Actual Protection Falls Short of Consumer Expectations in Private Health Insurance; Different Definitions of Terms Make Comparisons Difficult 14 Recommendations for Collaboration to Build a Sustainable PHI Market

29 May 2019
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Actual Protection Falls Short  of Consumer Expectations in Private Health Insurance;  Different Definitions of Terms Make Comparisons Difficult  14 Recommendations for Collaboration  to Build a Sustainable PHI Market

Almost one-third of the population in Hong Kong have individually purchased private health insurance (PHI), worth over HK$10 billion in annual premiums.  Although 43% of inpatients were covered by PHI, they opted to be treated in public hospitals.  A Consumer Council study has found that this contradiction highlights the consumers are anxious of the protection from PHI, with concerns about exorbitant private medical costs, the eligibility of claims, and the implications of claims on premiums upon policy renewal.  The report warns that the problem may limit the auxiliary role conducive to leveraging PHI to help finance the healthcare system in Hong Kong.  With the population ageing and the demand for healthcare services rising, timely action is imperative to prevent the problem from worsening. 

PHI for consumers is a product for the long term.  But problems become evident only after policyholders activate the claim procedure. If their claims are unsuccessful or they receive only partial reimbursement, it puts heavy pressure on their livelihood and family finances.  The Council’s report puts forward a package of 14 recommendations to encourage all stakeholders in PHI to put their best efforts into introducing and adopting measures that will enhance the products and services, improve market oversight and transparency, and strengthen consumer education.  This will help dispel the negative consumer notion of buying PHI with no payout, boost consumer confidence, and support the healthy development of the PHI industry in the long-run. As a result, it will help assist and alleviate the burden on public medical services, creating a triple win in the process.

In a comprehensive analysis of the issues confronting consumers in the PHI market, the Council published a study titled “Creating Sustainable Value for the Private Health Insurance Market in Hong Kong”.  The study, which took over 2 years to complete, employed a range of qualitative and quantitative methods, to analyze consumer experience and opinion, research on insurance policy contract samples, and the regulatory approaches and measures of 6 different jurisdictions in the search for solutions.

Declining consumer satisfaction towards insurance companies after PHI purchases

The study found considerable hurdles for consumers when shopping around and comparing the policy terms and conditions of different insurance companies.  Based on the analysis on 18 policy contracts collected from 14 insurance companies, only 4 were available for download on the company websites.  For the rest, researchers had to resort to other means, such as hotline enquiries or posing as prospective customers in direct meetings with insurance intermediaries, to obtain the information.  The research affirmed conclusively that the issue of consumer accessibility to detailed product information severely undermines consumers’ understanding of PHI products, and deprives them of the opportunity to compare the pros and cons of different products before making the best possible choice for their circumstances.

In general, consumers are not fully prepared for what to expect at the pre-purchase stage.  The consumer survey found that over 60% of the respondents obtained PHI product information through friends, relatives or insurance intermediaries; only 38% obtained quotes from different insurance companies for comparison. 

In the past 4 years, the Consumer Council and the Insurance Complaints Bureau (ICB) received over 1,000 complaints in total.  Complaints received by the ICB were related mainly to the application of policy terms, non-disclosure and excluded items.  Complaints received by the Council reflected more or less similar problems, including insufficient transparency in the PHI market, heavy reliance by consumers on insurance intermediaries and their personal networks for making product choices, and complex policy terms that make it difficult for consumers to get a firm grasp of the significance of the terms and scope of the insurance cover.  These problems have exacerbated the severe disconnect between consumer expectations and actual claim payouts, resulting in the degradation of consumer satisfaction in the post-purchase stage.

The opinion survey of insurance claimants showed that 95% of respondents were either satisfied or very satisfied with the insurance companies’ provision of information and the time taken for the sale process.  But when asked about the efficiency and time needed to process their claims, the respondents’ satisfaction rates dropped to 88% and 85%, respectively.

Complex policy terms and unspecific questions on application forms

Many consumers may mistakenly believe that there is little variation among the policy contracts of different PHI plans in the market.  But after comparing 18 policy contracts collected, researchers found that though the wording of some key terms and conditions in the policies were similar, the definitions could be open to interpretation, as they varied both within the same company and across different insurance companies.  For instance, “medically necessary” is a crucial term, which can affect the outcome of a claim. According to the definition of one insurance company, it must be based on the company’s opinion to determine if it is consistent with generally accepted professional standards of medical practice for the required treatment; while another contract stated that it must follow the medical or healthcare service recommended by a physician or surgeon. 

Besides policy terms open to varying interpretations, questions contained in the application forms were equally problematic. Since they were not specific and abstract, they could cause confusion and difficulty to policyholders. In addition, this gives leeway for insurance companies when processing claims to rely on the term “non-disclosure” of material facts to decline compensation or terminate the policy.  In particular, when filling in the health declaration section, applicants are required to disclose information about their medical history, including hospitalisation, surgical operations, medical advice and treatment, or examination.  Any slip-up in accuracy or non-disclosure of past ailments could adversely affect a claim outcome.  One example was found in the lack of a definition for medical advice, such as whether it also includes outpatient visit; this omission could result in a future claim dispute. 

The survey found that many policyholders tend to be negligent about the requirement to disclose their past medical history.  51% of the survey respondents indicated that their disclosure was based simply on their knowledge and understanding; only 15% made the effort to check their medical records, while 7% clearly indicated they did not check and validate the information before providing the information.

Unilateral right to implement a premium increase; for “guaranteed renewals”, the devil is in the details

A successful purchase of PHI doesn’t mean policyholders can enjoy lasting peace of mind.  Even if the policy promises “guaranteed lifetime renewal”, some policyholders may end up with no alternative but to discontinue their policy because of high premium costs or protection cover that no longer meets their needs.  All the policies examined in the study were found to contain unilateral variation clauses giving the insurance company the right to revise the policy upon renewal, for example, by raising the premium charges, or even changing the benefit. Insurance companies may exclude in the new policy an illness which has been claimed and settled.  Like in some of the complaint cases, policyholders complained that their premiums jumped sharply by more than double, in stark contrast to the level of premium increases in previous years.  If insurance intermediaries did not explain the conditions in detail at the time of purchase, policyholders learned about the huge premium increase only on renewal, resulting in some may have to drop their policy.

Along with policy renewal problems, the uncertainty of success in the case of claims was of utmost concern to consumers.  The Council’s research revealed that insurance companies used different reasons to limit their liability.  One of the most commonly used terms was “pre-existing conditions”, which means that illnesses that existed at the time of purchase were not eligible for claims.  Another term was “reasonable and customary” charges, which gives insurance companies the right to assess the charges of physicians or hospitals submitted in the claims to determine if the charges are to be reimbursed to the policyholders.  This happens only when policyholders file a claim. 

Among the claimant respondents in the survey, 54% were not reimbursed in full.  Over the past 4 years, the Council received 299 complaint cases involving PHI, over 40% of which were related to claim disputes.  The top issue under dispute concerned “application of policy terms”, followed by “non-disclosure” and “excluded items”.

Learning from 6 jurisdictions to enhance the regulatory approach

The study revealed an array of problems that directly affect the accessibility and continuity of PHI.  The Council selected 6 other jurisdictions – Australia, Ireland, Mainland China, Malaysia, Singapore and the UK – to study their regulatory strategy and approach to enhance accessibility, transparency and quality of PHI services. Although these jurisdictions have different market situations, their regulatory model have much to offer for the reference of Hong Kong.

In terms of enhanced information transparency, different jurisdictions have adopted different measures.  Australia requires insurance companies to provide a standardised information sheet of product summaries, while Mainland China and Singapore require information disclosure for specified items.  Some jurisdictions, such as Australia and Ireland, offer accessible platforms to help facilitate product comparisons from different companies; while the UK uses legislation to specify a consumer’s duty of disclosure and representation to an insurance company. 

To cater for the needs of different consumers and raise the renewal rate, insurance companies in Australia are required to provide cover for pre-existing conditions, and a guarantee of access and renewal.  In Mainland China, for products that provide guaranteed renewal, the insurance companies do not have the right to adjust liabilities.  In Singapore, as for Integrated Shield Plans, consumers are allowed to switch to more affordable insurance products.

A cooling-off period is mandated for health insurance products in Mainland China, Malaysia, Singapore and the UK.  In Australia and Ireland, where there is no mandatory regulatory requirement, it is a common trade practice to offer a cooling-off period to safeguard consumer interests.

14 recommendations to narrow the expectation gap and enhance continuity

The study identified two major problem areas.  First, there is an apparent gap between consumer expectations about protection and the actual protection they receive.  Second, there is a lack of continuity for consumers in PHI.  To enhance the accessibility and transparency of the PHI market, the Government launched the Voluntary Health Insurance Scheme (VHIS) earlier in this financial year, which was clearly a crucial step in the right direction.  But there still exists ample room for improvement for the sustainable development of the PHI market.  The report put forward a package of 14 recommendations in the hope that the stakeholders involved will work together to improve the existing situation to provide increased consumer confidence and the benefits of quality PHI for policyholders. 

Recommendations for narrowing the gap between consumer expectations and actual protection

  1. Standardise the definitions of key policy terms – Because of the wide variation in PHI policy terms and definitions, the regulatory authority should refer to the VHIS Certified Plan Policy Template to set standard definitions for key policy terms, and mandate their adoption in PHI policies to provide policyholders with a standardised and clear understanding of their purchase.
  2. Improve the design of PHI application forms – The regulatory authority should set appropriate guidelines requiring insurance companies to ask specific and clear questions in the application forms.  For instance, the guidelines should require policyholders to disclose the types of illness conditions and timeframe, and specify the extent of details of the disclosure requested and the timeframe of the conditions, which should not exceed 7 years.
  3. Provide sample policy contracts on a publicly accessible platform – In addition to a hotline for enquiries, insurance companies should provide policy contract samples for public access in an easy and convenient way, such as through the company website, so that consumers are clearly aware of and understand the policy terms and conditions, and to allow them to compare plans prior to purchase. 
  4. Enhance the transparency of changes in policy terms, benefits and premiums – Insurance companies should be required to clearly indicate in the policy contract the premium applicable to the same age group or profile group on an on-going basis, as well as the medical inflation details, with relevant data to justify the increase.  All factors affecting the premium level should also be stated, and in particular, alongside the “guaranteed renewal” statement on sales documents and policy contracts, and clearly explained to prospective customers.
  5. Provide clear explanations in writing and in plain language – Insurance companies should be required to provide clear and easily understandable written explanations to consumers regarding application and indemnity decisions.
  6. Release relevant market and complaint statistics – To enhance public understanding and monitoring of PHI related issues, relevant complaint and market statistics, including total premiums, number of available PHI plans and policies sold, should be published by the regulatory authority and all complaint channels on a regular basis.
  7. Improve the transparency of reference sources for “reasonable and customary” charges – Factors which may be considered when determining “reasonable and customary” charges should be specified in the policy contract for the reference of policyholders beforehand, and in case this term is applied for partial reimbursement, the actual factor and statistics considered should be explained to policyholders.
  8. Provide pre-authorisation services for non-emergent medical services – The regulatory authority should encourage insurance companies to adopt pre-authorisation services for elective or non-emergent medical services and set up a service performance pledge on response time. 
  9. Enhance intermediary training and improve administrative processes – The regulatory authority should require enhanced training for insurance agents and intermediaries to close the knowledge gap on policy content and terms for both industry practitioners and consumers for better communication and to reduce disputes.  Insurance companies should also implement and publish their service pledge for general reference and the scrutiny of customers.
  10. Strengthen consumer education – Because of the complex nature of PHI products, consumer education should embrace various areas of the insurance concept to promote consumer awareness and understanding of the real value and limitations of PHI, as well as consumers’ right to seek information, explanations and redress if in doubt.

Recommendations for ensuring the continuity of PHI

  1. Extend the entry age upper limit – Insurance companies should give serious consideration to extending the entry age upper limit. This would allow the elderly consumers who can afford it to enjoy PHI protection, and in turn, help reduce pressure on our overloaded public healthcare services.
  2. Offer an opt-out option for non-core benefits enhancement – For fairness and continuity, insurance companies should offer their insured clients the choice of retaining the status quo upon renewal and especially opting out of additional non-core benefits enhancement.
  3. Provide coverage for unknown pre-existing conditions – For reasons of fairness, the PHI industry should provide coverage of unknown pre-existing conditions.  A waiting period, such as 3 years, could be applied with reference to VHIS.  If unknown pre-existing conditions are excluded from coverage, this information should be clearly explained to prospective customers.
  4. Avoid re-underwriting or enhance transparency if necessary – A better practice for insurance companies to follow is to adopt a one-off underwriting practice instead of annual re-underwriting.  If insurance companies do not consider avoiding re-underwriting to be applicable, the information about such arrangements should be clearly specified in the policy and made known to policyholders.

This study was undertaken from May 2016 to October 2018, using a range of qualitative and quantitative methods: telephone survey of 1,000 respondents, on-street survey of 205 respondents, in-depth interviews with 28 claimants, an analysis of complaints, examining policy contract samples, and examining the regulatory measures of 6 jurisdictions around the world. 

In concluding the findings, the Council calls on all stakeholders to join hands to progressively implement clear regulatory guidelines in the PHI market, to improve the business practices of insurance companies providing PHI services, and to enhance consumer education and strengthen related consumer protection measures.  The Council strongly believes that the concerted efforts of all stakeholders to promote consumer safeguards and the sustainable development of the PHI industry will foster and create a robust and fair marketplace beneficial to consumers.