Possible health insurance loophole

Many Cayman Islands health insurance providers are reducing maximum lifetime benefits on some of their policies for retirees and other older people, which two former legislators say was not the intention of the law.

Bill Rewalt, a former insurance industry professional in the Cayman Islands and Bermuda, said his maximum lifetime benefit on his health insurance policy with British Caymanian was reduced from $1 million to $250,000 once he turned 65 years old.

Section 10 of the Health Insurance Regulations sates that under the Standard Health Insurance Contract 1, health insurance providers ‘shall not be liable to pay on behalf of each compulsorily insured person… during the life of the insured, more than $1,000,000 in medical fees’.

However, Mr. Rewalt said insurers have found a loophole in the regulations because of the way the section is worded.

‘The intention of the law is for lifetime benefit to be a million bucks and that’s the end of it,’ he said. Mr. Rewalt was a member of the advisory committee that helped draft the original Health Insurance Law and Regulations back in the early 1990s, so he says he knows what the intention of the law was. Mr. Rewalt believes it was a ‘serious drafting error’ in the Regulations that caused the loophole.

British Caymanian Health Insurance Division Manager Geoff Scholefield disagrees that there is a drafting error.

Mr. Scholefield pointed out that British Caymanian does not reduce the lifetime benefits of the Standard Health Insurance Contract 1, as stated in Section 10 of the regulations, irrespective of a person’s age.

‘This section commences by establishing it applies to the Standard Health Insurance Contract 1 only,’ he said.

However, BritCay also sells a supplemental health insurance plan that comprises two parts, the SHIC 1 plan as a foundation plus a supplemental benefits plan on top of that. That supplemental benefits plan is subject to a reduction of the lifetime benefit from US$2 million to US$250,000 when a person reaches the age of 65, Mr. Scholefield said.

‘This does not reduce, nor remove, the Standard Health insurance contract 1 benefits for the insured.’

Mr. Scholefield said BritCay automatically switches its policyholders over to the SHIC 1 plan when they reach the maximum benefit limit under the Premier Health Insurance Plan.

Benefits under SHIC1, however, have been highly criticised for being inadequate, in particular because of a $25,000 maximum coverage for each episode of illness.

Mr. Rewalt said that certain medical conditions, like the one that requires kidney dialysis treatments, become listed as an individual episode of illness under the SHIC 1 plan because there is no break in treatments. Reducing the maximum lifetime benefits of a plan like BritCay’s Premier Health Insurance Plan thus leaves older people with serious medical conditions in a bind.

Two of Cayman’s former Health Ministers, Ezzard Miller and Gilbert McLean agree with Mr. Rewalt that Section 10 of the regulations should have applied to all health insurance contracts, not just SHIC1.

‘It was never the intention of the law,’ said Mr. McLean, who put forward the 2005 revisions to the Health Insurance Law and Regulations. ‘[The regulation] was supposed to apply to all of the policies.’

Mr. Miller, who was the Executive Council member responsible for first bringing the Health Insurance Law to the house in 1992, agreed.

‘It was certainly not the intention of the law that I drafted,’ he said. ‘The law was meant to establish a minimum level of insurance, below which could not be sold in the Cayman Islands.’

Mr. Miller said he’s known about the drafting error for some time and that he’s made the government and Health Insurance Commission aware of the problem.

Mr. Rewalt also brought the matter to the attention of Superintendent of Health Insurance Mervyn Conolly more than two years ago.

Mr. Conolly, however, said he could not comment on whether there is a loophole in the Regulations or not.

‘Research is in progress and advice is being sought,’ he said, adding that the matter was being reviewed by the Health Insurance Commission Board and the Ministry of Health.

BritCay is not alone in reducing the lifetime benefits of its supplemental health insurance above SHIC 1 when a policyholder reaches a certain age, Mr. Rewalt said. According to Ravi Kapoor, marketing manager for Sagicor General, most of the health insurance companies have adopted the practice.

‘Ours is the only one that does not,’ he said. Sagicor has actively started advertising the fact it does not reduce lifetime benefits on its plans above the SHIC 1 plan.

While Generali Worldwide Insurance does not reduce its lifetime benefits on its better policies, it only offers coverage on these policies up to an age of 70, after which the policyholders are transferred to the SHIC 1 plan.

Mr. Rewalt thinks the practice of reducing lifetime benefits of older people is wrong.

‘When you’re over 60, that’s when the benefits are most needed,’ he said. ‘That’s not what group insurance is about. In group insurance, you take from the young and give to the old.’

Because of the limitations of SHIC 1, many older people who have their lifetime benefits reduced in better plans or are transferred to the SHIC 1 plan automatically upon reaching a certain age, turn to the government’s insurance provider CINICO for coverage. CINICO, as a result, has an inordinate amount of high-risk policyholders – including uninsurable people – and government has to subsidise its operation significantly. Mr. Rewalt suggested the private insurance companies are basically dumping the responsibility of the elderly on the government.

‘Ultimately, government is going to be responsible,’ he said.

Jennifer Williams, director sales, marketing and health programmes for Generali Worldwide, said the issue was not just one for the insurance companies.

‘There is a difficult balance that has to be achieved in terms of mandated coverage levels; the balance between what’s needed by the community, what can be sustained by the business model of a private company, and what can be paid for by the individual and employer,’ she said. ‘Government, business, employers and employees have to work together to strike this balance and determine what the mandated healthcare model should look like so it serves to cover the broad range of health issues while being financially sustainable for all parties.’

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