Health Insurance – How to choose the right cover limit?
Insight
04.27.2021 by Henner International 4 min read
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Health Insurance – How to choose the right cover limit?

Choosing the right health insurance cover is no simple matter. Given the countless plans and options available, it can get daunting.

Questions such as what benefits to add or how much cover to obtain will inevitably crop up. In this post, we shed light on one specific feature that can impact the choice: the annual limit.

Cover limits: what are they?

Annual limits

A commonly applied limit is the annual limit which is the maximum amount that an insurer will reimburse a policyholder for all covered losses sustained within a year.  Expenses incurred beyond the annual limit will have to be borne by the policyholder for the balance of the policy year.

Taking the example of a policyholder who owns a policy with an annual limit of $1,000,000 and who has chalked up losses of $1,200,000 midway through the year will mean that the policyholder has to pay the $200,000 that exceeds the annual limit. Then, any further losses incurred for the remainder of the year will also have to be borne by the policyholder.

Limits applied on specific periods / benefits

We also find other limits frequently applied by insurers as follows:

  • Lifetime limits which cap the amounts reimbursable in a lifetime
  • Benefit limits or sub-limits where limits are set for specific benefits or types of losses.

The application of benefit limits or sub-limits would prevent the policyholder from claiming the full cost incurred.  An example would be a sub-limit of say, $30,000 applied to surgeon’s fees.  If the surgeon’s fees ultimately total $40,000, the insurer will pay $30,000 whereas the policyholder will be liable for the remaining $10,000.  Policyholders who are concerned with uncontrollable out-of–pocket expenses may opt to incorporate the stop-loss provision in their policies. This provision places a limit on out-of-pocket expenses borne by the policyholder, beyond which the insurer will assume full payment of all covered expenses

How cover limits affect a policy?

Health insurance premiums vary between insurers and plans due to several factors one of which is the annual limit selected. The higher the annual limit, the higher the premiums the policyholder can expect to pay. Conversely, with a lower limit, the policyholder can better contain the cost of their policy.

In deciding on a health plan to cover its employees, corporations are typically spoilt for choice given the profusion of policies available in most markets.  However, the wider the choice means the more complex the decision-making process in sourcing and selecting the plan that best suits their needs and budgets.

Tips to help the choice

When deliberating on their needs, important factors that should be considered would include the following:

  1. Where their employees reside: Are they residing in localities with high average treatment costs? There are substantial cost variances between countries as evidenced by the table below (source: Finder – Price of a hospital stay around the world) :
  2. Business travel patterns of their employees: Do many of their employees travel frequently to countries where the medical costs can be astronomical?
  3. Age profile of their employees An aging workforce may be more susceptible to disability and disease.
  4. Employees’ gender distribution: Is there a higher proportion of females at child bearing age?
  5. Lifestyle choices of their employees: Cigarette smoking and excessive alcohol consumption may heighten the risk of contracting certain diseases.
  6. Nature of their occupations: Are most employees in roles that predispose them to elevated risks?  A corporation which employs mainly technicians who are exposed to dangerous chemicals would have different requirements than one which only employs office workers in administrative roles.

Where possible, any corporation would want to choose protection that provides the widest coverage, least limits and highest limit levels.  However, these come at a cost which may exceed a corporation’s budget thus requiring it to consider trade-offs that would allow it to better manage the cost it can afford to pay.  These may include the following:

  • Reducing the scope of coverage obtained:
  • Accepting imposition of more limits;
  • Choosing lower limit levels; and
  • Agreeing to more deductibles and/or co-payments and impacted access to network providers.

Takeaway notes !

Whilst affordability is a key factor of consideration, corporations should not disregard the effects and consequences of medical inflation. It has been projected in the Mercer Marsh 2020 Medical trends report that the medical trend in recent times outpaced general inflation by almost three times. It also shared that the average global medical trend rate in 2020 was almost double digit at 9.5% with Europe at 7.5% and Asia at 10.7%.  To illustrate simplistically, a policy with an annual limit of $1,000,000 will have the money value of this limit reduced to approximately $900,000 by the following year.

Hence, a corporation which has conducted in-depth evaluation of its needs and is aware of its risk profile is better equipped to balance these with what its budget can afford to cover.  With knowledge of the risks it faces, it may choose to be more prudent and pay more to have the security of adequate coverage and limits.  The flip side is bearing the additional risks and being prepared to incur additional expenses should losses exceed policy limits.

The Henner Group is a leading expert in designing and implementing health plans, tailored to your needs. If you have any questions or would like to know more about Henner Plan, please do not hesitate to get in touch! We will be happy to assist you.

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