I am no insurance whiz-kid, but, no doubt, it is a fascinating area. I find the field of actuarial science very interesting because of the way it borrows from multiple disciplines like mathematics, finance and economics. And, in many cases, some great application of behavioral economics too.
I was discussing a company’s employee benefits package with a group of people the other day. Specifically, I found their health insurance program very intriguing and couldn’t help chuckling about it.
This company is based in Singapore and has a self-administered health insurance plan i.e. the company doesn’t buy group insurance for the employees from the market, but instead provides health benefits to employees from it’s own funds. In Singapore, the medical system typically works in the following way:
- You have a health problem. You can go to a local clinic where a General Physician (GP) will try to diagnose the problem, conduct tests and suggest appropriate medication.
- If the GP’s treatment solves the problem, you are fine.
- In case the GP feels that you need to seek specialized medical advice & treatment, they would refer you to a Specialist doctor in one of the hospitals and then the patient has to take it forward from there.
- Needless to say, specialized medical care is more expensive than GP services.
The insurance plan of the organization I was talking about, reimburses 80% of the total medical expenses, if you go to the GP. And, it reimburses 70% of the total medical expenses, if you need to see the Specialists after the GP consultation. So, effectively, if you have bigger health problems, there is a lower percentage of reimbursement. One could look at this benefit structure as the company’s way to manage risks i.e. not making itself liable for higher payouts for medical bills of employees with relatively more complicated health problems. But, to me, there is a more subtle message in here. I also sense that this is a small, gentle incentive for employees to pay attention to their health and stay healthy. It is almost akin to having a small penalty if you have slightly complicated health problems.
The economics of incentives continue to fascinate me!