[CEO View] The myth of “full reimbursement” in medical insurance

A television station recently contacted 10Life to seek expert opinion on a claim rejection case. Mr Lau, who was formerly a sales representative for an insurance company, purchased a high-end medical insurance policy years ago. The promotional materials stated that the lifetime benefit limit exceeded HK$100 million. However, in 2020, Mr Lau unfortunately suffered a stroke and was admitted to a public hospital for emergency treatment. He was subsequently transferred to a private hospital to continue treatment.

Until the end of 2021, his wife, Mrs Lau, was still able to successfully claim for medical expenses. However, from early 2022 onwards, the claims began to be delayed. In June 2022, Mrs Lau then received a declinature letter from the insurer. The insurer stated that Mr Lau had been in a vegetative state, which fell under a general exclusion.

According to our research, the exclusion is: “the insured person has continuously been in a vegetative state, with wakefulness but no signs of awareness, for more than 28 consecutive days and has received treatment in a hospital for more than 90 consecutive days”.

In response, Mrs Lau submitted a neurology medical report to the insurer, proving that Mr Lau was not in a “persistent vegetative state”, because he showed clear awareness of his surroundings and events. Despite providing the relevant evidence, the insurer still rejected the claim on the basis of “persistent vegetative state”. As a result, Mr Lau was later transferred from the hospital to a care home.

Based on the available information, I believe the insurer’s refusal to pay is unreasonable, as the stated reason for rejection does not align with the medical assessment results. In addition, the insurer did not provide any other supporting assessment. The matter has been delayed for a long time, and we hope that with the help of the Insurance Claims Complaints Bureau (ICB), Mr Lau will receive the compensation to which he is entitled.

In fact, over just the past few months, 10Life has received several help requests involving claims being declined. Most of these cases were related to so-called “full reimbursement” products, whose lifetime claim limits are often in the tens of millions, or even uncapped. Policyholders are often under the mistaken impression that a claim amount of HK$500,000 means a policy with a sum insured of HK$50 million will certainly be sufficient to pay out. However, when a claim is declined, they feel frustrated and face financial pressure because they are unable to settle large bills.

As far as I can recall, “full reimbursement” products were launched about 10 years ago and caused quite a stir at the time. Who would not want lifetime medical cover worth tens of millions of Hong Kong dollars, for just a few thousand Hong Kong dollars a year? Customers from Hong Kong and Mainland China rushed to buy them. What insurers did not anticipate, however, was that these products would be highly appealing not only to policyholders, but also to medical institutions. When a patient told a doctor, “My insurance plan covers HK$10 million per year,” it was only natural for the doctor to recommend multiple tests and treatment options. So, as soon as these products were launched, insurance agents were already promoting stories to mainland tourists about these premium medical policies: “Come to Hong Kong and stay for free in a private room in a top-tier hospital, with a full health check-up included.”

Unfortunately, many policyholders (and doctors) are unaware of the exclusions contained in such “full reimbursement” products. Most notably, there are the “medical necessity” and “reasonable and customary” clauses, which we previously referred to as “claim denial tools” (links 1, 2). In short, insurers may refuse a claim if treatment is not medically necessary; or reduce the reimbursement amount if they consider the medical expenses unreasonable. In addition, insurers also have certain broad exclusions, including pre-existing conditions and vegetative state.

As the claim amounts under such plans increase, insurers are under enormous pressure and are eager to control the number and amount of claims. Measures include setting payout ratio targets for claims teams and even blacklisting certain medical providers. As a result, we are seeing an increase in claim rejections, and Mr Lau’s case of an unreasonable claim denial is one example.

Although insurers have tried to control costs through policy terms and conditions, they have ultimately resorted to the final measure — premium increases. Our research found that if a 45-year-old non-smoking man purchased a premium medical insurance plan on the market five years ago, his annual premium would have been about HK$29,000 at the time, but today it has risen to about HK$62,000, an increase of 114%. Unfortunately, if this trend continues, by the time policyholders retire, the premiums will become unaffordable. Yet that is precisely when protection is needed most — in retirement.

When we search Google for “Insurance”, we find it defined as “after paying a specified premium, one may receive compensation from an insurance company or the government for specified losses, damage, illness or death.”

The problem with “full coverage” medical insurance is that when the compensation is difficult to budget for, the premium is also difficult to budget for. A policyholder who buys medical insurance and intends to keep it for life would expect the product to pay sufficient compensation, while the premium remains reasonable and affordable. However, when insurers pursue short-term sales by launching unrealistic coverage, premiums eventually rise and become unaffordable.

Driven by market demand, medical insurance products in the market have now almost all become “full reimbursement” plans. Even my family has purchased such plans; faced with ever-increasing premiums, we can only bear the burden in silence until they become unaffordable. The author believes that, in fulfilling the insurance industry’s duty to protect society, it should re-examine the way high-end medical insurance is promoted as “full coverage”, avoid exaggeration, and ensure premium increases remain reasonable, so that insured persons can continue to receive medical protection in the long term.

This English version of this article has been generated by machine translation powered by AI. It is provided solely for reference purposes. In the event of any discrepancy or inconsistency between this translation and the original Chinese version, the Chinese version shall prevail.