Life insurers could soon impose tough measures on hospital cash plan policyholders if fraudulent claims continue to escalate. The companies argue that this is necessary to protect the viability of these products. According to Peter Dempsey, deputy CEO of the Association for Savings and Investment South Africa (ASISA), these measures could include raising premiums, introducing standard cancellation clauses and even stopping hospital cash plans completely.
A hospital cash plan is a policy that pays clients a daily cash amount for every day spent in hospital. The benefit usually kicks in after day two or three of a stay in hospital depending on the wording of the 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.
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 in existence, providing cover to around 2.4 million people. The review found that the market is growing rapidly with an estimated 50 000 new policies sold every month.
Simplicity leads to abuse
Dempsey says life insurers have come across cases where patients being treated for minor conditions are kept in hospital for much longer than needed, enabling them to claim from a number of hospital cash plans with several different insurers. “While some of these cases were spurred by desperation where the money was needed to repay debt, in many other cases the goal was blatant self enrichment.”
Dempsey explains that even if a doctor hospitalises the policyholder for flu the insurer cannot decline the claim, because the patient had been in hospital, whether this was necessary or not. “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.”
An escalating problem
ASISA’s statistics show that hospital cash plan fraud is a growing problem in South Africa. In 2011 ASISA members detected 549 cases worth R4 million while in 2010, 649 cases were confirmed worth R12.6 million.
The Long-term Insurance Ombudsman noted in his recently released Annual Report for 2012 that many of the excessive hospital cash plan claims were part of an organised scam. One 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 hospitalisation. The Ombud said that the impact of these excessive claims will no doubt lead to an increase in premiums for this type of policy.
Life insurers could cancel policies
To combat this increase in fraud some life insurers have started including cancellation clauses in their hospital cash plan contracts. “If fraudulent hospital cash plan claims are being submitted or if a policyholder is claiming excessively as per the example published in the Annual Report for the Office of the Long-term Ombudsman, cancelling the policy of that policyholder is a fair and effective way of protecting honest policyholders from premium increases, provided the contact had a cancellation clause in at inception,” says Dempsey.
Dempsey adds that it is imperative 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.”
Dempsey is encouraging members of the public to tip off life insurers should they come across collusion attempts by doctors, hospital staff and policyholders that may result in fraudulent claims on hospital cash plans.