% and 10% extra.
Medical inflation also varies massively from country to country. In Mexico, costs jumped 16% in 2010. In Russia, they leapt 18%. Medical inflation also rose sharply in India (15%), China (10%), Japan (9%) and the US (7%). In the UK, it rose 6%.
Insurers have responded by devoting more resources to their in-house hospital negotiation teams to bargain down costs, says Mark Harris, senior associate at employee benefits consultancy Mercer.
He says: “They are also partnering with local health insurers, to access their domestic provider networks. Locally-negotiated hospital rates are by definition lower, due to larger domestic volumes. This also helps meet local compliance requirements, and avoid double coverage.”
Insurers are taking a more pro-active approach to case management, even financially penalising expatriates who fail to pre-authorise claims.
“Getting the insurer closely involved in the early stages of a claim leads to better quality medical outcomes and lower costs for the client,” Harris says.
Some insurers call in specialist healthcare management companies to give expat clients a second medical opinion.
“They have seen strong improvements in the cost and quality of care as a result,” Harris continues.
International medical insurers are continually on the alert for fresh ways to hold premiums down, says Susan Landers, head of marketing and client management at insurer Allianz Worldwide Care.
She explains: “Under our treatment guarantee process, we pre-authorise certain proposed treatments, primarily inpatient care, to check it is appropriate, necessary, and that costs are in line with typical charges for the region. We often negotiate significant discounts.”
Allianz’s medical services and claims teams each have a specific geographical territory to patrol.
“They are usually natives of the region, which puts them in a good position to review and challenge any proposed treatment or tariff, to eliminate excessive or unnecessary charges,” Landers says. “We also use regionally-based doctors to negotiate direct settlement agreements with local medical providers.”
Last year, Allianz launched a new medical escort service to cut evacuation costs.
“We use commercial flights to evacuate medically stable members, accompanied by one of our doctors at all times,” says Landers. “This delivers significant cost savings, but corporate clients still get a fast, flexible and safe doctor-escorted evacuation service. We continue to use existing air ambulance partners if the member is in a critical condition.”
Prevention is not just better than cure – it is also cheaper.
“That’s why our standard international plans contain a range of health and wellness benefits, including routine health checks for early detection of illness and disease. We offer cancer screening, cardiovascular, neurological and well-child tests, and complementary therapies such as chiropractic treatment, osteopathy, homeopathy, Chinese herbal medicine and acupuncture,” Landers says.
iPMI will always be more expensive than domestic health insurance, because it covers a much wider list of benefits, including primary care, chronic conditions and maternity, says Teresa Rogers, business lead, international, at Aviva.
“Costs also vary considerably depending on where the customer is seeking treatment,” Rogers says. “The US, UAE, Hong Kong, Singapore and Switzerland have some of the highest treatment costs, while a US hospital in Dubai will typically charge more than a local hospital.”
Claims management is key, Rogers continues.
“We’re developing network arrangements in regions like the US and the UAE to control costs, operate compliantly and offer customers the right treatment at the right price,” she says.
Bupa International has set up a hospital quality assurance programme to help it cut costs without sacrificing quality, says sales director Tim Slee.
“We avoid hospitals which charge exceptionally high rates to customers wanting US or EU-style private hospital facilities, especially where high-quality, modern facilities are available locally,” Slee says.
Bupa uses its global scale to negotiate significant discounts with domestic health insurers, while working with specialist case management organisations to maintain quality of care.
“Treatment costs continue to rise at double the rate of inflation, due to advances in medical technology and breakthrough drugs and treatments,” says Slee. “They have risen particularly strongly in Brazil, Singapore and Hong Kong. We want to provide access to the very best healthcare, so our premiums inevitably reflect these increases.”
AXA PPP International also manages supplier costs by running a preferred network of medical facilities, says director of medical services Jonathan Gray.
“We also routinely conduct clinical reviews of invoices and audit bills to monitor charges, and robustly challenge any inappropriate or unwarranted fees,” he explains.
AXA PPP encourages members to pre-authorise any treatment, supported by Medix, its personal case management service.
“Medix gives objective, independent medical support for members with serious medical conditions,” says Gray. “It ensures treatment plans are devised in line with best practice rather than in the interests of the healthcare provider, who may be tempted to charge for additional and unnecessary services.”
MediCare International sets itself a target of restricting premium increases to below average medical inflation, says senior executive director David Pryor.
“This year, medical inflation is running at between 12% and 16%, but we hope to restrict preview rises to 5% for group business and 8% for individual cover,” he says.
MediCare International has developed a new voluntary excess structure giving policyholders a choice of 10%, 20%, 35% or 50% discounts on their policy.
“The option to co-insure by accepting a proportion of claim costs is attractive, and we now offer this as well,” Pryor adds.
Insurers must not become too fixated on costs, because clients don’t choose their policy on price alone, he argues.
“Many say they want to save on costs, but they aren’t prepared to cut corners to reduce premiums. Our premium policy options are regularly our bestselling products,” Pryor says.
Medical inflation will never be completely tamed, but insurers appear to be doing all they can to stop it from wreaking too much havoc.