Anatomy of a health plan

PUBLISHED : Monday, 14 May, 2012, 12:00am
UPDATED : Monday, 14 May, 2012, 12:00am


Most people do not want to talk about health insurance. The issues surrounding such plans - security, money, mortality - are fraught with emotion. The policies are complicated. Agents can be pushy and the schemes expensive.

In short, people who look into health insurance may be confronted by complex and expensive plans, possibly pitched by an aggressive agent who exploits their worst fears.

It's not a fun topic. So it's not surprising that 57 per cent of people living in Hong Kong have no medical insurance, according to the Census and Statistics Department.

For those who do venture into this market, it can be difficult to understand how to get value for money with insurance, or even to compare one plan with another.

Nevertheless, such policies are important, if not essential. They protect against just the kind of improbable but potentially disastrous event for which insurance is designed.

In that vein, Money Post aims to demystify this process. If you have ever been curious about health insurance - about whether you need it; how to get your money's worth; whether you are covered by the Hong Kong government public system - read on.

Public versus private

Hong Kong residents have access to comprehensive government health care. Anyone with a Hong Kong identity card, regardless of whether he or she is a permanent resident, and children with residential status, can use the public system at the subsidised rate, which is generally about 10 per cent of the cost of the treatment.

This means residents pay a flat fee of HK$100 for a visit to the emergency ward of a public hospital, and a stay in an acute ward is also just HK$100 a day. Treatment at an oncology clinic costs HK$80 per visit.

But the downside of the public provision is that, as with many national health services, queues for certain treatments can be long.

Dr Choi Kin, president of the Hong Kong Medical Association, says that while the standard of health care offered by the government system is good, patients may face long wait times.

'If you have cancer, you can have the tumour removed within a week in the private sector. If you go through the public sector you may have to wait three months or more,' he says.

Should an individual go down the public route, he or she does not get to choose their doctor.

As such, many want the speed and choice of private hospitals. But this gets expensive very quickly. A one-night stay in a private room at the Matilda International Hospital costs HK$2,970, plus a HK$1,500 observation fee, before the costs of any treatment are factored in. If you are unlucky enough to be in an intensive-care unit, you are looking at HK$6,000 a night, according to Matilda.

Different types of cover

Mike Ramsay, a director at the insurance broker Alliance Insurance Services, says there are three types of health insurance: basic, mid-tier and premium.

At the bottom end are policies that provide annual coverage of HK$175,000, at best. A 35-year-old man with no pre-existing condition could expect to pay about HK$10,000 per year for such a policy. Such plans seem designed to supplement, not replace, public treatment.

At the other end of the spectrum - the top end - are international policies that provide full cover for hospitalisation, as well as clinic visits and dental treatment anywhere in the world. They have high annual limits of around US$3 million. Our hypothetical healthy 35-year-old male could expect to pay HK$30,000 per year for such coverage.

In the middle, costing about HK$20,000 per year for our case client, are policies that provide about HK$10 million in annual cover. Such plans would pay for stays in a private hospital.

On the view that top-rung schemes are expensive and often more than one needs, while bottom-rung policies do not offer enough protection, we'll focus the discussion on mid-rung policies (see table).

Navigating the market

Royston Tan, an employee-benefits expert with Mercer, a consultancy firm, recommends people sit down with an adviser before they buy insurance. He says people should focus on the level of coverage for hospitalisation, as clinic visits are generally affordable and not something people need to insure against.

Health insurance should also be seen as a long-term commitment, as many people are unlikely to need extensive hospital treatment until they are in their 60s.

As such, he says people need to think about where they will be when they reach this age and what level of cover they will need then. He points out that although insurers are generally happy to scale down coverage as policyholders age, they are unlikely to scale it up without fresh medical underwriting, which would mean any health conditions developed since the policy was taken out would be excluded.

Tan says an adviser should ask whether an insurance-seeker has existing medical coverage through the employer, or participation in national health insurance in their home country. Expats should pay particular attention to whether they would want to return to their home country, so they could be close to their family if they developed a serious medical condition, as this could have a big impact on the level of coverage they need.

Workers who get medical insurance from their employer should also check that it is adequate, and not simply assume it will cover everything, says Tan. They must also think about the level of coverage they will need in retirement, if they will no longer be covered by their company scheme.

Given the many different factors that people need to take into account when buying medical insurance, Tan stresses the importance of shopping around.

As well as their own personal needs, he also suggests people include on their checklist the maximum annual limit that policies impose on claims, whether they have a lifetime limit on claims, what level of hospital accommodation they offer, whether diagnostic tests are covered and so on. A good place to start is with a medical insurance price comparison website. The recently launched will generate instant quotes from a wide range of insurers for consumers based on their age, gender and the level of coverage they require.

Getting value for money

Although private medical insurance is not cheap, the good news is that people can take steps to cut premiums, without compromising the level of coverage too much.

For example, agreeing to pay the first HK$5,000 of a claim and excluding treatment in North America from the policy, would nearly halve premiums (from HK$20,423 to HK$11,678) for a 35-year-old man taking out Zurich's UniversalHealth 100 policy. Opting for hospitalisation cover only would cut premiums to HK$7,115.

Some policies include a joint-payment plan under which the policyholder agrees to pay 20 per cent of any claim, for example. This can have a big impact on premiums as it discourages over-use of medical services.

If you get insurance cover from your employer but want to top it up, you can get a plan that only kicks in once the maximum limits on your work policy have been reached. This is equivalent to having a high deductible and should therefore be affordable.

Getting medical insurance through an employer is nearly always cheaper than buying it as an individual, as a company's employees provide insurers with a ready-made pool of risk. Tam estimates that premiums for policies taken out through companies can be up to 30 per cent lower.

Some corporate insurance policies will also allow employees to take out 'continuation coverage' insurance policies. These are policies that piggyback on corporate schemes, allowing holders to continue to have coverage from the same insurer once they retire.

Another factor that can keep premiums down is opting to stay on a hospital ward rather than in a private or semi-private room.

Doctors also recommend that you take out medical insurance policies while you are young, as pre-existing medical conditions are excluded from the coverage, and you are more likely to develop these as you get older.

Dr Godwin Leung Tat-chi, a specialist in cardiology, says people may want to use a combination of the public and private sector for treatment. For example, if a doctor thinks a patient may have cancer, the patient may choose to have diagnostic tests done privately to avoid long waiting times in the public sector, but to have the cancer treated in a government hospital.

He adds that if people want to keep costs lower, they can choose a policy that only covers a stay in a ward, rather than a private room, adding that the services they receive from the doctor will be the same.

As a final thought, Tan says: 'It is tempting to buy a policy that has a higher frequency of reimbursement, such as one with outpatient [clinic] cover, but it is if you have to go into hospital for a triple bypass that you really need the cover.'

What's not covered

Finally, it is important to understand what is excluded by your scheme. For example, most insurers will not cover pre-existing medical conditions, including conditions people were born with. Most schemes also exclude maternity coverage, on the view this is a planned event that does not require insurance, although some will cover it if you have held the policy for more than 12 months.

Most plans will pay for expensive tests (for example, magnetic resonance imaging scans) if a person has been admitted into hospital to take them. However, some policies require that a person stay overnight in the hospital before these are covered as an 'inpatient' expense.

As with any long-term contract involving potentially large sums, get independent advice and read the fine print.