Letter to Dr. Michael Law in response to Canadian Medical Association Journal paper entitled “The increasing inefficiency of private health insurance in Canada”

Date de parution : 04/11/2014
Personne(s)-ressource(s) : Stephen Frank

April 11, 2014

Dr. Michael Law
Assistant Professor
UBC Centre for Health Services and Policy Research
201-2206 East Mall
Vancouver, BC V6T 1Z3

Dear Professor Law:

I am writing in response to the recent paper that you co-authored in the Canadian Medical Association Journal entitled “The increasing inefficiency of private health insurance in Canada”. In the paper you use aggregate-level industry data to draw conclusions about the relative trends in loss ratios of the underlying coverages. As explained below, different types of coverages within the broad group benefits business have very different drivers and trend experiences over time. As a result, the conclusions in your paper about the trends in medical loss expense ratios for insured supplemental health benefit plans are incorrect and ultimately misleading. Given this, we would appreciate your taking the necessary steps to ensure that this paper is not cited as a resource in any future work that you or your colleagues may undertake.

Data issues

The data used in your report is aggregate-level data for group and individual benefits in Canada. It includes a disparate set of coverages that have different market drivers. The loss ratios vary greatly for each set of coverages, as do their historical trends.

Broadly, the group benefits business can be broken into two areas:

    1. Supplemental health insurance plans (drugs, dental, travel, paramedical, vision, hospital rooms etc.), and
    2. Income replacement (STD, LTD) and other non-medical coverages (Creditors Disability Insurance, Critical Illness, Accidental Death & Dismemberment etc.)
Loss ratios for specific coverages can vary significantly year to year. I can confirm that the average medical loss ratio (as per the definition in your paper) for insured supplemental health insurance plans between 1997 and 2012 was 85%, with the medical loss ratio coming in at 82% in 2012. I've provided the average back to 1997 rather than 1991 as per your paper, as the older CLHIA survey data of our membership did not include 100% of the market which makes dis-aggregating the numbers challenging. The medical loss ratio for supplemental health benefit plans over this period has been relatively flat. This is despite the trend of increasingly smaller groups moving to an ASO model for their benefit plans. This has resulted in the average size of insured plan sponsors falling over time -- something that will naturally result in lower medical expense ratios because any fixed costs are measured relative to a smaller premium amount.

The negative trend in the aggregate-level data that you highlight in your paper is being driven by the income replacement and other non-medical expense coverages. Income replacement coverages (the largest component) have experienced a decreasing loss ratio over this period. These benefits are paid over many years and are funded by (1) premiums collected and (2) investment income earned on the assets purchased with the premium. The decreasing loss ratio is in part due to an increasingly larger portion of the benefit being funded by premium rather than investment income as a result of the falling and sustained low interest rate environment in Canada over that period.

Competitiveness and Transparency of the market

Finally, I would reiterate that the private health insurance industry is highly competitive with over 25 insurers providing group health benefits. As well, the annual renewal process is a very transparent one for plan sponsors. At annual renewal, plan sponsors are provided a detailed summary of their actual experience for the previous year as well as a detailed justification for trend assumptions and pricing renewal levels. Based on our data, over 98% of all insured groups work with an advisor, who reviews this renewal information on behalf of the client to ensure it is grounded in fact and appropriate. Should a client feel that a proposed premium adjustment is unwarranted at their plan’s renewal date, the client can negotiate with the insurer or transfer their business to a new insurer. It is simply incorrect to suggest that insured plan sponsors are not well served by a highly competitive and responsive market that provides a high degree of choice and flexible and customised solutions.

The paper's conclusion that Canadian plan sponsors with insured supplemental health benefit plans are experiencing a declining value for money in their insured supplemental health benefit plans is incorrect. The declining medical expense ratio reflected in the aggregate-level group benefits data is being driven by income replacement (STD, LTD) and other non-medical coverages. As a result, we request that you take steps to ensure that this paper is not sourced in any future work that you or your colleagues may undertake. Please feel free to contact me to discuss this further.


Original signed by

Stephen Frank
Vice President, Policy Development and Health