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CEO Insights

”Full Coverage” Medical Plans – The Insurance Fallacy

2022-10-12 5min read
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A television channel recently reached out to us for our expert opinion on a claim rejection case. Mr. Lau, a previous sales representative of an insurance company, purchased a high-end medical plan for himself. The plan was promoted as having over HK$100 million lifetime coverage. In 2020, Mr. Lau suffered a stroke and underwent emergency treatment at a public hospital. Subsequently, he was transferred to a private hospital to continue his recovery.

While his wife Mrs. Lau successfully claimed for his medical expenses during 2021, she started experiencing delays in claim payments since the start of 2022. In June 2022, Mrs. Lau received a claim rejection letter from the insurance company citing that “vegetative state” was under general exclusions. Based on 10Life’s research, this exclusion term refers to “treatment whilst staying in hospital for more than 90 consecutive days if the insured is in a persistent vegetative state characterised by wakefulness without awareness for more than 28 consecutive days”.

In response to the letter, Mrs. Lau obtained a neurological medical report which certifying that Mr. Lau was NOT in a “persistent vegetative state” as he demonstrated clear awareness to the surrounding environment and events. Despite such certification, the insurance company upheld the claim rejection with the exclusion term of “persistent vegetative state”. As a result, Mr. Lau has since been moved out from the private hospital into a rehab centre.

Based on the information presented to 10Life, I believe the claim rejection was unjustified, as the exclusion clause used to reject the case is not consistent with the medical assessment, and the insurance company did not obtain any alternative assessment to show otherwise. Despite the long delay, we hope Mr. Lau will receive the claim payments he fairly deserves through the help of the Insurance Claim Bureau (ICB).

Rise in requests for help on claim rejections

Over the last few months, 10Life received a number of requests to help on medical insurance claim rejections. One common theme we found in these rejections was that most were related to plans with “Full Coverage”, often with limits at tens of million dollars or even unlimited lifetime limits. The victims, who were sold into a false sense of security, would think that any medical expenses can be covered with their plan. Only when their claims were rejected, they realised “Full Coverage” was not very full after all.

“Full Coverage” – dream or reality

These “Full Coverage” medical insurance products made a splash when they were first launched over 10 years ago. Who wouldn’t want lifetime coverage of tens of million dollars by paying as little as a few thousand dollars premium a year? These plans sold like hotcakes in Hong Kong to both local and mainland customers. What surprised many insurers was that these plans turned out to be popular not only for policyholders but also celebrated by medical practitioners. When a patient tells a doctor that “my insurance plan covers 10 million dollars a year”, it would be natural for doctors to prescribe more extensive tests and treatments. There were also stories of insurance agents promoting these wonderful plans to mainland visitors as “free first class hospital accommodation in Hong Kong with extensive health checkup”.

Unfortunately, many policyholders (and doctors) are unaware of the terms and clauses built into these “Full Coverage plans” which can result in rejection of claims. Most notably are the clauses “medically necessary” and “reasonable and customary”, labeled by us as the “claim rejection dual” (拒賠神器) in a previous Chinese article. In short, insurers can reject claims on the grounds that the treatment is not medically necessary or reduce the benefit amount paid if they deem the fees not reasonable. In addition, there are also blanket general exclusions such as pre-existing conditions and vegetative state.

Unreasonable Claim Rejections and Exorbitant Price Increases

As losses began to mount for these high-end plans, insurers became under pressure to control the claims. Various measures had to be put in place including setting claim payout ratio targets for the claims team and black-listing certain medical providers. As a result, we have seen increasing cases where the claim rejections may not be consistent with the defined product terms and conditions.

Despite the effort by insurers in controlling costs using these terms and conditions, they ultimately resorted to the last weapon to control the loss ratios – price increases. Based on our research, we found that if a non-smoking 45-year-old male purchased a certain popular high-end medical plan 5 years ago, his premium today would have already increased by nearly 114%, from around HK$29,000 to over HK$62,000 a year. If this trend continues, many of the high-end full coverage plans will become unaffordable when he reaches retirement, a time when coverage is most needed.

Have we lost the principle of insurance?

Googling up the definition of “insurance”, we can find the definition as “an arrangement by which a company or the state undertakes to provide a guarantee of compensation for specified loss, damage, illness, or death in return for payment of a specified premium.”

The problem with “Full Coverage” medical insurance plans in Hong Kong is that when the expected claim is difficult to be specified, it is equally hard to estimate a specified premium rate. When a policyholder buys a medical policy with an intention to keep it for life, the products should be designed in a structure that enable the payout of adequate claims and be sustainable at a reasonably affordable price. Unfortunately, when insurers in Hong Kong promoted the unrealistic coverage to chase short term sales by offering impractical coverage, prices will need to increase and eventually become unaffordable.

Due to market demand, recent medical insurance products have nearly all moved to these “Full Coverage” plans. My family members are also on these plans and we will keep paying the increasing premium until the day they become unaffordable. I believe the insurance industry should do its best to protect our society, firstly by re-examining the legitimacy of promoting a product as “Full Coverage”, and to ensure the design of these products remain affordable in the long run.

Dennis Lun, 10Life Co-founder & CEO

Graduated from the Wharton School of Business (MBA), Dennis possesses 20+ years of investment banking, strategy and insurance experience. He is responsible for using big data and technology to create the next generation insurance experience, enhance profitability and reduce cost. He has worked in the US, Greater China, India and SE Asia leading teams of over 200 people.

Dennis Lun, 10Life Co-founder & CEO

Graduated from the Wharton School of Business (MBA), Dennis possesses 20+ years of investment banking, strategy and insurance experience. He is responsible for using big data and technology to create the next generation insurance experience, enhance profitability and reduce cost. He has worked in the US, Greater China, India and SE Asia leading teams of over 200 people.

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