IAAHS 2007 IAA Health Section Colloquium 13 th – 16 th May 2007 CTICC www.iaahs2007.com Risk Sharing Models for Private Healthcare Insurance George Orros CEO, Universal Health Consultants
Key Messages from Paper 1. Complementary/supplementary health insurance models a) United Kingdom and other countries b) Insurers and their customers c) Medical service provider relationships 2. Risk Selection and Premium Rating a) Medical risk selection and underwriting policy b) Community rating schemes c) Risk equalisation schemes 3. Value Innovation a) Blue Oceans and Value Creation b) Physical and Virtual Value Chains c) ERM and TCF
International Risk Adjustment - Models A Country United Kingdom Ireland Netherlands Germany Switzerland Age / Gender; Age / gender; prior Hospitalisation; Age / Gender; Region; Age / Gender; Risk adjusters utilisation; local Age / Gender; Region Weighted with current Disability Disability factors expenses Restrictions on Zero premium Community rating per premium Community rating Community rating Community rating contribution region contributions See risk adjusters Outlier/proportional Risk-sharing Outlier risk sharing No No above risk sharing Number of Health 2,500 (early 1996) 2 (until 1997: 1) 25 1200 166 Plans Modality A or B A B A B B Open entry for new Yes Yes Yes Yes Yes health plans Open enrolment and No open enrolment Year Year Year Half Year frequency guarantee Is long-term care No No No No No included Mandatory or Voluntary Voluntary Mandatory Mandatory Mandatory voluntary membership Year of 1991 1996 1991 1994 1993 implementation
International Risk Adjustment - Models B Country Russia Czech Republic Belgium Israel Columbia Age / Gender; Region; Many different Disability; Risk adjusters Age Age Age / Gender regional experiments Unemployment; Mortality Restrictions on Zero premium Zero premium Zero premium premium Community rating Community rating contribution contribution contribution contributions Many different Proportional risk Severe diseases (6% Risk-sharing No No regional experiments sharing - at least 85% of expenses) Number of Health 100's 26 6 4 24 Plans Modality A or B A B A A B Open entry for new Yes Yes No Yes Yes health plans Open enrolment and Year Year Quarter Half Year Year frequency Is long-term care No No Yes No No included Mandatory or Mandatory Mandatory Mandatory Mandatory Voluntary voluntary membership Year of 1993 1993 1995 1995 1994 implementation
spending Out-of- pocket PMI UK Mixed Economy of Care NHS
Risk Equalisation - Ireland Based on intergenerational solidarity, whereby the young subsidise the old by paying the same premium rates. 1. Community Rating: health insurers charge same price for the same level of cover regardless of age/gender/health. 2. Open Enrolment: all applicants for private health insurance must be accepted by a health insurer. 3. Lifetime Cover: all consumers are guaranteed the right to renew their policies, irrespective of claims history. 4. Minimum Benefits: health insurers must cover a particular set of treatments and procedures and cover all public hospitals. 5. Risk Equalisation: a ims to neutralise differences in health insurers’ costs due to risk profile variations and results in cash transfers from the lower to the higher risk profiles.
Risk Equalisation - The Netherlands
Risk Equalisation (potential) – South Africa
Healthcare Insurance - Creating Value Innovation
Value Innovation: The Four Actions Framework Reduce Which factors should be reduced well below the industry's standard? Eliminate Create Which of the factors that Which factors should be the industry takes for A New created that the industry granted should be Value Curve has never offered? eliminated ? Raise Which factors should be raised well above the industry's standard?
Blue Ocean Strategy: Principles The Six Principles of Blue Ocean Strategy Formulation principles Risk Factor each principle attenuates 1 . Reconstruct market boundaries ↓ Search risk 1 2 . Focus on the big picture, not the numbers ↓ Planning risk 2 3 . Reach beyond existing demand ↓ Scale risk 3 4 . Get the strategic sequence right ↓ Business model risk 4 Execution principles Risk Factor each principle attenuates 5 . Overcome key organisational hurdles ↓ Organisational risk 5 6 . Build execution into strategy ↓ Management risk 6
Four actions framework – Private Healthcare Insurance Reduce Product range Healthcare cash benefits Prices (relative to market) Cross subsidies Long term benefit guarantees Eliminate Create Unprofitable risk groups Web-based self service Inefficient business processes Top-end health cash plans A New Low-value health cash benefits Digital health capability Value Curve Obselete products & services Business process management Obselete computer systems Multi-lingual capability Raise Treating customers fairly Chronic conditions cover Customer focus and intimacy Managed care network Customer utility & value
Minimum Low Average High Maximum Strategy Canvas: Private Healthcare Insurance Unprofitable risk groups ↑ Inefficient business processes ↑ Low-value health cash benefits ↑ Obselete products & services ↑ Obselete computer systems Traditional Healthcare Insurance ↑ Product range ↑ Healthcare cash benefits ↑ Prices (relative to market) ↑ Cross subsidies ↑ Long term benefit guarantees ↑ Treating customers fairly ↑ Chronic conditions cover ↑ Customer focus and intimacy ↑ Managed care network ↑ Customer utility & value ↑ Web-based self service Clearsky Healthcare Insurance ↑ Top-end health cash plans ↑ Digital health capability ↑ Business process management ↑ Multi-lingual capability ↑
Profit Model for the Strategic Price The Strategic Price The Target Profit The Target Cost Streamlining and Partnering Cost Innovations Pricing Innovation
Organisational Hurdles to Strategy Execution Cognitive Hurdle An organisation wedded to the Status Quo Resource Hurdle Political Hurdle Limited resources Opposition from powerful vested interests Motivational Hurdle Unmotivated staff
How Fair Process Affects Peoples’ Attitudes and Behaviour Fair Process Strategy Engagement Formulation Explanation Process Expectation Clarity Trust & Commitment "I feel that my opinion Attitudes counts" Voluntary Cooperation "I will go beyond the call Behaviour of duty" Exceeds Expectations Strategy Self initiated Execution
Execution Consequences of the Presence and Absence of Fair Process in Strategy Making Fair Intellectual Trust Voluntary Process & Emotional and Cooperation Recognition Commitment in Strategy Execution Violation Intellectual Distrust Refusal of Fair & Emotional and to Process Indignation Resentment Execute Strategy
Virtual Value Chains Virtual value chain uses integrated information to help organisations perform physical value chain activities more efficiently and effectively.
Physical and Virtual Value Chains Virtual Value Chains help companies create new markets by adding new value-adding steps to Physical Value Chain steps.
Telemedicine - Physical and Virtual Value Chains Tele- Risk Managed Consumer Provider Tele- Web Medical assistance focused I T Contracting medicine Services Management Selection Care / emergency Physical value chain includes telemedicine as a peripheral support activity. Virtual value chain can link telemedicine services directly to medical providers and drive care delivery through its own physical and virtual value chains.
Telemedicine - Physical Value Chain
Telemedicine - Virtual Value Chain activities
Telemedicine - Virtual Value Chain
ERM for Risk and Opportunity Management
ERM for Risk and Opportunity Management Policy review cycle Governance review cycle Accountability Policy Formulation External - to the company - creating the vision - to owners - creating the mission - to regulators - creating values - to legislators - developing culture - to other stakeholders - monitoring the environment Risk and Opportunity Management Strategy review cycle Supervisory Management Strategic Thinking - oversight management - positioning in the changing markets - monitoring budgetary control - setting corporate direction - reviewing key business results - reviewing and deciding key resources Internal - ensuring business capability - deciding the implementation process Short-term Long-term Operations review cycle
The Enterprise Risk Management Framework 1. Corporate Governance 2. Internal Control (Board oversight) (sound system of internal control) 3. Implementation (appointment of external support) 4. Risk Management Processes (incremental phases of an iterative process) Risk Risk Risk Risk Risk Analysis Identification Assessment Evaluation Planning Management 5. Sources of Risk (internal to a business and emanating from the environment) Internal Processes Business Operating Environment
Stages in the Risk Management process Analysis Risk Identification Risk A1 Assessment Risk A2 Evaluation Risk A3 Planning Risk A4 Management A5 A6
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