Hospital cash plan abuse is growing
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 [email protected].
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