The financial impact of defining illnesses as acute or chronic can mean some policyholders go without the care they need. Dave Priestley delves into an emotional area
The issue of the treatment of chronic conditions is a highly emotional one. How do you tell someone who has cancer, for example, that their policy does not pay for treatment that will prolong their life?
On the other hand, for how long should private medical insurance (PMI) providers be expected to pay for ongoing treatment of cancer, given that PMI was designed to treat acute conditions only?
Unfortunately, it is not a question with an easy answer.
PMI is designed to pay for treatment that will cure an acute condition and get a policyholder back on their feet. By contrast, critical illness insurance is designed to pay out a lump sum to support people with critical chronic conditions. So, why is it not as easy as separating it into these two camps?
To begin, it is useful to look at the Association of British Insurers' (ABI) definition of a chronic condition. Its stance is that a chronic condition is a disease, illness or injury that has at least one of the following characteristics:
n It continues indefinitely and has no known cure.
n It comes back or is likely to come back.
n It is permanent.
n An individual needs to be rehabilitated or specially trained to cope with it.
n It needs long-term monitoring, consultations, check-ups, exam-inations or tests.
This is as opposed to an acute condition, which is defined as a disease, illness or injury that is likely to respond quickly to treatment and that aims to return people to the state of health they were in immediately before suffering it, or leads to their full recovery.
Already there are problems with this. What diseases fall within a given category can differ from one insurer to another - and that is before tackling differences in opinion between the customer and the insurer.
The common definitions that have been agreed by the ABI are good guidelines, but they do not specify which illness falls into which definition - that is open to interpretation.
Medical advances
Another side of the problem is that medical advances are blurring the lines. On one hand, what used to be an untreatable condition is now treatable. On the other, many new treatments that claim to 'cure', do not, or at least have not been tested sufficiently to establish what they can do for sufferers. It becomes extremely sensitive with PMI, however, because in any other industry those involved would wait until full proof of efficacy had been established, but in the case of health insurance, this can mean the difference between life and death.
Customer expectations are also out of line with the costs. The UK is lucky enough to have an NHS that is free at the point of care, but this means that people are broadly unaware of the cost of their treatment, and they also feel entitled to it.
It is also not helped by some insurers who confuse the issue further by taking decisions that, while seeming positive in the short-term, have negative consequences as they raise expectations to a level that cannot be met by the industry and contribute to premium inflation. There appears to be a tendency for some providers to authorise low-cost chronic conditions to avoid dealing with the negative aspect of declining a claim without thinking through the longer-term consequences.
Expectations
PMI has always been designed to pay only for acute treatment, however, expectations change and differ by customer segment. Consumers often expect everything to be paid for - and the media often perpetuates this view - whereas employers are more aware of the costs associated with cover for chronic conditions. They are aware that ultimately they pay for the cost of treatment and if the cost of treatment is high, then their premiums will rise. So employers tend to be more inclined to continue to exclude cover for chronic - even more so if they are involved in a self-insured or trust scheme where they are directly responsible for the cost of any treatment.
However, it should not be seen as all bad news. If costs could be managed effectively then there would definitely be demand for cover for chronic conditions. The real opportunity is for insurers to provide a combination of limited chronic cover, in part funded by the savings generated by preventative and health management services.
The preventative measures should result in a healthier group of people, who because they are healthier, require less treatment for preventable illnesses. The savings made on this could be used to provide greater cover for more chronic conditions.
Health management services would include health screens, encouraging people to do physical exercise, encouraging them to eat healthily, and if they do have a minor chronic condition, to manage it effectively through diet and exercise. By incentivising policyholders to improve their health, as well as attracting more healthy people via benefits such as gym discounts, an insurer can end up with a healthier pool of people, whose costs are lower.
Lower costs put the insurer in a position to offer customers the option of cover for at least some of the chronic conditions - because the high costs of this are balanced by the lower costs elsewhere. There are also options in the market that allow the member discretion over the spend - for instance, an employer can opt to spend the savings that are made on private GP cover or some maternity-related costs.
The future requires a combination of initiatives as well as better clarification from each and every insurer about what they cover. There has been improvement due to the ABI's common definitions. Also increasing pressure to manage claims is leading to more insurers adjudicating fairly, that is, they are less likely now to just cover something to avoid bad press - all of which is positive for the industry and helps overcome confusion.
Advisers can help by challenging insurers more on what they do and do not cover - not just on the detail of the policy's terms and conditions, but also on how insurers adjudicate against these. That is, how they decide what is chronic and what is not and how that adjudication flows through to claims and premiums.
Also it would help if advisers were to work closely with their clients to weigh up the pros and cons of different approaches, explain the costs associated with cover, with a view to understanding exactly what customers' needs and expectations are.
Advisers need to communicate their findings strongly to insurers in order to help them to fully understand what it is that customers and advisers want. The more providers who understand exactly what customers want, the more able they will be to develop products and services that current customers value and that will attract new customers into the PMI market in the future.
Dave Priestley is sales director at PruHealthCOVER notesn Private medical insurance was originally designed to treat acute conditions only.
n An acute condition is defined as a disease, illness or injury that is likely to respond quickly to treatment and aims to return people to the state of health they were in before suffering it.
n Different insurers define different illnesses differently.
n Medical advances have blurred the line between acute and chronic conditions.
n Customer expectations and the fact that some insurers authorise low-cost chronic conditions to avoid dealing with the negative aspect of declining a claim have further exacerbated this problem.
