Growing Pains S election E ffects in Private Health Ins urance - PowerPoint PPT Presentation

Growing Pains S election E ffects in Private Health Ins urance Andrew Gale

Growing Pains •Selection in Private Health Insurance •Growth Stories •Measuring Selection •Financial Impacts of Selection

S election • Claims experience of a select group is higher / lower than the non-select group with the same characteristics q [x]+k <> q x+k

S election in Private Health Ins urance Waiting Periods – Hospital Cover • Pre-existing conditions 12 months • Obstetrics 12 months • Psychiatric, rehabilitation, palliative care 2 months • Other treatments 2 months • Accidents usually nil • Benefit Limitation Periods 1-2 years

S election in Private Health Ins urance Waiting Periods – Ancillary Cover • Major dental, orthodontic & endodontic up to 12 months • Optical up to 12 months • Psychology up to 12 months • Blood glucose monitors up to 24 months • Hearing aids up to 36 months • Other benefits generally 2 months

Waiting Periods

Industry 16% Hospital Drawing Rate Growth • 0% - 5% growth • Strong inverse 12% correlation between drawing rate growth 8% and membership growth 4% 0% -8% -4% 0% 4% 8% 12% 16% 20% Change in Hospital Contributors =02/03 =09/10

Growth S tories Insurer B Insurer A 16% 16% Hospital Drawing Rate Growth Hospital Drawing Rate Growth 12% 12% 8% 8% 4% 4% 0% 0% -8% -4% 0% 4% 8% 12% 16% 20% -8% -4% 0% 4% 8% 12% 16% 20% Change in Hospital Contributors =02/03 =09/10 Change in Hospital Contributors =02/03 =09/10 • Rapid growth and decline in membership, spikes in hospital drawing rate

Growth S tories Insurer C Insurer E 16% 16% Hospital Drawing Rate Growth Hospital Drawing Rate Growth 12% 12% 8% 8% 4% 4% 0% 0% -8% -4% 0% 4% 8% 12% 16% 20% -8% -4% 0% 4% 8% 12% 16% 20% Change in Hospital Contributors =02/03 =09/10 Change in Hospital Contributors =02/03 =09/10 • Sustained above average membership growth, wide range of drawing rate outcomes

Growth S tories Insurer D 16% Hospital Drawing Rate Growth 12% 8% 4% 0% -8% -4% 0% 4% 8% 12% 16% 20% Change in Hospital Contributors =02/03 =09/10 • Wide range of membership growth, above average drawing rate growth

Meas uring S election • Study of membership and claims data by duration for a large health insurer • Drawing rate ratio for duration k to duration 6+ • Calculated by age, sex and product • Aggregate result standardised • Includes all new entrants (uninsured & transfers)

Meas uring S election Hospital Relative Drawing Rate by policy duration 160% Standardised Drawing Rate ratio 140% • first year low 120% • second year high 100% 80% • deferral of claims 60% 40% 20% 0% Year 1 Year 2 Year 3 Year 4 Year 5 Year 6+ Membership Year

Meas uring S election Standardised Drawing Rate ratio by duration - Hospital cover Age Group Year 1 Year 2 Year 3 Year 4 Year 5 Year 6+ 20 to 34 65% 133% 112% 115% 114% 100% 35 to 49 57% 168% 111% 106% 106% 100% 50 to 64 62% 170% 129% 119% 106% 100% All Ages 62% 147% 112% 111% 109% 100% • Year 2 claims spike, greater at older ages, select period increases with age?

Meas uring S election Ancillary Relative Drawing Rate by policy duration 160% Standardised Drawing Rate ratio 140% • Year 1 small 120% selection effect 100% 80% • No year 2 spike 60% 40% 20% 0% Year 1 Year 2 Year 3 Year 4 Year 5 Year 6+ Membership Year

Meas uring S election Standardised Drawing Rate ratio by duration - Ancillary cover Age Group Year 1 Year 2 Year 3 Year 4 Year 5 Year 6+ 20 to 34 93% 102% 102% 106% 111% 100% 35 to 49 89% 100% 101% 106% 110% 100% 50 to 64 90% 98% 97% 102% 107% 100% All Ages 89% 99% 100% 105% 110% 100% • Little variation by age

Financial Impact of S election Growth and Selection example Growth Rate Membership Drawing rate Claims Time

Modified Hos pital Drawing R ates C n D n = -0.34 M n-2 + 0.68 M n-1 + 0.66 M n where C n = claims cost in period n M n = average membership in period n

Growth and S election: a powerful combination! Managing high growth requires skill and knowledge

Financial Impact of S election • Changes in claims experience – anticipated or a surprise? • Makes forecasting a challenge during periods of membership change • Claims time lag: claims growth follows membership growth

Conclus ion • Understand the impact of durational selection • Hospital claims: low in year 1, high in year 2 • Understand financial impact of membership growth changes • Caution with product profitability and drawing rate trends • Do your own selection experience investigation