Hong Kong's proposed voluntary health insurance scheme (VHIS) will encourage medical insurance growth, because it will increase health insurance products' affordability and penetration, while allowing private insurers to maintain a high degree of underwriting flexibility, according to a report by Moody's Investors Service Hong Kong.
Last Thursday, Hong Kong’s Food and Health Bureau announced a VHIS under which a Hong Kong resident’s premiums paid for a certified individual indemnity hospital insurance plan (IHIP) will be tax deductible.
Mr Frank Yuen, AVP-Analyst of the Financial Institutions Group at Moody's Investors Service Hong Kong, said in the report which is in the 5 March edition of Moody’s Credit Outlook: “Although the scheme is a government initiative, it still provides flexibility and autonomy for insurers to set their terms for participation. The premium level of certified plans will not be fixed by government, but will be set by individual insurers. Insurers can still impose premium loading or case-based exclusions tied to different risk factors when accepting applications, or even reject applications by providing written explanations. And, participating insurers can opt to offer a flexible plan with enhanced coverage, which provides an opportunity for insurers to up-sell to existing policyholders.
“As a result, we expect that the scheme will still allow participating insurers to adhere to their internal underwriting principles in offering these certified IHIPs to reduce pricing risks. Insurers also will benefit from the cross-selling opportunities because the increased awareness about medical insurance will raise demand for other insurance products covering disability, critical illness or retirement planning.”
The scheme creates two material incentives for participation. Under VHIS, premiums paid by the policyholder and their dependents will be tax deductible, subject to a ceiling of HK$8,000 (US$1,020 )per insured person per year. There will be no cap on the number of dependents eligible for the tax deduction.
Mr Yuen said: “The tax deduction should increase the affordability of such plans, in particular to the dependents of existing IHIP policyholders. About 2.3 million existing IHIP policyholders will be entitled to a one-off migration opportunity to participating insurers’ certified plans.”
The second incentive comes from increased coverage and pricing transparency. Certified IHIPs will have to provide key standard coverage including guaranteed renewability until age 100, partial coverage of unknown pre-existing conditions subject to a waiting period, treatment of congenital conditions and psychiatric treatment. Participating insurers also will have to disclose a standard premium schedule by age, gender and other risk factors (e.g., smoking habit) on their company website. These features add to the transparency of VHIS products and should set the benchmark for coming medical and health insurance products as a whole. This will help address long-held concerns about potential claims rejections associated with these products. Standardised policy coverage and premium transparency also will increase the predictability of policyholders’ out-of-pocket expenses.