Garth Rattray | That immutable profit margin

Jamaica has a non-profit, non-denominational, non-political organisation for retired persons. Its mission is “To work towards ensuring that the vast talent, experience and wisdom of seniors will be respected. To ensure that our seniors will enjoy the quality of life they deserve. Empowerment of our seniors to continue making their contribution to the development of community, country and region.”

Its members enjoy many benefits … eligibility for auto and property insurance, “discounts and special offers from over 100 discount partners. Excursions and ‘wellness and lifestyle’ social events with presentations on topics such as ‘wellness, retirement planning, learning and leisure, personal safety’.

Membership to this organisation offers seniors to enrolment in a Group Comprehensive Health Insurance Plan (CHIP). This provides “annual coverage of up to J$4 million. Coverage includes doctor’s visits, dental, optical, prescriptions, diagnostic services, major therapies, hospitalisation services & surgical benefits and overseas emergency benefits.”

There is also a Major Medical Health Insurance Plan (MMIP). This plan offers … “Annual coverage of up to J$9M. Coverage includes Diagnostic Services, Major Therapies, Hospitalisation Services and Surgical Benefits and Overseas Emergency Benefits.” The MMIP carries a deductible of J$100,000.

These insurance plans are managed by a broker and provided by one of the large local insurance companies. The idea was to, “… provide all members and their eligible dependent(s) with access to a wide range of medical insurance benefits that otherwise would be very costly for many members to purchase on an individual basis.” The intent was to offer competitive health insurance rates with the option to add a life insurance product.

RECRUITMENT PLAN

There was a period when the insurance company embarked on a recruitment plan that offered no need for any medical before enrolment into the health plan. Senior citizens flocked to the insurance broker in droves. The rates were competitive. That made me realise that this was going to change over time.

Actuaries are brilliant people. They must have known that, as a rule, seniors are subsisting on reduced fixed [retirement] incomes. Added to that, seniors have more non-communicable diseases when compared to young people. Many seniors are therefore on several pharmaceutical agents. Almost all need optical and dental consultations, at least once or twice every year. They need blood investigations, and likely x-rays or various scans. Seniors need major medical interventions far more than the young folks. And, of course, seniors will need long-term and end of life care. Most of all, our population of seniors is increasing every day.

It was clear to me that, since actuaries are not dummies, there was a plan to bait seniors and gain a captive group before hiking the rates. It was obvious to me that those [introductory] rates were not sustainable. But no one was told this in the beginning. No one was forewarned, so the sudden and steep hike sent panic, disappointment, and shock waves across the community of elderly participants.

Companies that offer health insurance earn most of their profit by underwriting and investment. The underwriting profit is [obviously] the difference between the premiums collected from the policy holders and the costs of claims plus operating expenses. Premiums collected are not immediately spent on claims. A portion of the income that is collected is also put into financial instruments (stocks, bonds, or other investments). Those generate income for the companies through interest, dividends, or capital gains. These contribute to the company’s overall profit.

PREMIUMS INCREASED

The early rates were such that I anticipated that the premiums would eventually be increased. But it was hoped that the curve would be ameliorated with the company’s diversifying its investments, and/or by transferring some of the risk to other participants. The company opened up the minimum age of potential clients to reduce the likelihood of meteoric rises in CHIP and MMIP claims, with apparent little effect.

The insurance company, through the broker, began releasing ominous statements to wit, “… the existing premium rates will not be sustainable to carry the plan for the upcoming contract year.”

Premiums went up, especially for older individuals, “adjustments” were made to benefits, deductibles went up, and caps were put on services. The insurance company reported that because the claims usage on the CHIP was 193 percent (December 1, 2021–August 31, 2022), which was way above the usually accepted standard of 70 to 75 per cent, the policy premium was increased by 97 per cent for 2022–2023 to keep the plan alive.

The company further stated that the claims usage on the MMIP was 193 percent for the same period, it was therefore increased by about 59 percent. This forced many clients to abandon the CHIP and subscribe to MMIP. Notwithstanding the increased claims usages, which must have certainly been anticipated and contingencies made to offset them, when the company was asked about the steep rise in policy rates, it cited the need to maintain its profit margin.

In the first quarter of this year, that particular insurance company made a net profit of J$3.97 billion. The top brass is beaming with pride, and the investors are grinning from ear to ear with satisfaction. If this were a construction company, a car dealership or some such thing, that would be fantastic. But the health portfolios are only about people’s life and death. Certainly, the profit margin can be modified.

People don’t realise that healthcare workers in private practice have been sacrificing their profit margin to remain affordable for their patients. It would be great if the health insurance companies could try to remain affordable for our citizens, especially the elderly, retired ones.

Garth Rattray is a medical doctor with a family practice, and author of ‘The Long and Short of Thick and Thin’. Send feedback to columns@gleanerjm.com and garthrattray@gmail.com.