Transparency is hardly a virtue of the healthcare insurance industry worldwide, it is said. Market players typically cite client privacy and confidentiality as grounds to restrict access to information on their customers with competitors. In the upshot, the market is susceptible to manipulation, misinformation, uncompetitive practices, exclusive dealing arrangements, and so on — practices that are far from conducive to the sustainable growth of the sector, it is argued.
In the Sultanate, concerns over transparency in the health insurance industry centre on what is referred to as the ‘Claims Experience’ of insurers with regard to their clients, be they companies, institutions, government ministries or organisations. Also known as ‘Experience Rating’ or ‘Claims Ratio’ in insurance parlance, the term refers to an insurance rating method which projects a company’s future medical costs based on the past claims history of its insured employees. Once privy to the ‘Claims Experience’ of the company, insurers can bid to provide healthcare coverage for the company’s employees, while being assured of a reasonable bottom line as well.
Playing the market
Explaining the significance of this all-important concept, an industry insider who did not wish to be identified, said: “Let’s say, for example, insurer ‘A’ agrees to provide healthcare coverage for the employees of Company X against a premium of RO 100,000 for the year. At the end of the year, let’s assume that the total claim raised against this policy amounts to RO 80,000. As the insurer retains a profit equivalent to 20 per cent of the premium (minus the administrative, operational and other costs), the Claims Experience or Claims Ratio for Company X now works out to 80 per cent. This means that the Claims Experience is a positive and profitable one. On the other hand, if the total claim was, say, RO 120,000, the corresponding Claims Experience or Claims Ratio for Company X works out to 120 per cent, which entails a loss to the insurer equivalent to about 20 per cent of the premium — which is ultimately a negative.”
Insurers are generally loath to reveal the Claims Experience ratings of their clients, simply because market rivals are likely to bid for healthcare coverage when the policy comes up for renewal. But if pressed by the client, in its desire to attract more competitive offers, the insurer in question is more likely than not to fudge the rating, often to the detriment of his rivals.
“Experience Ratings can be fudged in one of two ways,” the insider hastened to elucidate. “The insurer, hoping to retain his customer, may inflate the Claims Ratio. Thus if the actual figure is, say, a positive 80 per cent, he could misstate it as 120 per cent. This will prompt his rivals to submit bids that factor this overstated cost into their bids, thereby effectively pricing themselves out of competition. Conversely, the insurer may understate the Claims Ratio. Instead of the actual 80 per cent, he could reduce it to, say, 60 per cent. Market rivals may consequently under-quote themselves leaving the successful bidder shouldering a loss for that year.”
By manipulating data relating to the Claims Experience of their clients, insurers manage to hold on to their clients — a practice described as unhelpful to the balanced and sustainable growth of the industry. “In such instances, market competition is no longer dictated by pricing, the quality and performance of service providers (hospitals), competitive value or service standards. Inevitably, the big losers will usually be the smaller players who will find themselves effectively either shut out or restricted to the periphery of the market,” according to the executive. And because private companies, in particular, want to limit their financial burden on the coverage of their staff, they will be forced to stay with their insurers even if the quality of care is below par.”
Stronger regulation
To address the issue of transparency — or the lack of it — some market stakeholders are mooting the introduction of a centralized database for the health insurance sector broadly on the lines of the system currently in place for motor insurance. The latter system, maintained by the Royal Oman Police, is accessible to all insurance firms operating in the Sultanate. It provides instant information on the claims history of an individual, based on which insurers can charge premiums.
A similar database for health insurance, it is argued, will serve as a real-time repository for information on individual patients and their employers, their medical and claims history, type and cost of care provided by hospitals, pharmacies, diagnostic labs and so on. This information — suitably anonymised in the interest of protecting the individual’s identity — will allow for insurers to customize and price their policies based on the claims history of employees of their client organisation.
More importantly, a centralized database operated and monitored by the regulator, it is pointed out, will serve as a safeguard against, for example, potential forms of leakage or abuse by market participants when mandatory health insurance is eventually rolled out in the Sultanate. In fact, some insurers had strongly advocated for the introduction of a centralized database during discussions hosted by the Oman Chamber of Commerce and Industry (OCCI) with industry representatives in the wake of the announcement by the market regulator, the Capital Market Authority (CMA), that health insurance will be mandated for some sections of the labour market.
“Transparency and accountability is the need of the hour in our industry,” the veteran insurance executive said. “With better public information on the pricing of services provided by hospitals, pharmacies, diagnostic labs and other market participants, service providers and insurers alike will be required to compete on the basis of quality, efficiency and performance as well. Clients will also be able to make more informed choices when selecting their insurers — an outcome that will contribute to a more professional, equitable and sustainable industry.”
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