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Hospital cash plan abuse is growing

25 June 2013 Fiona Zerbst
Fiona Zerbst, FAnews Online Editor

Fiona Zerbst, FAnews Online Editor

Life insurers are considering the impact of the rise in fraudulent claims made on hospital cash plans – and if the abuse escalates they may have to get tough on the many, because of fraud committed by the few. Consumers could face raised premiums or the

“From an industry point of view, there are a large number of these products on the market, and if abuse levels continue growing then insurers will want to put steps in place to deal with the problem,” says Dempsey. “When it comes to new policies, it’s possible to put in cancellation clauses at inception. Of course these have to be exercised by the insurer in a fair and reasonable way.”

ASISA fraud statistics show that hospital cash plan fraud is a growing problem in South Africa. In 2011 ASISA members detected 549 cases worth R4 million. In 2010 some 649 cases were detected worth R12.6 million.

Hospital cash plans becoming more popular

With about 50 000 new policies sold every month, it’s clear that the hospital cash-plan market is growing, and it’s not hard to see why – the products do allow consumers to alleviate the financial burden of being hospitalised, particularly if they are self-employed or stay-at-home parents. The extra cash can cover medical bills that aren’t covered by a medical-aid scheme, for example.

According to a review of the South African hospital cash plan market commissioned last year by the FinMark Trust, there are between 1 million and 1.5 million hospital cash plans that provide cover to about 2.4 million people.

A hospital cash plan is a policy that starts paying you a daily cash amount for every day spent in hospital. The benefit is usually payable after day two or three of your stay in hospital, depending on your policy contract.

“Unfortunately we have seen a consistent increase in fraudulent claims where doctor and hospital administrator collusion is helping dishonest policyholders make claims they are not entitled to,” says Dempsey, who believes there may be scams that allow people to claim from cash-plans with several different insurers. Patients are hospitalised for minor conditions and kept in hospital for much longer than necessary.

Claims cannot be declined

Dempsey says some policyholders may be using the cash to pay school-fees or pay off debt – there is a clear pattern of hospitalisation around the time school-fees fall due, for example – but others may just be trying to blatantly enrich themselves.

With a hospital cash plan, the policyholder is admitted to hospital first and then makes the claim once released. Even if a doctor hospitalises the policyholder for flu, the insurer cannot decline the claim – the patient has been hospitalised, whether this was necessary or not, and this is what matters.

“Hospital cash plans are easy-to-understand products designed to help consumers cope with unexpected expenses as a result of being admitted to hospital. Unfortunately the simplicity of these products leaves them wide open to abuse,” he says.

Judge Brian Galgut, the Long-term Insurance Ombudsman, comments in his recently released Annual Report for 2012 that many of the excessive hospital cash plan claims appear to be part of an organised scam. In one particular case, a policyholder had claimed for 10 hospital stays totalling 71 days over a period of two years. The reasons included flu and other medical conditions that do not normally require a hospital stay.

What brokers can do

Unfortunately, because brokers are not involved at claims stage, they will not know about the abuse – but they are first in line when selling these policies and they can play a role by emphasising that these products are safety nets and clients should use them only when they really need to do so or face having no cover. Consumer education is important, says Dempsey.

Cancellation clauses may not be a bad thing, either, because brokers could then emphasise that consumers could be left entirely without cover if they abuse these plans.

Dempsey says it is imperative, however, that such a cancellation clause is contained in the contract at inception and that the decision to cancel a policy is exercised in a reasonable manner. “Important for policyholders is that a decision to cancel the policy can be challenged and that the Long-term Ombudsman has the power to overrule the decision of an insurer to cancel a policy,” he says.

Editor’s thoughts:
As is so often the case with insurance, the fraudulent behaviour of a few could jeopardise the rights of the many – affordable cover and financially viable products may be threatened. One wonders if there is a role for whistle-blowers here: Dempsey says people often brag about scoring off the system, so it may be appropriate to introduce this, especially where collusion among doctors, hospital staff and policyholders exists. Do you think whistleblowing would be a good idea? Comment below or email fiona@fanews.co.za.

Comments

Added by Sipho Sibeko, 10 Jul 2013
Interesting take by Michael Jordan, and one can not argue the logic. I wonder though, what would be the difference between the redesigned product and a traditional medical aid hospital plan?
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Added by Michael Jordan, 09 Jul 2013
For a risk to be insurable it needs to fit the following criteria 1. It needs to be financially quantifiable 2. The claim payment must be close to the size of the loss 3. The person insured must have an interest in the risk not happening. Hospital Cash Plans fail to meet these criteria. This has opened the door to moral hazard and fraud. If these contracts were redesigned then there wouldn't be a need for whistle blowing. How to redesign this product. 1. Introduce an excess. This means the policyholder pays the first part of the claim and only if it is above a certain limit will the insurance pay the rest. This gives the person insured an interest in the risk not happening. ie they will only go to hospital if they need to. 2. The benefit must relate to the size of the loss. Instead of paying a fixed amount depending on the amount days you spend in hospital to the policyholder, pay the hospital directly for the expenses occurred. This way the policyholder can't use the money to pay school fees and hopefully the fraud should be reduced. There are many ways to reduce fraud. At the moment the cost of implementing these tools to mitigate the fraud is probably higher than the fraud itself.
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Added by Kenny Williamson, 25 Jun 2013
Definitely, there has been a trend amongst people on med schemes and insurance to brag about their bucking the system. I have heard comments for over 20 years. I definitely agree that whistle blowing should be supported... even if rewarded. This costs schemes so much money and is plain and simply fraud. The culture of this needs to be changed and it starts with the small things.!
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Added by Cynical Simon, 25 Jun 2013
The solution offered by Dempsey certainly is interesting;if nothing else///!! Leave it to the Brokers.Education not conversion is what criminals need!
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