By NEIL HARTNELL
Tribune Business Editor
Private health insurers yesterday warned that National Health Insurance’s (NHI) current structure threatens to “severely” undermine their solvency, with the mid-July 2020 launch date likely “unachievable”.
Tina Cambridge, Generali’s Bahamas-based regional director, told Tribune Business that the industry was especially concerned about the effect the scheme’s Risk Equalisation Fund (REF) may have on the sector’s financial viability - especially if the NHI Authority gets its sums and risk modelling wrong.
The REF is designed to compensate insurers who agree to cover more high-risk clients, meaning persons who have a greater chance of falling ill. To finance the fund, the NHI Authority is proposing that 50 percent of the annual $1,000 Standard Health Benefit (SHB) premium - NHI’s minimum level of care - be allocated to the REF.
Ms Cambridge, though, expressed particular concern that the REF fund’s distributions to insurers will be based on premium rather than the claims experience and payouts to fund medical services for sick clients.
Should the available $500 portion of the SHB premium prove insufficient to cover the annual costs of NHI care, she warned that there was “no way” for insurers to claim the difference from the REF - thus exposing them to potentially significant financial losses.
“What they’re proposing will severely impact the solvency position of the insurance companies,” Ms Cambridge told Tribune Business. “A lot of people are stuck on that $1,000 premium. It’s not $1,000 a year. Only $500 is at risk. Five hundred dollars goes into the benefits that they are putting in their package, and $500 goes into the REF.
“What’s going to happen is the NHI Authority is going to end up with the largest share of that, as they will have to cover the elderly, the indigent; those components of the population that are high-risk.
“The details of how they’re going to apportion those [REF] funds to smooth out the risk element have not been released,” she continued. “In our world we look at how claims are driven and the experience on the claims side.
“They’re looking at equalising on the basis of premium. That causes a higher level of concern. If they don’t get that [the SHB premium] right, there’s no equalising on the back end. If an insurer ends up paying $5,000 for someone’s benefit, having collected $500, there’s no way of getting that back from the Fund as it’s a claims expense.”
The NHI Authority, in its initial policy proposal last year, said the Risk Equalisation Fund (REF) was designed “to keep premiums affordable and maintain the insurance industry’s focus on innovation and delivering effective models of care”.
“Since premium prices for the SHB will be regulated to support health insurance affordability and accessibility, reimbursements to insurers are necessary to incentivise coverage of high risk individuals,” it said.
“The risk equalisation model will rely on the development of risk adjusters and equalisation formulae for each beneficiary, which will be used to calculate incentive payments to insurance providers who take on high risk individuals.”
The NHI Authority confirmed that $500, or 50 percent, of the annual SHB premium paid on behalf of workers via a mix of employee/employer contributions would be deployed into the REF “pool” and subsequently used to compensate insurers according to how “risky” their insured populations are.
It added that an independent “third party” will be hired to calculate payments and determine the “equalisation formulae”, and said: “An insurer’s risk profile is the average level of ‘health risk’ their beneficiaries have.
“For example, an insurer that mostly covers individuals aged 45 and up will have a higher risk profile than an insurer whose beneficiaries are mostly between the ages of 18 to 30, as older individuals are statistically more likely to have adverse health conditions. The higher an insurer’s risk profile, the greater the payment they receive from the risk pool.”
The NHI Authority last week confirmed it would receive the largest REF payout, given that the 160,000-170,000 persons it will cover will include elderly people, children, the indigent and unemployed - some of who will have an extremely high demand for medical care.
But the Bahamas Insurance Association (BIA), in a statement issued yesterday, warned that finalising how such “a vital component” as REF will work was “essential” to determining the impact on premiums and scheme beneficiaries.
“The NHI Authority has indicated that this fund only seeks to equalise premiums and not health claims. The BIA fears that should the assumptions of the NHI Authority fail to hold, the solvency position of private health insurers could be severely negatively impacted,” the BIA added, backing Ms Cambridge.
“The private sector remains concerned about the adequacy of the annual premium of $1,000 in the absence of proper actuarial analysis and a significantly discounted proposed national fee schedule for healthcare providers.
“This concern is further exacerbated by the NHI Authority’s proposal that 50 percent of the SHB annual premium should go into the risk equalisation fund maintained by the NHI Authority. This leaves only $500 available to private insurers for the payment of health claims in relation to the myriad conditions covered under the SHB.”
Ms Cambridge yesterday suggested that the NHI Authority on one side, and the Bahamian healthcare industry and insurance providers on the other, were in “different worlds” in terms of their approach to the Government’s scheme.
She added that the Authority appeared to have performed its work in reverse order compared to established industry practice, having determined the $1,000 annual SHB premium and the 50 percent allocation to the REF without first determining how much NHI will cost.
The Government has yet to agree the NHI fee schedule with doctors and healthcare facilities, despite asking them to take significant price cuts, even though these are the major drivers of medical costs and premium pricing. And the benefits package, too, has yet to be finally determined.
“In our world you do that first before doing any costing,” Ms Cambridge confirmed. “In their [the NHI Authority’s] world, they’re making some assumptions and coming up with a premium, and we’re not able to say it is or isn’t enough - whether it’s enough to fund the components they’re expecting it to.
“In our world you have to know what these costs are, and how you’re going to pay for it before coming up with the premium. At the moment we’re unable to do that because there are just so many details of what they’re proposing that are still missing. There are often-times when we ask this question, but the details are not worked out yet, so it’s difficult to have faith in the assumptions being made.”
As a result, Ms Cambridge said it was “very unlikely” that the private health insurance industry would be ready for NHI’s revised July 1, 2020, launch date. To stand any chance, it would need to possess all necessary information on the scheme’s structure and processes by “another month or two”, especially since the sector’s new product development cycle is typically 12-16 months.
Apart from the NHI “national fee schedule”, benefits package and care pathways, the Generali chief added that pricing and other elements would also have to be known by end-April at latest. Legal and regulatory changes also needed to be discussed with industry and passed in good time - something she said made mid-2020 readiness near-impossible.
“It is our view that the revised timeline, which seeks to harmonise the implementation date for the employer mandate, may be unachievable,” the BIA said yesterday. “We submit that unless the NHI Authority is able to complete the empowering legislation and regulations, consult stakeholders on the legislative framework, finalise the national provider fee schedule and provider negotiations, complete the benefit design details, conclude the risk equalisation mechanism and address its resource requirements in a timely manner, the set date will be impossible to attain.”
The BIA also expressed concern over the uncertainty surrounding NHI’s true costs, as the $100m-$130m price tag frequently quoted by the Government only applies to its own exposure - the 160,000 to 170,000 not covered by the employer mandate.
Employers and employee contributions were initially pegged at $53m and $33m, respectively, and when these are thrown in it appears that NHI’s true cost lies somewhere in the region of $200m.
“The objectives of the NHI Authority must be aligned with national goals and our fiscal consolidation plan,” the BIA added. “The Minister of Finance was quoted as stating that there will be ‘no more runaway trains leading the country to the fiscal brink’. This is a prudent approach to governance which we support.....
“We implore the NHI Authority to revisit its funding projections to ensure that they are realistic. As an illustration, the anticipated revenue from reallocated Value Added Tax (VAT) on health insurance premiums must account for the ability of VAT registrants to claim input tax credits and the implications for government revenue.
“Furthermore, any reallocation of VAT will require the Government to replace the lost revenue and implement a framework that separates certain VAT receipts from or within the Consolidated Fund,” it continued.
“The revised proposal maintains a mechanism that covers registrants regardless of their ability to pay or afford their own health plan. Consideration should be given to a means test that requires financial contributions from those who can afford it, and ensures that the NHI Authority truly focuses on the less privileged in our society.”