By Fiona Nicholas
The role of the private health insurer is changing, says PricewaterhouseCoopers, in a timely report issued earlier this year.
The role of the private health insurer is changing, says PricewaterhouseCoopers, in a timely report issued earlier this year. Certainly, in the UAE, the slide towards a compulsory private healthcare system has gained new ground of late, with Abu Dhabi introducing mandatory healthcare cover for expatriates and the rest of the country rumoured to follow suit in 2007.
For many of us, private healthcare has been a fixture for some time. But the harsh reality for consumers in a mixed private/public healthcare market that is still finding its feet, is that insurance coverage is often patchy for regular practice visits, nonexistent for preventive care, and has a tendency to disappear into previously unseen loopholes in the event of hospitalisations or emergency treatment.
In this article, Fiona Nicholas discusses what an evolving healthcare market means for the consumer. Namely, how increased competition between insurers will drive innovation and efficiency, the hurdles insurers must tackle in the path to privatisation; and, ultimately, how the entrance of the big firms may be the first step towards establishing access to quality medical care for all.
For the last 10 years, health spend among OECD countries has rocketed as a percent of Gross Domestic Product (GDP), and is on course to triple by 2020. Predicted figures have sent healthcare organisations and governments around the world scurrying to seek solutions to temper costs, while balancing the need to provide access to safe, quality care.
Health insurance is pivotal to healthcare financing. In most parts of the world, governments are looking to enlarge, or at least encourage, the contribution of private sources of funding to the delivery of healthcare. If these efforts are to succeed in the mass market, the role of health insurers must increase, and leaders across the GCC are grasping the idea that greater involvement of the private sector could save the government millions of dollars.
Demand for, and expectations of, healthcare services and the cost of meeting them are rising all the time and across most territories. The UAE is facing unprecedented population growth at present, with numbers expected to reach 6.2 million by 2010. These swelling numbers are putting pressure on existing healthcare facilities, which are struggling to cope with this growth. At the same time, consumer demand for improved standards in the quality of patient care is also mounting.
The UAE, which has until recently benefited from Government funded healthcare services for all citizens, has seen an escalating number of private healthcare providers entering the market, lured by the clear need for participation from the private sector. In combination, these factors have driven the search for an effective healthcare insurance programme to relieve the heavy financial burden on the Government of providing healthcare services to its citizens. One obvious result is the introduction of compulsory healthcare insurance for all expatriates in Abu Dhabi in July 2006. This initiative is expected to extend to the rest of the UAE this year, and ultimately may include UAE Nationals as well. The other GCC countries are following the same route, with healthcare insurance programmes either initiated or planned in most countries.
While the new law in the UAE makes it compulsory for employers to provide insurance coverage for their employees, quite a number of organisations had already taken this initiative, seeing it as a way of taking care of their staff, thereby encouraging loyalty and commitment. Medical benefits now rank as one of the main considerations for job candidates when assessing an employment offer. But, for employers and individual consumers, what does a bigger slice of the healthcare pie for insurers mean for them?
The size of healthcare insurance organisations can play a part in the effectiveness of the system. Larger health insurers are better placed to act as a counterweight, in bargaining terms, to the scale of care providers in the healthcare value chain, and thereby to obtain cost advantages for consumers and better quality of care. This has long been a part of the health insurers' role in some territories. The larger the firm, the more effective its bargaining power. Insurers need to emphasise, not only to consumers, but also to government policymakers that, as competitive entities, they can be more efficient buyers of healthcare than either individuals or the state. Comparatively, individuals have no bargaining power and little market knowledge.
The introduction of compulsory healthcare insurance throughout the GCC is opening up significant opportunities for health insurers; both for new players entering the market, and for existing firms, to substantially expand their services and products. In Saudi, regulations introduced this year for expatriates have resulted in approximately 7 million new policyholders, while 23 million more will materialise in 2007 when insurance becomes compulsory for Saudi nationals. In the UAE the Government established the national health insurance company, Daman, early in 2006. By December of that year, Daman was reported to have issued approximately 200,000 health cards. These ripe pickings have prompted the establishment of several major new health insurance providers in the GCC. Increased competition drives better pricing for consumers, theoretically increasing access to healthcare. In short, heightened competition means private firms will have to reduce their premiums or lose their customers.
Care: but at what cost?
In an ageing society where healthcare costs are accelerating faster than premium income, a major hurdle for a fully private industry is ensuring that more needy patients are not priced out of the market. The UAE's growing incidence of heart disease and associated diseases such as diabetes and hypertension, particularly among the younger population, begs the question; what price a pandemic?
Risk equalisation mechanisms are one way of encouraging insurers to look the other way with riskier customers, and may become an important factor in UAE policies. Carefully designed risk sharing with policyholders is likely to be a part of any health insurance system that funds a significant part of healthcare costs. The risks for policyholders may be tempered by a degree of community rating, which generally excludes risk rating for age, sex or health status, and charges a flat-rate premium. Policymakers' goals usually include high participation in the market, as this brings with it wide access to healthcare and community rating is usually associated with territories where participation is high.
There is an opportunity for community rating to be applied in the UAE and other GCC countries, whereby major organisations such as Government entities and large family groups could provide sufficient critical mass.
However, countering the ‘moral hazard' that attaches to health insurance (that is, the way the existence of insurance increases people's propensity to consume healthcare resources) can be at least as important a driver of insurers' use of risk sharing as a form of cost control. A recent study in Europe found that adults with private insurance were 86% more likely to visit a doctor than those without.
The prevention issue
There has, until recently, been little focus on preventive care in the UAE. This is now changing, mainly as a result of the alarming increase in the incidence of diabetes, cancer and heart disease. Alongside the growth in private healthcare facilities across the GCC is an increase in the number of healthcare facilities that focus on preventive care, or the various elements of wellness programmes. The big question is whether and to what extent the health insurance providers in the GCC will include preventive care in their policies. One of the major challenges facing the industry is the inherent difficulty of designing any framework based on annual health insurance contracts which properly encourages, in a systemic way, the preventative care that is essential to limiting costs over the longer term.
Individual policyholders may be attracted enough by the health payoff to initiate and pay for preventive care. Similarly, some companies that pay the health insurance costs of employees may take a long enough view and, with their eye on the balance sheet, favour preventive care and the insurers committed to it. But these forces look frail alongside the relentless pressures of shorter- term goals and the sheer scale of the challenge posed by the need for preventive care, if overall costs are to be managed sustainably. Also, staff turnover may diminish incentives where health insurance is provided by employers. One employer may incur the costs while a subsequent employer receives the benefits. The UAE expatriate population is traditionally fairly transient, which provides healthcare insurers with specific challenges as policyholders may change more frequently than in other countries.
Access all areas
Health insurers' success will ultimately depend on their impact on the basic outcomes of healthcare delivery, such as the degree of access for all the people who need it and the overall cost.
How much importance is attached to these various outcomes - the results of health insurance - is a matter of social policy. However, a sound working assumption is that, to be sustainable and significantly profitable, a health insurance industry will need to have a positive impact on the various outcomes of healthcare delivery. One of the goals of the introduction of healthcare insurance in the UAE is to ensure access to healthcare services for all, particularly the middle to lower income level workers such as construction workers, of whom there are large numbers in the UAE.
One of the defining characteristics of the environment in which health insurers operate is governments' interest in maintaining good access to healthcare. This lies behind much of the regulation of premium rates. For example, rating regulation in the form of capping maximum premium levels, clearly will increase access to insurance and, thereby, to healthcare. But, as with any regulation, there is a cost involved in complying with the regulations and obtaining the necessary approvals. The costs of the regulatory function itself also need to be accounted for. This may impact on other areas of the healthcare system in the UAE for example, pharmaceuticals, where prices have been traditionally high. While steps have been taken by the Government to control the price of drugs, concerns have already been voiced that insurers may provide coverage for only the most basic drugs if premium rates are maintained at a low level.
However the market develops, one thing is certain; health insurance is going to play a larger role in the provisioning of healthcare services in our future. Consumers will want to pay particular attention to how new health coverage policies and regulations impact their healthcare coverage and accessibility. There is a very complex balancing act between the adequacy of a health insurance programme, regulatory demands and providing adequate coverage at a reasonable cost to the consumer.
Fiona Nicholas is the healthcare advisory leader for PricewaterhouseCoopers' Middle East practice.