Assessing Premium andcosting Benefit packageNehal JainInstitute of Public Health
Overview of the session• Definition of Premium• Different Rating Methods used by Health Insurers• Factors Influencing Health Insurance Premium• Strategies for collecting premium• Calculating premium
Definition of Premium• Premium is the consideration paid to the insurer by the insured for the health insurance coverage.
Different Rating Methods used by HealthInsurers 1) Community RatingThis is a system of determining uniform health insurance premium rate for all individuals in a community, based on the cost of providing medical services to all people in the community, without adjusting for individual risks and medical history.
Different Rating Methods used by HealthInsurers 2) Risk RatingThis is a system of determining health insurance premium for each individual based on the risk perceived by the insurer, and involves consideration of the individual’s medical history, occupation, lifestyle and other individual characteristics in the determination of his or her premium.
Different Rating Methods used by HealthInsurers 3) Income RatingThis is a system of determining health insurance premium based on the income or wages of the individual, and is typically a defined proportion of the income, where a limit or a floor premium may also apply.
Different Rating Methods used by HealthInsurers 4) Experience RatingThis is a system of determining health insurance premium based on the insured’s past loss experience. Thus, the method is used for individuals and groups who have been covered for a sufficiently long length of time to enable the insurer to assess the loss experience or service utilization by the insured.
Factors Influencing Health InsurancePremium• Claim costs: claim costs are usually the predominant expense of a health insurance plan, factors affecting claim costs are important in determining the amount of premium that is necessary to be charged under a health insurance plan.
Factors Influencing Health Insurance Premium• Administrative costs: Administrative costs include the costs of collecting premium, costs of underwriting, costs of issuing policy documents and identification documents to the beneficiaries, costs of enrolling and accrediting/ monitoring providers of care, costs of processing and paying claims, government taxes and levies like stamp duty on policies etc., and also the costs of planning, supervising and managing the health insurance scheme.
Factors Influencing Health InsurancePremium• Marketing costsMarketing costs include not only the commissions and incentives paid out to agents, advisors, brokers and other sales functionaries, but also the costs of acquiring and maintaining a sales network, costs incurred on print and visual media, and also, especially in the case of community based schemes, costs of advocacy and awareness generation in the community.
Factors Influencing Health InsurancePremium• Contingency marginsInsurers also need to provide contingency margins in their premium structure, as the claims experience could be greater than what was expected by them. Such contingency margins also help build reserves which could see the insurer tide over a ‘bad’ year when exceptional claim costs may arise.
Factors Influencing Health InsurancePremium• Profit marginFinally, over and above all these costs, insurers may provide for a profit margin, if they are a for- profit organization.
Factors Influencing Health InsurancePremium• ReinsuranceA part of the premium collected is given or ‘ceded’ to a reinsurance company, in return for various types of reinsurance covers which reduce the exposure of the insurer.
Strategies for collecting premium• Pay roll deductions• Deductions at source• Membership payments• Voluntary payment
Costing Benefit Package – A casestudyDharampur village wants to implement a community based health insurance for its people. The details of the village are as below:• Population of the village – 5000 people• Around 20% of the population is willing to join the scheme• Benefit Package expected – Outpatient cover, Inpatient cover, deliveries
Incidence of Illness• Number of outpatient treatment expected per person per year – 1.5 episodes• Number of admissions expected per 100 – 5 episodes• Number of deliveries expected per 100 women – 5 episodes
Cost of care• Average Cost per Out-patient – Rs. 200• Average Cost per In-patient – Rs. 5000• Average Cost per Delivery – Rs. 3000
Costing of Benefit Package and Assessing Premium Number expected for Average Cost Cost per 1000 people per incidence Total Cost PersonOutpatient Treatment 1500 200 300000 300Hospitalization 50 5000 250000 250Deliveries 50 3000 150000 150Cost of Benefit Package 700000 700 Administration Cost - 10% 70 Total Cost 770 Service Taxes - 10.3% 79.31 Total Premium Implication 849.31
Data• Collecting primary data through survey• Secondary Data: Data about morbidity rate, utilisation rate, unit cost of treatment and demographic profile of the community from secondary sources e.g. Census, NSSO, SRS, NCMH etc.