Health insurance: when comprehensive isn’t really comprehensive at all.
Most reasonable health insurance policies will cover you for serious illnesses and accidents. They will generally also cover minor issues that might just require a visit to the doctor. This is all well and good, and exactly what the policy is designed for.
However, there are a few other areas of cover that I regularly get asked about, and have to explain why they are not included, or if they are why the cost so much. I am of course referring to routine treatment. That can be routine well person check-ups, dental treatment, eye tests and glasses, and maternity cover. As a lot of us are expatriates here, some or all of these treatments are covered in our home countries, and it can be a shock to find that they are not covered here.
Before I go on, I would like to share two definitions that are central to the discussion;
1. Insurance. This is a form of risk management primarily used to protect against the risk of a possible, uncertain event or loss. Insurance is the process of transferring risk from one person to another, generally in exchange for a payment. An insurer is generally a company selling the insurance; the insured, or policyholder, is the person or entity buying the insurance policy. The amount to be charged for a certain amount of insurance coverage is called the premium.
2. Assurance. This is the coverage of an event that is certain to happen. Assurance is similar to insurance (and sometimes the terms are interchangeable) except that insurance protects policyholders from events that might happen.
As you can see, while the words and indeed the meanings are very similar, the actual meaning is very different. This is crucial to the way that all insurance premiums are calculated. The analogy that I often use relates to car insurance. If you were to ring up your insurance company, ask for a quote for car insurance and tell them you were going to crash your car today, what do you think it would do to the premium? This may sound flippant, but it does hopefully show, in very basic terms, how medical insurance premiums are calculated.
If we go back to the areas of cover that are generally covered, you can see that this is a form of insurance. The medical underwriter can assess based on a number of factors the cost to insure someone of a certain age. They will have a lot of data that they can refer to, and sad though it is, they can work out the changes of a person being diagnosed with cancer, or having a stroke or indeed having a car crash. And fortunately for us, the chances are relatively low, which is why the cost to insure against these events are also relatively low – with the caveat that age will affect some of these things and so the cost to insure will account for that.
Conversely because these things are thankfully relatively rare occurrences, questions sometimes arise as to the whether the cover is worthwhile? Again I would counter that by saying that you don’t want to have that car crash, or you don’t want your home to flood, but you will insure against that, and arguably your own health is far more important.
So what of the routine treatments that I referred to earlier? Hopefully it is becoming clearer as to why these are not covered as standard, or if they are included why the cost of the cover increases significantly. Simply put, if you offer a level of benefit, then it is likely that the member will claim the full amount that they are entitled to. So for example, if there is $500 of routine dental included, then $500 will be claimed. To try and protect themselves from the full costs of this, insurers often include a co-insurance with the routine coverage, so that there is some coverage, but the member has to pay 20% of the cost for example. Often these treatments are on a reimbursement basis, whereas the main benefits can be on a direct billing arrangement – again this is done because members are less likely to claim back the cost. This may seem a little unfair, but if you imagine that an insurance company has a million customers for example, if only 10% decide not to reclaim, then it can be a huge saving, and will be reflected in the premiums paid.
With maternity cover, there is often a clause that if it is covered, then the member must have been insured for 12 months before they give birth. Again, this is a way of spreading the cost – rather than put the full cost on to the policy, it is split over the 2 years. It also protects the insurer from the situation where a member applies when they are 8 months pregnant and then the insurer would be liable for the delivery costs almost immediately.
One area that a number of insurers have chosen to include some cover for, certainly on their more comprehensive policies, is an allowance for well person check-ups. Even though this is likely to generate additional claims on their policies, it should hopefully lead to a healthier customer, who will not have to claim so much in the future.
I am not trying to defend the insurance companies, but I am trying to give an insight into how they structure their policies and the reasons for why things are done in a certain way. It must be remembered that they are businesses, set up to make a profit, they are not a state backed health service. I hope that this has been a useful insight into how insurance companies work and give some understanding as to why some things are covered and other not.
As with all aspects of your financial affairs, you should regularly review your financial situation to make sure it continues to reflect your wishes and requirements. As always we at Acuma welcome your questions and enquiries directly so please do not hesitate to contact us if you would like to discuss this or any other issue in more detail.
(Written by James Thomas of Acuma Independent Financial Advice)