Health Insurance is one of the basic needs of an individual, critical to safeguarding short and long-term health contingencies in the midst of an ever-increasing rises in the cost of healthcare. Global healthcare spending is slated to accelerate further, according to a report by Deloitte, where it has been stated that it is expected to rise at an average of 5.2% a year between 2014-2018, to $9.3 trillion. While the governments of countries like France, Germany, UK and Australia provide national healthcare services through taxation, regulation and legislation, many other nations are still to catch up.
Though health insurance has been a commodity provided by Governments at large, over the past decade, private health insurance has been playing an increasingly important role in the world. What used to be a sector mostly dominated by governments and public players, has now witnessed the entry of many private health insurance companies, offering affordable, comprehensive insurance products. In a country like India where public entities mostly dominated the insurance space in the 90s, private players have today acquired a market share of 25%.
It is the growing popularity of private insurance players that begs the question as to whether public insurance establishments are in fact, pulling out all the stops to keep pace with private firms.
Where Government Health Insurance providers are going wrong
1. Administrative costs
Private insurers spend a lot of resources on a wide array of administrative costs for marketing, reviewing claims and underwriting, to name a few. Most of these activities conducted are to improve efficiency and provide world-class services to customers. This might not necessarily be the case with Government health insurance providers, who might not spend as much on reviewing claims or other administrative functions. Instead, huge sums of money are wasted on fraudulent and wasteful claims. Unfortunately, this only ends up increasing costs. In the U.S., the Centers for Medicare & Medicaid Services estimates that $10.4 billion-worth of improper payments were made under the ‘Fee-for-service’ Medicare program in 2008 as a result of this very issue.
2. Research and Innovation
Government health insurance providers also keep investments in healthcare and research at a minimum. For instance, if investments were made in trying to understand which interventions work best when it comes to critical illness cases like cancer or heart patients, this would prove to be not only necessary, but beneficial as well.
3. Inclusions in Health Insurance plans
When it comes to inclusions as well, public companies take longer to innovate, and come up with products that are in tune to the pulse of the current market scenario. In the U.S. for instance, it was seen that it took Medicare 30 years more than private insurance companies to incorporate prescription drug coverage into the basic benefits medical package.
It has been seen that public health insurance has sometimes missed the mark by quite a margin. Take Australia for example. Ambulance costs are not covered by Medicare. While some states fund ambulance charges with an annual fee levied, others charge $300-$2,000 for emergency ambulance services.
4. Waiting period for medical care
With private health insurance, customers needn’t be bogged down by huge waiting lists for an elective operation in a public hospital. Operations are put on priority with public insurance, as waiting periods are substantially less. In the Netherlands, health insurance is statutory but is taken care of by private players competing with one another for a larger market share. Insurers are thus guaranteed of high-quality services with their choice of insurance products based on cost and quality. In 2010, 72% of Dutch adults were able to meet with their doctor on the same or next day in comparison to only 57% adults in America.
Also, specialised services are offered through private insurers, like private dental insurance for instance. This is not the case with public health insurance. For example, it has been estimated that over 590,000 Australians are on a dental waiting list, where the waiting period on average is around 27 months.
5. Choice of medical expertise
In the case of private health insurance, policyholders also have the privilege of choosing the surgeon or doctor of their choice. This might not be a possibility with government health insurance, as it is the doctor on duty at that hospital at the time of your operation who would perform the surgery.
6. Low spends on healthcare
In some instances, low spending on healthcare by the Government places a lot more burden on patients undergoing treatment, as well as their families. In India, consumer out-of-pocket (OOP) spending accounts for 69% of India’s total health expenditure, and is among the highest in the world, far more than countries like Sri Lanka (55%), China (44%) and Thailand (25%). Many developing nations have low public expenditure for health insurance, with the sector being largely informal. Their ability to provide health care protection is limited.
The health insurance provided by governments in developing countries, needs to go through upgrades. Historically, insurers are not very customer-centric. They generally operate through agents, who are more interested in protecting their role as intermediaries than providing full disclosure to customers. Public health insurers are thus cut off from the customers they serve, are not clued in on what the customer needs. This is not the case with private health insurers, who are driven by the profit motive.
The 2015 Global Insurance Outlook Report of EY states that there is an increasing shift from public health insurance to private health insurance in China, due to large gaps in the offerings. Health Insurance provider Ping An Health Insurance in China for instance, has reported that 300-500 new customers have been signing up for their health insurance policies on a daily basis. In India as well, only 15% of the population is covered by government health insurance and 2.2% by private health insurance.
How private insurance companies are leading the way
One of the primary concerns is that while public health insurance bodies are driven by the welfare motive, this purpose is not being fully served under current systems. Public health insurance companies have an edge over public firms because it is their profit-focused approach that drives them to innovate, compete and provide health insurance packages that maintain the customer as the central focus.
Since public players are not driven by the profit motive as much, this is not the case with government health insurance entities. There needs to be a shift in focus, more so since any establishment, be it public or private, needs capital to operate. And these costs have nothing to do with whether the entity is a private or public body.
Given the growing importance of technology in the insurance industry by way of insurance web aggregator sites, the competition has become even fiercer among private players. Customers are now able to easily compare health insurance products before making a final selection. This aspect, combined with health insurance portability is driving private players to constantly keep abreast with the competition and provide customised products and prompt services in order to capture a larger market share.
In order for government health insurance companies to catch up with private health insurance counterparts, public-private partnerships just might be the way to address uninsured exposures. The combination of rapid urbanisation, increase in lifestyle diseases and expanding populations will only further widen the coverage gap. If private health insurers were to partner with governments, where the former plays the role of risk-management, and the latter provides the necessary incentives and subsidies, this just might prove to be the ideal mix in ensuring comprehensive, far-reaching health insurance products and services to all.