Wed | Dec 1, 2021
ADVISORY COLUMN: RISKS & INSURANCE

Cedric Stephens | Health insurance market needs problem-solvers

Published:Saturday | October 23, 2021 | 12:06 AM

Forbes contributor Edward Seagal reflected on the life of the retired American four-star general, Colin Powell, the former chairman of the Joint Chiefs of Staff, and the US Secretary of State, who died at age 84 on October 18.

As many persons know, he had Jamaican roots. Seagal specialises in leadership strategy. He wrote: General Powell “leaves an important legacy of leadership that executives at companies can learn from and apply at their organisations.”

The writer quoted a piece from The New York Times about the late general that read: “By the time he retired from the military in 1993, Mr Powell was one of the most popular public figures in America. In an interview with The New York Times in 2007, he analysed himself: ‘Powell is a problem-solver. He was taught as a soldier to solve problems. So, he has views, but he’s not an ideologue. He has passion, but he’s not a fanatic. He’s first and foremost a problem-solver’.”

As soon as I read those words, I knew what I disliked about the article that Neville Graham wrote last week. The story identified a problem in the local health insurance sector, however, it offered no solution. Presumably, Mr Graham wrote his article after reading the Insurance Association of Jamaica press release about medical inflation and speaking with industry sources about the reasons for the spike in health insurance premiums. The persons he quoted in last Sunday’s article starred in their roles as messengers. They did not seem to view themselves as problem-solvers.

Ordinary folks like me do not understand the term medical inflation. What we want to know is: can the problem of medical inflation be avoided or minimised? Is jacking up premiums the only solution?

Jamaica Public Service Company customers will see an average rate increase of 1.4 per cent in their bills this month. Despite the importance of electricity, human lives are more valuable. Health insurance exists to save and preserve human lives.

Health insurance providers perform important functions to the society. For example, experts in the US estimate that about 45,000 persons die each year due to the lack of health insurance. It is not known what the local figure is when 80 per cent of the population are uncovered. Yet, more transparency exists in the electricity price-increasing process than in the health insurance premium pricing process. This does not make sense.

Medical inflation

Medical inflation is a key driver of health insurance costs. It results in premium increases. Some experts define medical inflation as only the increase in the average or unit cost of a healthcare service over a historical period. Others consider increases in both the rate of utilisation and the unit costs of the services.

Inflation is calculated by measuring annual price changes for each item in that basket and averaging them by the share weights of each item in the consumer’s base year expenditure. The numbers approximate broad medical inflation trends from the perspective of the consumer. The rate of medical inflation is generally higher than the average or headline rate of inflation. Jamaica’s situation is not dissimilar to that of other countries.

Another source says medical inflation refers to “medical trends and developments, and the increase in cost to support them. This often includes the cost of advances in treatments and procedures, and the increased availability and usage of them around the world. New drugs, new treatments, new technology – these lifesaving innovations are great news and help to make healthcare more effective. It means that we’ve never had a better chance at surviving serious illnesses, such as heart disease and cancer; however, it all comes at a cost”.

Because most of the input costs for medical care originate overseas means that they are affected by movements of the local currency.

Can anything be done about reducing the impact of medical inflation in Jamaica? David Priestly, sales director of PruHealth, a United Kingdom health provider, offered answers 12 years ago in his article ‘Medical inflation – A Call to Arms’. He writes: “Participation in moderate physical activity alone could reduce an individual’s risk of ¬premature death by 30 per cent to 40 per cent. And, when you ask consumers what they expect from health insurers the message is clear: the overwhelming majority (93 per cent) agree it is important for health insurers to help their customers manage and improve their health.

“There is also clear demand for a more holistic approach to health and well-being. Research shows that since the 1980s, consumers have consistently ranked staying fit and healthy as being their biggest concern. Employers are also increasingly aware of what they need to encourage their employees to do, whether it be eating healthily, exercising regularly, reducing stress or attending a health screening. So, if the demand is there, the health insurance industry has an obligation to fulfil this demand.

“The more health insurers can evolve their propositions to help their existing customers reduce their own health risks, as well as attracting healthier customers into the market, the more we can dilute the impact of claims made by a few on premiums. The benefits for those who need to claim is that health insurers can continue to provide the depth of cover they need. Those who don’t need to claim have health and well-being benefits that are immediately relevant to their current health needs. In this scenario, premiums remain both affordable and sustainable.”

It is not known whether Minister of Health and Wellness Dr Christopher Tufton would describe himself as a business strategist-now-politician, a problem-solver-now-politician, or a mix of both. However, he recognises there are direct links between health and wellness, something local health insurance officials omitted when they discussed how medical inflation affects consumers and their industry.

Cedric E. Stephens provides independent information and advice about the management of risks and insurance. For free information or counsel, write to: aegis@flowja.com or business@gleanerjm.com