Empanelling: Trust Me, You Will Take The Blue Pill
Over the last few days, a series of letters to The Straits Times Forum has appeared that commented on some of the choice-limiting practices of Integrated Shield Plan (IP) insurers. (Mr Tan Siak Khian, 19 and 24 Feb 2021; Dr Tony Ho, 22 Feb 2021)
It deals with the “restrictions” placed on IP policyholders’ choice of doctors when they use their IPs. To be fair, there are no “hard” restrictions – every IP insurer will tell you (and the regulators) that policyholders can still see the private specialist they want, subject to certain processes and approvals being obtained. There are no hard restrictions or outright bans on seeing an “un-panelled” private specialist for a certain condition or procedure that is covered by the IP.
In short, the system is designed to impose “friction” on the policyholder, such that the policyholder is “disincentivised” from seeing a non-panel doctor. The policyholder has to jump through a number of hoops before he has access to the doctor he wants. These hoops include coming up with a cash deposit himself that the IP insurer will probably (not 100% guarantee) reimburse later, the non-panel doctor has to seek pre-approval by filling up a long form trying to justify the procedure and include more than enough information necessary for a pre-approval to be processed.
Added to all this friction is the ultimate deterrent – the need for cold, hard cash. The Straits Times Invest Editor, Tan Ooi Boon highlighted this “When cash is needed for those big hospital bills” on 28 Feb 2021. The column highlights the burden that IP insurers pile on policyholders when they see non-panelled doctors by issuing Letters of Guarantee (LOGs) that may not cover big hospital bills and the policyholder has to fork out the remainder while the claim is processed (with no guarantee the claim will be fully paid).
The whole process is designed to sow fear and uncertainty in the policyholder and to inconvenience him to the point that he chooses a panel doctor. In other words, although there are no hard restrictions as to what doctor you can see, the system is designed so that you, the policyholder, is likely to cave-in to the IP insurer’s preferences and use a panel doctor. Please note, it is not a demand, as in a hard requirement, but a preference of the IP insurer. But for this to happen, the policyholder must cave-in, and believe you me, the insurers are very good at making you cave-in. It’s like the movie Matrix, no one forces you to take the blue pill, but by jolly, they make it so tough for you to take the red pill that you cave-in and take the blue pill. But they will tell you it’s your choice that you did not take the red pill. No one really forced you. This hobbit calls this the veneer of choice or pseudo-choice.
Half the IP insurers claim to have lost money on IPs in 2019. Some have lost for several years. In the business world, if you lose money in a certain business segment for a few years you will think about exiting this segment. But no one has done so. No one has even threatened to do so. That means either they are very charitable or something else is afoot.
Nothing Personal, It’s Just Business
In Malaysia, it is very difficult to buy personal hospital insurance unless you also buy a life insurance product. The two are usually ‘bundled’. This is because life insurance products are almost always profitable while personal hospital or healthcare insurance may not be. But personal hospital or healthcare insurance is a ‘loss leader’; i.e. the insurance company accepts that it will likely make losses in this segment but he will make money in the life insurance bit.
Here, there is no bundling, but it may be that insurance companies want to enter the IP segment so that they offer a complete suite of products and services so that they can sell more insurance policies in the profitable segments. This hobbit really doesn’t know, to be honest.
A blogger has examined the IP industry and have commented that neither ‘kiasu’ patients and greedy doctors are to blame of IP insurers losing money. The blogger has written twice on this topic. Go to lifefinance.com.sg. It’s all there. It’s a treasure trove of information and analysis about IPs.
Basically the blogger concluded that IP insurers are in the red mainly because of:
- Lack of economies of scale
- High management costs
- High distribution costs (what insurance agents and financial advisors earn from selling IPs)
- An ageing population. (The ‘first’ generation of IP policyholders are now nearing 60)
The blogger further stated there is no clear evidence that doctors’ fees is the main cause of the IP as losses the claims ratio is manageable. In fact between 2016 to 2019 the average pay-out per claim fell by 1% per year!
A note to add here is that management costs is a highly variable thing. It can be high because of inefficient management, or inappropriate cost apportionment or that people are simply paid too well to run the IP business. Claims ratio is an objective measure. Claims ratio is a measure of how much is paid out as claims as a ratio of premiums collected. Distribution costs is what is actually paid to the insurance agents and hence is also a more objective measure.
But the fact that no IP insurer has exited the IP segment because of repeated losses implies that IP business can well be a loss leader. Or that the losses are simply due to apportionment of costs which could be accounted for somewhere else. Food for thought.
Further food for thought is what if an IP insurer actually exits the scene? Let’s say company IP X exits the business. What will happen? For a start, all of the folks who bought IPs from IP X now have no IP cover after their current contracts expire. IP policies are bought and renewed on an annual basis. These folks would have no cover in months. Can they buy from another IP insurer? The answer is yes. But it is a BIG conditional yes. The new IP insurer is under no compunction to cover for any pre-existing disease that the policyholder had developed during the time he was covered by IP X. Healthy policyholders may not be affected adversely as they can get an IP from another insurer easily, but those with pre-existing diseases may experience the following
- Loading of premiums for pre-existing diseases
- Denial of coverage for pre-existing diseases
- Unable to buy an IP altogether
This hobbit hopes the regulators have drawer plans in place for this scenario so that IP policyholders are not left high and dry.
LIA’s Letter to ST Forum
On 27 February 2021, The Life Insurance Association (LIA) of Singapore’s Executive Director replied in The ST Forum to the three letters. This hobbit has reproduced the entire letter here from the 3rd paragraph onwards (in bold and italics). The first two paragraphs are really administrative in nature. Like how a histopathologist examines a space occupying lesion excised for suspected cancer, slide by slide, this hobbit examines this letter paragraph by paragraph and also asks some inconvenient questions.
3 Integrated Shield Plan (IP) insurers have an interest in ensuring that their panels are comprehensive, as this increases panel usage and helps IP insurers better manage costs. In line with this, insurers are continuing to expand their panels.
Comment: Not really true. Data shows that each IP insurer have only about 20% of private specialists on their panels. Even if an insurer double the panel size it would be only 40%. Insurers do not make money by having comprehensive panels. Some insurance companies promise panel doctors large volumes of work in return for low doctor fees. Small panels shift the balance of bargaining power from the panel doctor to the insurer and the insurer can extract lower and lower fees by promising more and more work to a small group of doctors. Can LIA recommend a target for its members – like what percentage of private specialists should be on an IP panel?
4 Life Insurance Association (LIA) Singapore has also provided guidelines on the implementation of preferred healthcare panels, which includes the need to ensure that the network is sufficient to offer a wide range of medical services to policyholders.
Comment: The original document that recommended panels was in the Health Insurance Task Force (HITF) Report. It stated “To enhance and ensure transparency of the arrangement (e.g. disclosures on the healthcare provider selection process)”. I.e. IP insurers should state the criteria used to select doctors to be on a panel.
To date, not one insurer has disclosed what is the selection criteria for healthcare providers (i.e. why a doctor is selected to be on a panel while another is not). Can LIA make its members (i.e. IP insurers) come clean on what is the selection criteria and remove this opacity? Not just general statements about criteria etc but actual quantitative or qualitative measures that make up these (now secret) criteria.
5 Mr Tan asked what happens if a doctor is removed from the panel. IP insurers generally decide to remove doctors from a panel only as a last resort or in extreme circumstances. Should removal of a doctor be necessary, an adequately long notice period will be given to allow patients to transition to another doctor, should they wish to do so.
6 Doctors may also choose to leave panels for various reasons, and this is not within the control of IP insurers. Should there be transfers of care, doctors are professionally obliged to provide sufficient documentary medical information to enable continued quality care.
Comments: It is true that that IP insurers seldom remove a doctor from the panel. But the whole point is not whether a doctor is removed, but rather if the panel was adequately constituted in the first place! If you start off with 20% of private sector doctors then it is manifestly inadequate even if you do not remove any doctors from any panel.
The Executive Director then tries to give the impression that a significant root cause of the problem is that doctors choose to leave panels voluntarily. Doctors leave for one reason and one reason alone – the IP insurer is paying badly. If you reimburse at below or at only the lower end of the fee benchmarks, then some doctors may and will leave. Why would a doctor otherwise leave when being a panel doctor usually means more work and more earnings?
This hobbit has not heard of anyone wanting to leave NTUC Income’s panel. This is because NTUC Income pays the doctor as long as he charges within the entire range of MOH’s fee benchmarks. Doctors will leave panels because they perceive the insurer is not giving them a fair deal.
7 Mr Tan also asked whether there are checks in place to ensure insurers do not make unfair changes to terms of contract.
8 IP insurers do not make changes to their insurance contracts lightly, particularly when it comes to changes that affect in-force customers, and such changes go through extensive internal review.
9 In addition, all contractual changes to IPs must be approved by the Ministry of Health.
Comments: This is technically true and the policyholder is apparently protected. But again in real life it is not so. If the contract is well constructed then the policyholder is protected. But if the contract is lax and amorphous then good luck. Which is exactly what happened when Aviva unilaterally stopped coverage of diagnostic scopes in its IP Plans. The contract was so loosely worded that it could do so (i.e. not reimburse for diagnostic scopes) without changing contract terms. This incident showed that Aviva (and by extension, any other IP insurer) could withdraw coverage for something as fundamental as diagnostic scopes without changing its contractual obligations. Chew on that, folks.
10 Finally, the Monetary Authority of Singapore requires representatives to disclose at point of sale that IP and rider contract terms allow insurers to change the terms and conditions. IP insurers must notify policyholders before doing so.
Comments: I hope MAS is enforcing this through routine checks. For a start it could send in some “mystery shoppers” to purportedly buy IPs and see if the agents are doing so. Also please note that LIA has said that contractual terms cannot be changed without MOH’s approval but insurers can change terms and conditions. This hobbit doesn’t really know what this means in real life. Maybe someone can educate the public on this oddity.
11 LIA Singapore and IP insurers are committed to playing our part in ensuring the continued accessibility of healthcare in Singapore.
12 We urge all parties involved to play their part, too.
Comments: On the bright side, this hobbit suspects that 2020 was a good year for IP insurers. This is because in Covid-stricken 2020, people generally loathed going to hospitals. Healthcare-seeking behaviour changed drastically as people feared getting infected with Covid-19 at healthcare facilities. Many electives were postponed and people only sought urgent or emergency care and absolutely essential care in 2020. In all likelihood claims ratios will drop even further while IP insurers continued to collect premiums.
Can LIA “play their part” by cutting 2021 premiums? Please don’t pocket all and return some of the 2020 profits to the policyholders? Please…..?
In summary, doctors in the private sector have long known how the IP insurers behave to stack odds in their favour. There is little trust between them and the IP insurers. In fact, this hobbit would say there is no love lost between the two.
Of course, in defence, IP insurers will highlight how some specialists have “over-charged” in the past but this issue is now already dealt with by the MOH Fee Benchmarks. In any case, “overcharging” became commoner after the SMA Guideline of Fees (GOF) were removed reluctantly by SMA because the government had outlawed such guidelines. The SMA had warned everyone about the negative consequences of withdrawing the GOF to no avail. You can’t just lay 100% of the blame on doctors. The regulators allowed such an (GOF-less and benchmark-less) environment to exist which led to rapidly increasing doctors’ fees between 2007 and 2016.
Private sector doctors saw how some insurers seemingly took and twisted the recommendations of the HITF Report to their maximal benefit. Having small panels and reimbursing below MOH Fee Benchmarks are two such examples.
Some have said this is akin to religious extremists twisting and contorting mainstream orthodox religious teachings to their own benefit, but this hobbit readily admits this is too serious a charge to levy on IP insurers. IP insurers are not extremist. They are probably just profit-maximising, business people.
But now the public have also gotten wind of these practices and now realise they too could well be receiving the short end of the stick.
IP insurers should know that losing the trust of doctors is one thing, but losing the trust and confidence of consumers is another thing altogether. Trust is hard-earned but easily lost in the twinkle of an eye.
I hope regulators empathise with the patient, because obviously we should not trust IP insurers to, going by past behaviour. In the current climate, the only real choice the patient has is to decide whether he should buy an IP or not and which IP to buy. After that he only has the veneer of choice or “pseudo-choice”, or no choice at all:
- He falls sick and it is not a choice to fall sick (assuming he led a reasonably healthy lifestyle)
- He can technically choose a specialist, but in reality he has to choose from a very limited panel of specialists (pseudo-choice) even if the specialist he prefers charges responsibly (according to MOH Fee Benchmarks)
- He grows old and develops pre-existing conditions (not a choice) and he cannot switch IP insurers unless he incurs significant additional costs or suffers penalties (pseudo-choice)
Finally, some say light is the best disinfectant and indeed the IPs offered by insurers can benefit from much more light indeed. Independent bloggers such as those in lifefinance.com.sg and journalists such as Mr Tan Ooi Boon play an important role in educating the public about the whole IP milieu which is hitherto shrouded in jargon and complexity. People always talk about reducing the information asymmetry between doctors and patients. It is also time now to reduce the information asymmetry between IP insurers and patients as well.
Let there be light.