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Comparing health insurance policies

Club Life chief executive Naomi Ballantyne addresses issues people need to consider when looking at health insurance policies.

Monday, May 13th 2002, 7:14AM

by Naomi Ballantyne

Medical Insurance has been big news for some time. First came Southern Cross with its claim paying woes, then some of its competitors began an aggressive campaign to capture its clients and more recently Southern Cross has announced its move to individual pricing.

The resulting increased profile has generated significant debate amongst risk advisers about the relative advantages and disadvantages of the medical products available to their clients.

Much of this recent debate has centred around commission levels, price, policy definitions, features and excesses, and what company offers the best combination of these.

This is the usual approach that risk advisers take when comparing product offerings and is certainly a valid approach to evaluating traditional life products. Medical Insurance, however, has very different dynamics from traditional risk products and potentially needs to be viewed in a very different way.

Primarily the difference between medical insurance and other risk products is that the client does not get to choose the sum assured.

When they purchase a medical product the ‘sums assured or annual limits’ are standard to that product and cannot be increased or decreased at the client’s choice over time.

Clients have some flexibility around whether they choose comprehensive cover or just major medical cover and also over what excess they choose but they do not have any choice over the annual limits provided under the policy. These limits are set by the provider alone.

Thus while it is possible for the client to increase other risk benefits as their needs change they have no control over the amount of medical insurance they are covered for.

While this may not seem like an issue at present with current limits seemingly more than adequate to cater for client’s potential medical costs, it may be an issue in a few years time with the costs of medical care spiralling higher and higher.

A $3,000 limit for specialists and tests may seem adequate today but consideration also needs to be given to the future. Remember those limits are purely controlled by the provider and they have no obligation to increase them as medical costs increase.

Indeed with the ever-increasing cost of medical claims, the chances that a provider will not increase their limits if and when they do become inadequate are very real.

While a client always has the option to transfer their business should this occur, they are really gambling on their health remaining insurable to allow them to pursue this option.

Surely then the size of the annual limits must be a substantial consideration when choosing the best product for a client.

The other hot topic of debate surrounding medical insurance is the differences between excesses. For example, a number of companies that offer a ‘specialists and tests’ option do not apply any excess to this option.

Given that a significant percentage of claims under this benefit fall below the minimum excess amount, this would seem to be the best option for the client. Again it is important to consider the unique characteristics of medical insurance to understand why this is not necessarily so.

Medical insurance does not come with long-term premium guarantees and, as we have seen recently, premiums have been increasing significantly.

The reason that companies need to increase premiums is to offset the increasing cost of claims.

If companies are paying a significant number of small claims under the specialists and tests benefit then they are very likely to have increasing pressure on premiums.

The effect of this is a kind of merry-go round, where clients claim as often as possible, premiums increase and disgruntled clients continue to claim back as much as they can.

At some point the premium may become unaffordable for the client. Again while the client has the option to change their medical plan at this point, they are gambling that their health will allow them to.

Contrast that with a company that applies an excess to the specialists and tests benefit thereby excluding all small claims. Surely since these small claims represent a large percentage of total claims, that company will have more opportunity to control price increases in the future.

Is the client better off getting small claims reimbursed today or is there more value in having true major medical cover which has the potential to remain affordable into the future?

As with limits, advisers need to consider the impact of excesses on the future value of the product that they offer the client. Medical Insurance should last a life-time.

Comparing medical products on the basis of the long-term value that they can add to a client is conceivably more important than comparing them on how they impact on the client today. After all it is the adviser who the client will look to for an explanation if their policy no longer works for them.

Advertorial - Naomi Ballantyne is the chief executive of Club Life

Naomi Ballantyne ONZM, is the Managing Director at Partners Life.

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