May 16, 2016

Economic headwinds may affect the sustainability of health insurance models

As published recently in the MENA Insurance Review, Allison Beirne gives an update on the recent developments in the health insurance market and how economic headwinds may affect the sustainability of health insurance models.

The introduction of mandatory health insurance schemes in a number of GCC countries over the past decade has been, and continues to be, a driver increasing demand for health insurance products and consequently medical services. 

In the Emirate of Dubai, the final phase of the compulsory health insurance regime, which launched 2 years ago, is due to be implemented at end of June 2016 (for employers with less than 100 employees and spouses and dependents of employees).  With it the demand for health insurance, at least in Dubai, is set to increase despite the current economic pressures.

Notwithstanding increasing demand, there are indications from the market that mandatory health insurance models are under pressure.  There are many factors at play, including the design of the systems themselves, the economic environment, and spiraling healthcare costs.

Mandatory health insurance systems are one of the pillars that can enable governments in the GCC to achieve their vision of equitable access to quality healthcare.  However, a key to achieving a sustainable health insurance system is ensuring that the system is economically viable for the, sometimes competing, stakeholders (healthcare providers, insurers, product designers, and the product buyers).

Governments and regulators have a key role to play in designing and managing robust and flexible systems that can last into the future.  When structural issues combine with other factors, such as the current economic environment, the pressure can lead to a dramatic overhaul of systems.

The recent developments in Qatar that culminated in the suspension of the National Health Insurance Company and the disbanding of the Supreme Council of Health illustrate the risks.  Calling time on a dis-functional model is a positive step toward redesigning a more dynamic and sustainable health funding system in Qatar.

There is also evidence that the effect of the fall in the oil price has meant that governments and local companies are tightening their belts and for some this has meant cutting back on health insurance benefits.

The recent Decision issued by the Abu Dhabi Executive Council, which took effect at the beginning of April, pares back the benefits being provided to UAE Nationals under the Thiqa scheme.  It remains to be seen whether the benefits under the Basic Healthcare Services for expatriates will be similarly impacted.

The pace of increasing healthcare costs, greater usage of the medical system (in part due to the compulsory health insurance regimes) and endemic fraud and abuse, all contribute to spiraling premiums. While insurers have to manage and to build increasing health costs and claims into their pricing, premium increases could place unsustainable pressure on local companies that are already cutting back where they can in order to survive the current economic environment.

If companies are unable to comply with a mandatory requirement to pay for basic health insurance for employees, it could lead them to either close shop or break rules.

However, regulations issued recently by the Dubai Executive Council, in Dubai, provide the Dubai Health Authority and the Dubai Healthcare City Authority with the ability to impose financial penalties on companies, and block companies’ ability to obtain or renew employees’ visas, where they are caught trying to avoid providing mandated cover or reclaiming associated costs from employees.  Breaking the rules could now prove to be a costly exercise for companies.

Regulators may have a role to play in controlling healthcare and health insurance costs.  However, price control is a thorny issue.  In the context of pricing risk, the question arises as to whether the regulator knows better than a commercial underwriter.   At the end of the day, the market also has to remain economically attractive for the product providers otherwise they may leave for greener pastures.

There is currently some apprehension in the market about the mooted DHA premium regulations.  It has been suggested that the focus of these regulations will be on managing premium erosion.  However, it remains to be seen whether or not the mooted regulations will also introduce mechanisms to control premium increases in some shape or form.  The experience of the Saudi market, where the regulator was required to step in to control insurers cutting premiums to a below economic level, is also indicative that an ultra-competitive insurance market is unable to self-regulate.

Financially viable health insurance models, premium erosion, inflation, tackling fraud and abuse are all factors to be addressed for a sustainable and long term health funding system.  Regulators need to ensure that the design of systems is robust and financially viable.  Product designers need to innovate to provide value solutions to their customer and to continue to enjoy the increase in demand. Healthcare providers need to understand how much their products and services actually cost in order to price them more efficiently. Buyers need to look at innovative ways of promoting and encouraging healthy behavior in employees.  All of the stakeholders have a role to play in managing spiraling costs and dealing with contributory issues such as fraud and abuse.  Recent experience indicates that the various GCC healthcare funding systems continue to grapple with these issues.