HOW NOT TO LOSE MONEY IN HEALTH INSURANCES

OR

HOW TO MAKE A REASONABLE PROFIT IN HEALTH INSURANCES

Gülsultan Doğan26th of September, 2014

IIIC Health Workshop

LOSS RATIO: CLAIM/EARNED PREMIUM

AIM: Lower claim and higher premium

In USA, under Medical Loss Ratio requirements, individual and small group plans must spent no less than 80% of their premiums on medical care provided to subscribers and quality improvement activities. For large-group plans, the ratio is 85%.

That means, loss ratio can not be better than 80% in USA.

For example, for every dollar insured pay to Aetna, they pay 81.5 cents back out to doctors and hospitals and they keep 18.5 cents for their efforts (overhead, processing cost, fraud, profit)

GETTING REASONABLE LOSS RATIO

"Only a nickel of your premium dollar stays with the insurance company. The profits of insurance companies are truly a trivial part of national health spending“ says Uwe Reinhardt, a health economist at Princeton University.

In the eyes of public and authorities, health insurance carriers profit margins from health insurances are expected to be reasonable. High profits are considered immoral.

This is because health touches basic social values of human life and therefore should not be a profit maximization tool.

Conclusion - 1

Turkey had 76 billion TL health expenditures in 2012, 69 billion TL in 2011.

OECD Average Turkey

Overall Health Spending

9.2% of GDP 6.1% of GDP

Expenditure on health by Type of

Financing

General Gov’t and Social

Security

72% 73%

Private out of pocket

20% 19%

Private Insurance 6% 2%

Others 2% 6%

OECD Health Statistics 2013 (reflects 2011 data)

In Turkey, the average percentage of private health insurance in health expenditure is lower than OECD countries.

Turkey has still a long way to go in private health insurance, which means market penetration is still too low compared to OECD countries.

Conclusion - 2

Claim management, contracting, payment models and the products of health insurance differ from country to country, depending on the country’s public-private healthcare system and public-private social security payment policies.

The operation and the products of life insurance or motor insurance are very much the same in all over the world.

One of the major differences of health insurances from other branches

Health insurance products and claim management should be tailor made according to each country’s healthcare and health finance infrastructure.

Conclusion - 3

Act fast, be proactive to market conditions Design and diversify products according to different

target markets and the distribution channels and direct them effectively

Lower Administrative Expenses Continuous administration of contracts with

Healthcare Providers Scalability Do not focus only on daily operations, think and act

strategically Effective Claim Handling Continuous monitoring Preventing unnecessary services

How to make reasonable profit

Managed care and preventive care Disease Management Stimulate a healthy life-style for insured Direct insured/patient while receiving health care services Establish ‘Trust’

Detecting and preventing fraud Continuous data analysis, using BI tools to determine the

fraud and abnormal behaviors Using technology to give insureds better services and better

claim management Public-private healthcare payment system in the country

Closely watch what is covered by social security system, what is not, where is the gap to fulfill?

How to make reasonable profit

Legislations and government policies Compulsory private health insurance for foreigners in

Turkey to have a residence permission suddenly increased the market potential of health insurance market from 2.5 billion TL to 4 billion TL.

The mandatory health insurance for expats and private sector employee increased the number of health insurance subscribers tremendously in KSA.

Be an active actor to cooperate with public authorities to provide better healthcare system for the country.

How to make reasonable profit

The only thing that doesn’t change is change itself and everything is changing rapidly than ever before.

Even though insurance industry seems traditional and stable, the insurance companies that give quick response to market dynamics are the ones that go ahead.

Consumers are changing rapidly too, as their needs become more sophisticated and their expectations of service providers are shaped increasingly by technology and a sense of information-driven empowerment.

Health is the area that includes huge amount of data. There are a lot of areas for health insurance companies to process this data to reflect as services to their insured to increase their competitive advantages and increase premium.

Act fast, be proactive

The right combination of health insurance products with distribution channels is critical. Today many insurance companies in Turkey are achieving success stories by bancassurance in the health insurance area and getting high profits from the simple, easy to sell health insurance products like emergency health, critical illness and compensation payment for hospitalization policies.

However neither banks will sell comprehensive policies nor brokers will prefer to sell easy and low-in-premium health insurance products.

So, finding right combination and using diversified distribution channels is important to increase premium production and contributing to the profitability.

Design and diversify products according to different target markets and the distribution channels

Claim management in health insurance is very much paper-based, includes huge amounts of data and requires inpatient claim evaluation by doctors or nurses. That is why it is more costly than other insurance branches.

Health insurance companies in Turkey also shall start to use EDI between contracted HCPs and their system instead of making their staff enter to each data to the system.

Moreover, smart claim management systems and underwriting systems are also means to decrease the number of personnel, make more accurate claim evaluation and increase efficiency.

Lower administrative expenses

Not only discounts received from HCPs but also contract conditions make a difference in paid claims to HCPs.

Besides, once an insurance company made an agreement with HCP, each year current contracts shall be reviewed and revised. A contract with a hospital favorable at the time it is signed, may not be so advantageous next year.

Continuous administration of contracts with HCPs

Health insurance industry in general and carriers in specific should have enough buying power against HCPs.

Today in Turkey, the private health insurance industry covers only 2.5% of whole population therefore we cannot talk about scalable industry.

However General Health Insurance under Social Security Institution uses its power against all providers in healthcare including drug companies.

So, how the private health insurance industry will provide scalability? By growing, not by preserving status qua.

Scalability

Daily operations in health insurance keep the managers in health insurance so busy that it prevents them to focus on strategic side.

However, health insurance deserves strategic and new approaches, implementing them, shaping the customer’s expectations and also understanding the expectations.

Let’s go out from our daily routine, let’s be not afraid of trying new ways, let’s pursue them!

Do not focus only on daily operation, think and act strategic

Health insurance claim management is very critical if a reasonable profit would like to be

reached.

In Turkey call center authorization departments, electronic claim processing systems and claim

handling departments are in charge of claim management. However there is more than doing

daily business.

Following the claims of each group insurance and individual policies closely, making data

analysis not only at the end of policy year but also during the policy time, can provide room for

proactive claim management.

60% of all health insurance claims is coming from outpatient and 40% from inpatient. Following

outpatient claims frequency and getting some precautions like using workplace doctors more

efficiently in a group, could provide decrease in frequency and better results in claim and as a

result better claim/premium ratio.

Also, sometimes we can make aware the customers that high claims means high premium next

year, then we can invite them to benefit from their policies in a more rational manner.

Healthcare Providers sometimes can exaggerate the number of diagnosis per doctor visit.

Continuous monitoring and making them aware that we, as an insurance company are aware

what is happening will make them to normalize their healthcare consumption from our insured.

Effective Claim Management

a variety of techniques intended to reduce the cost of

providing health benefits and improve the quality of care

(from Wikipedia)

So, is it scary to implement?

Can’t we help our insured to make them have more healthier

life and reduce their health expenditures? Disease Management Encourage insureds for well-being Direct insureds while receiving health care services But first establish ‘Trust’

Managed Care

Detecting and preventing fraud Continuous data analysis, using BI tools to determine the

fraud and abnormal behaviors Take the action accordingly.

Detecting and Preventing Fraud

Applications EDI Rule Engines Electronic Health Record Telemedicine

Using technology to give insureds better services and better claim management

Coverage of Social Security Systems Sustainability of SSS and its willingness to share the burden with

private industry Availability of Primary Care System HCPs quality and quantity Accessibility to healthcare Benefits not to be covered (such as dental) Behavioral tendencies and traditions of healthcare consumption

of the people

Public-private healthcare payment system in the country

only looking from all angles will give us perspective