mutuality and solidarity - actuaries · 2017-01-30 · 29 mutuality and solidarity in nz private...

Mutuality and SolidarityIs it possible to solve the crisis in NZ private health insurance?

November 2016

NZ Society of Actuaries Conference 2016, Tauranga

Jeremy HolmesPrincipal, Melville Jessup Weaver

2Mutuality and Solidarity in NZ Private Health Insurance

NZ Society of Actuaries Conference 2016

Contents

Mutuality vs. solidarity

Universal healthcare

The impending crisis

Mutuality solutions

Solidarity solutions

Conclusion

Q & A



Mutuality vs. solidarity

Mutuality

• Risk rating

• Competition

• Voluntary

Solidarity

• Community rating

• Compulsion

• Social ‘insurance’

• Sharing

losses



Universal healthcare: World Health Organisation



Universal healthcare: publics vs. private funding



The impending crisis: private spending

Source: HFANZ

28%

29%

30%

31%

32%

33%

34%

35%

2000 2002 2004 2006 2008 2010 2012 2014 2016

Proportion of NZ population with PHI




Source: HFANZ

0%

10%

20%

30%

40%

50%

60%0–4

5–9

10–14

15–19

20–24

25–29

30–34

35–39

40–44

45–49

50–54

55–59

60–64

65–69

70–74

75–79

80–84

85–89

90

+

PHI coverage by age group

2000

2004

2008

2012

2016




Source: Southern Cross, nib online calculators

$0

$500

$1,000

$1,500

$2,000

$2,500

$3,000

20 30 40 50 60 70 80

Annual premium by age

Southern Cross - Wellbeing One

nib - Top Private Hospital Cover Plus




Source: Southern Cross, nib online calculators

0%

5%

10%

15%

20%

25%

30%

35%

40%

20 30 40 50 60 70 80

Age related annual increase

Southern Cross - Wellbeing One

nib - Top Private Hospital Cover Plus



The impending crisis: public spending

“In spite of the potential downsides of PHI, it is likely to

increase as a proportion of total health spending”

Source: The Treasury

0%

2%

4%

6%

8%

10%

12%

2017 2027 2037 2047 2057

Pe

rce

nta

ge

of

GD

P

Core crown health expenditure

Long Term Fiscal StrategyModel 2013

Long Term Fiscal StrategyModel 2013 (debt

constrained)

Fiscal strategy model 2016



Mutuality solutions: banning ring fencing

Ring fencing

Guarantee is product specific

Legacy pools deteriorate

Guaranteed renewability

Renew annually on standard terms

No penalties for deteriorating health



Mutuality solutions: banning ring fencing

Can we ban ring fencing?

Unhealthy policy-holders remain covered

Overall premiums increase

Net impact on PHI coverage?



Mutuality solutions: tax incentives

Reduced public sector costs, but:

Is PHI supplementary or complementary?

Will more PHI increase demand

(and prices)?

Moral hazard, increased use of

services

Higher new business and retention

Effectively up to a 33% discount on PHI premiums

Make health insurance tax deductible




0%

5%

10%

15%

20%

25%

30%

35%

40%

45%

2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 2026

Projected PHI coverage proportions

Baseline Scenario A Scenario B Scenario C

Initial impact on

policy holders

Decrease to

lapse rates

Baseline None None

Scenario A 10% 20%

Scenario B 20% 40%

Scenario C 30% 60%




$0m

$100m

$200m

$300m

$400m

$500m

$600m

$700m

$800m

2017 2018 2019 2020 2021 2022 2023 2024 2025 2026

Cost/benefit of PHI tax credit

Tax credit - C

Tax credit - B

Tax credit - A

Tax credit - baseline

Additional claims - A

Additional claims - B

Additional claims - C



Mutuality solutions: age discounting

Mutual insurer has excess capital

Subsidise premiums for older policyholders

Based on loyalty period

Increase retention

Increase new business




*includes life insurance

Sources: Companies Office and insurer websites

0%

100%

200%

300%

400%

500%

600%

700%

800%

900%

1000%

$0m

$100m

$200m

$300m

$400m

$500m

$600m

$700m

$800m

$900m

$1,000m

Insurer capital

Deductions from capital

Solvency margin

Minimum solvency capital

Solvency ratio (RHS)





$0

$200

$400

$600

$800

$1,000

$1,200

$1,400

Unimed Police HealthPlan

Southern Cross nib HealthCare + Accuro

Total capital per member




*includes life insurance


0%

20%

40%

60%

80%

100%

120%

140%

160%

Claims and expense ratios

Expense ratio

Claims ratio




• Loss ratio: 80%

• Expense ratio 10-15%

• Premiums capped from age 65

• 10 year loyalty requirement

• Real investment returns 3-6%

• Lapse rates decrease

• Potential surge in new business at age 55

The model:




Scenarios:

– A: expense ratio 10%, inv. return 6%, lapses unchanged

– B: as for A but lapses halved after 65

– C: as for B but expenses 15% and inv. return 3%

$0m

$5m

$10m

$15m

$20m

$25m

$30m

$35m

$40m

2016 2020 2024 2028 2032 2036 2040

Projected capital base (2016 $)

Scenario A

Scenario B

Scenario C




Scenarios:

– A: expense ratio 10%, inv. return 6%, lapses unchanged

– B: as for A but lapses halved after 65

– C: as for B but expenses 15% and inv. return 3%

– D: as for C but premiums capped from age 72

$0m

$5m

$10m

$15m

$20m

$25m

$30m

$35m

$40m

2016 2020 2024 2028 2032 2036 2040


Scenario A

Scenario B

Scenario C

Scenario D




Impact of new business surge at age 55

$0m

$5m

$10m

$15m

$20m

$25m

$30m

$35m

$40m

2016 2020 2024 2028 2032 2036 2040


No surge

Surge




Higher initial capital base

$0m

$10m

$20m

$30m

$40m

$50m

$60m

$70m

2016 2020 2024 2028 2032 2036 2040


Optimistic

Pessimistic



Solidarity solutions: elements of solidarity

Minimum benefits

Open enrollment

Community rating

Risk equalisation



Solidarity solutions: the Aussie model

• Products are categorised

Minimum benefits

• Insurers cannot decline cover or impose special rates

• Up to 12 month wait for PECs (doesn’t apply when switching insurers)

Open enrollment

• One premium per product

• LHC loading dependent on age first joined (max 10 years)

Community rating

• Risk Equalisation Special Account

Risk equalisation



Solidarity solutions: the Aussie model

But:

Claim equalisation not perfect

(nor should it be)

Cherry picking (via marketing)

Claim service criticised

Young insureds leave -> premiums

increase



Solidarity solutions: Compulsory employer PHI

Employers must offer PHI (like

Kiwisaver)

Remove FBT

Define minimum

cover



Solidarity solutions: Compulsory employer PHI

Pros

• Increased PHI uptake

• Larger schemes can cover PECs

• Reduced anti-selection

Cons

• Retired people

• People not employed

• Cost of removing FBT

• Disincentive to employ older people



Solidarity solutions: an ACC-style approach

ACC accounts:

Work

Motor

Earners

Non-earners

Treatment injury

Non-acute conditions?




Degrees of mutuality:

Work

Motor

Earners

Non-earners & treatment

injury




Non-acute conditions

model:

Compulsory government monopoly

Limited rating factors (if

any)

Cover for PECs

‘Uncoverable’ conditions

Excess / cost sharing




0%

1%

2%

3%

4%

5%

20 30 40 50 60

Employee age

Employee levy for PHI equivalent

Age / employment

group

Approximate

population

Average PHI

premium

Total cost of

PHI equivalent

($m)

18-65 employed 2,420,000 800 1,936

18-65 not employed 430,000 800 344

<18 or >65 1,800,000 1,600 2,880

Total 4,650,000 1,100 5,160




Cost issues

• Covering PECs costs money

• Covering the ‘uncoverable’

• Reduced underwriting costs

• Administrative burden is shifted

• Utilisation (moral hazard) Role for private insurers?



Conclusion

The problem:

• Healthcare costs going up

• Private sector to pick up more?

• Something’s got to give

The solution?

• Tweaks to the mutuality model will help

• But we need solidarity

Actuaries need to think about the big picture



Mutuality and solidarity in NZ private health insurance

Q & A

mutuality and solidarity - actuaries · 2017-01-30 · 29 mutuality and solidarity in nz private...

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