HIP will need cash injections Health Minister DeSilva
The Health Insurance Plan (HIP) is running deficits and will need capital injections from Government, according to Health Minister Zane DeSilva.
However, he pledged there would be no substantial increase in the premium, which would be “self defeating” in the current economic climate.
He made the remarks in the House of Assembly as he detailed the budget for his Ministry for the next fiscal year. HIP is a plan available to anyone above school leaving age.
The premium for the next fiscal year will be announced in the coming weeks.
The monthly rate as of April 1 last year was $385, which was almost 29 percent more than the previous year’s rate of $298.93. Mr DeSilva said the premium to be announced for the next year will need to reflect HIP’s claims experience and administrative expenses.
He said that at the end of March last year there were around 3,267 people insured on HIP, which was an increase of almost 500 compared to the year before.
Income from HIP premiums over the course of 2010/11 was $9.5 million, an increase of $2.1 million on the year before due to the rise in premiums and the increased number of policyholders.
However, said Mr DeSilva, claims incurred in 2010/11 totaled $13.8 million, which was an 18 percent increase on the year before.
Administrative expenses were $3.1 million, which was a 19 percent increase over the previous year.
Mr DeSilva said the administrative costs were at a peak as the department responsible for HIP was implementing its “world class” automated system and they are expected to fall significantly moving forwards, as that development has now been completed.
However, he said the amount of medical claims as a percentage of the income from premiums remains “at an unacceptably high level”.
The figure, known as the Medical Loss Ratio, stood at 146 percent in the financial year 2010/11, which was a slight improvement on the previous year’s figure of 158 percent.
“In simple terms, this means that for every dollar in premiums HIP collected, HIP paid out $1.46 in claims,” said Mr DeSilva. “As long as this imbalance exists, HIP will continue to run deficits and will require capital injections from Government.”
He said there are various options to address the issue in the short term. The first two options are increasing premiums or limiting benefits.
The third option is increasing the transfer from the Mutual Reinsurance Fund which is a specialist fund available for dialysis, hospital in-patient stays, kidney transplants and the related anti-rejection drugs.
Mr DeSilva explained the fund was “designed as a catastrophic fund”.
A fourth option could be further reducing the already-falling administrative costs.
Mr DeSilva said: “Within the current economic environment, a substantial increase in the premium would be self-defeating and would undermine the purpose of HIP as a low cost insurance plan.
“HIP currently serves as an alternative to the more expensive major medical plans in the private sector.
“Indeed over the last several months the department has seen an increase in the number of compulsory (or working) persons enrolling on HIP, which is another sign of the pressure that employers are under.”
He added: “HIP’s benefits are already basic and there are relatively few benefit types that would be a significant enough cost-savings to be worthwhile. Increasing the transfer from the MRF is already an alternative that is being actively explored at this time.”
Mr DeSilva said that while all options are being actively considered, “the reality appears that further capital injections are needed and even desirable for HIP”.
He went on to note that the operating results for the FutureCare plan for the over-65s were “better than expected” in the last budget year, but the future may not be as bright.
As with HIP, premiums rose last April as did the number of people insured.
The income from premiums went down but there was “virtually no change over the previous year” when it came to the $9.5 million in claims made in 2010/11.
“We expect FutureCare’s claims to increase significantly in future years and the positive results of the first two years of operation are not an indication that the fund will continue to be successful in the absence of careful planning and prudent actuarial analysis,” warned the Minister.
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