Cedric Stephens | Insurer decisions are rational

Dr Garth Rattray, a medical doctor with a family practice and newspaper contributor, authored a piece on April 11 about his experiences with, what he called, one of the popular health insurance providers.

More generally, he also described health insurance business practices. His arguments were clear and logical. He has a keen understanding of the link between health insurance and the practice of medicine.

I disagreed, however, with his assertion that insurers’ upper-level management decisions “are not necessarily rational”. The opposite is true. Reason and logic are at the heart of top management decisions and actions. Maximising short-term earnings is the main goal. Why? The answer is simple: executive compensation is linked to the attainment of short-term financial results.

The doctor’s call for insurers to offer benefit improvements to policyholders will fall on infertile ground, much like many of the seeds in the Parable of the Sower in the Gospel of St Matthew. Will the industry lobby, the Insurance Association of Jamaica (IAJ) join Dr Rattray in a public debate and offer information to disprove his arguments, or will his comments be ignored?

Here is the answer: Three weeks ago, I wrote: “The employees of life and health insurance providers, including those who manage claims, appear to be chosen for their lack of empathy. The process for resolving problems, when customers, their relatives, and/or dependants feel most vulnerable, is invariably mechanical, indifferent, and lacks transparency.” I am still awaiting a response to this statement.

Today’s article will amplify Dr Rattray’s comments. I will present information from other sources that will explain why changes to the status quo are unlikely. I will also challenge an influential group, comprising, for example, the Ministry of Finance & the Public Service, the Fair-Trading Commission (FTC) the Financial Services Commission (FSC), the Ministry of Health & Wellness, the Consumer Affairs Commission, and, of course, the IAJ to find answers to the substantive issues raised in the physician’s article and to disseminate their findings.

MAKING HEALTH INSURANCE MARKET COMPETITIVE

These issues are bigger than the insurance industry. Benefit improvements can improve the lives of 32 per cent of the population that has health insurance. While they are at it, they could begin the process of finding solutions to making universal health insurance available to the remaining 68 per cent.

Government is the largest employer. It is also the biggest buyer of health insurance. Shouldn’t it, as a matter of policy, be interested in making sure that the health insurance market is competitive and operates effectively and efficiently – beyond the procurement of coverage?

The state has the capacity, buying and regulatory power to promote changes to benefit all consumers. Why isn’t it exercising that power? Where is the leadership?

Twelve years ago, the Obama administration spurred much-needed changes to the United States’ health insurance system and improved the lives of millions of citizens. The US Congress is now taking steps to lower the cost of insulin, which has skyrocketed beyond the reach of the poor. These actions prove that private markets seldom have all the answers.

There are structural problems in the health segment of the local life insurance industry. The market now comprises five privately owned companies. It is highly concentrated. Two members control about 70 per cent. In 2002, there were only two insurers, according to a January 2013 FTC magazine article. The author, the FSC, concluded that “concentration in the market is driven by low-profit margins, the risky nature of business as it relates to claims and high medical inflation”.

Twenty years later, with more insurers, the situation should have worsened. It has not. According to a January 2021 article on the FTC website: “Overall, the profit earned by the market leader has been increasing steadily year-on-year with the most recent data showing a 10 per cent increase for 2019. The profit growth was accompanied by an even larger increase in premiums year-on-year of 15 per cent. In contrast, the payout ratio of benefits paid to premiums collected decreased from 64 per cent in 2018 to 61 per cent in 2019.”

Concentration, according to a definition used by the Organisation of Economic Cooperation and Development, OECD, refers to “the extent to which a small number of firms or enterprises account for a large proportion of economic activity such as total sales … high levels of market concentration are more conducive to firms engaging in monopolistic practices”.

Here is a list of some of the things that the proposed reform group should investigate:

1. The rebranding of the former Ministry of Health to include a wellness component suggests that the institution’s mission includes the treatment and prevention of physical and mental illnesses. Health insurance benefits have not evolved to the same degree. Further, health insurance providers are biased against persons that suffer from mental illnesses. Plan benefits should be revamped to reflect the 21st-century post-pandemic thinking that Dr Rattray wrote so eloquently about;

2. Exclusions relating to pre-existing conditions should be banned;

3. The language used in health insurance contracts should be simplified to facilitate understanding by an average person; and

4. The process by which claims are managed should be simplified, standardised, user-friendly, and non-adversarial. Also, a mechanism should be established for claimants to appeal non-pay decisions.

Maximising returns to shareholders and compliance with the objectives of the FSC’s February 2019 Market Conduct Guidelines are not incompatible.

Cedric E. Stephens provides independent information and advice about the management of risks and insurance. For free information or counsel, write to: aegis@flowja.com or business@gleanerjm.com.