Correcting the record

The conclusions in “The increasing inefficiency of private health insurance in Canada”1 about the trends in medical loss expense ratios for insured supplemental health benefit plans are incorrect and ultimately misleading.

The data used in this article1 are aggregate-level data for group and individual benefits in Canada. The data includes a disparate set of coverages that have different market drivers. The loss ratios vary greatly for each set of coverages, as do their historical trends.

Broadly, the group benefits business can be broken into two areas: supplemental health insurance plans (e.g., drugs, dental, travel, paramedical, vision, hospital rooms) and income replacement (i.e., short and long-term disability) and other nonmedical coverages (e.g., creditors disability insurance, critical illness).

Loss ratios for specific coverages can vary substantially from year to year. I can confirm that the average medical loss ratio for insured supplemental health insurance plans between 1997 and 2012 was 85%, with the medical loss ratio coming in at 82% in 2012. The medical loss ratio for supplemental health benefit plans over this period has been relatively flat.

The negative trend in the aggregate-level data that is highlighted in the article1 is being driven by the income replacement and other nonmedical expense coverages. Income replacement coverages (the largest component) have experienced a decreasing loss ratio over this period. These benefits are paid over many years and are funded by premiums collected and investment income earned on the assets purchased with the premium. The decreasing loss ratio is in part due to an increasingly larger portion of the benefit being funded by premium rather than investment income as a result of the falling and sustained low-interest rate environment in Canada over that period.

The private health insurance industry is highly competitive, with over 25 insurers providing group health benefits. Should a client feel that a proposed premium adjustment is unwarranted at his plan’s renewal date, the client can negotiate with the insurer or transfer his business to a new insurer.