Mutuality and Solidarity - actuaries · 2017-01-30 · 29 Mutuality and Solidarity in NZ Private...
Transcript of 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
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Contents
Mutuality vs. solidarity
Universal healthcare
The impending crisis
Mutuality solutions
Solidarity solutions
Conclusion
Q & A
3Mutuality and Solidarity in NZ Private Health Insurance
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Mutuality vs. solidarity
Mutuality
• Risk rating
• Competition
• Voluntary
Solidarity
• Community rating
• Compulsion
• Social ‘insurance’
• Sharing
losses
4Mutuality and Solidarity in NZ Private Health Insurance
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Universal healthcare: World Health Organisation
5Mutuality and Solidarity in NZ Private Health Insurance
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Universal healthcare: publics vs. private funding
6Mutuality and Solidarity in NZ Private Health Insurance
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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
7Mutuality and Solidarity in NZ Private Health Insurance
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The impending crisis: private spending
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
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The impending crisis: private spending
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
9Mutuality and Solidarity in NZ Private Health Insurance
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The impending crisis: private spending
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
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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
11Mutuality and Solidarity in NZ Private Health Insurance
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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
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Mutuality solutions: banning ring fencing
Can we ban ring fencing?
Unhealthy policy-holders remain covered
Overall premiums increase
Net impact on PHI coverage?
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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
14Mutuality and Solidarity in NZ Private Health Insurance
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Mutuality solutions: tax incentives
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%
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Mutuality solutions: tax incentives
$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
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Mutuality solutions: age discounting
Mutual insurer has excess capital
Subsidise premiums for older policyholders
Based on loyalty period
Increase retention
Increase new business
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Mutuality solutions: age discounting
*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)
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Mutuality solutions: age discounting
Sources: Companies Office and insurer websites
$0
$200
$400
$600
$800
$1,000
$1,200
$1,400
Unimed Police HealthPlan
Southern Cross nib HealthCare + Accuro
Total capital per member
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Mutuality solutions: age discounting
*includes life insurance
Sources: Companies Office and insurer websites
0%
20%
40%
60%
80%
100%
120%
140%
160%
Claims and expense ratios
Expense ratio
Claims ratio
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Mutuality solutions: age discounting
• 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:
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Mutuality solutions: age discounting
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
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Mutuality solutions: age discounting
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
Projected capital base (2016 $)
Scenario A
Scenario B
Scenario C
Scenario D
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Mutuality solutions: age discounting
Impact of new business surge at age 55
$0m
$5m
$10m
$15m
$20m
$25m
$30m
$35m
$40m
2016 2020 2024 2028 2032 2036 2040
Projected capital base (2016 $)
No surge
Surge
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Mutuality solutions: age discounting
Higher initial capital base
$0m
$10m
$20m
$30m
$40m
$50m
$60m
$70m
2016 2020 2024 2028 2032 2036 2040
Projected capital base (2016 $)
Optimistic
Pessimistic
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Solidarity solutions: elements of solidarity
Minimum benefits
Open enrollment
Community rating
Risk equalisation
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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
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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
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Solidarity solutions: Compulsory employer PHI
Employers must offer PHI (like
Kiwisaver)
Remove FBT
Define minimum
cover
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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
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Solidarity solutions: an ACC-style approach
ACC accounts:
Work
Motor
Earners
Non-earners
Treatment injury
Non-acute conditions?
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Solidarity solutions: an ACC-style approach
Degrees of mutuality:
Work
Motor
Earners
Non-earners & treatment
injury
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Solidarity solutions: an ACC-style approach
Non-acute conditions
model:
Compulsory government monopoly
Limited rating factors (if
any)
Cover for PECs
‘Uncoverable’ conditions
Excess / cost sharing
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Solidarity solutions: an ACC-style approach
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
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Solidarity solutions: an ACC-style approach
Cost issues
• Covering PECs costs money
• Covering the ‘uncoverable’
• Reduced underwriting costs
• Administrative burden is shifted
• Utilisation (moral hazard) Role for private insurers?
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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
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Mutuality and solidarity in NZ private health insurance
Q & A