Prospective 2018

At the beginning of this new year, let me take you through a short forecasting exercise for our business in 2018 and beyond. When looking at social protection, we’ll concentrate both on the “long-term” and the “short-term,” and examine what pro-active measures can be taken in anticipation of things to come.

Long-term is what is driven by profound changes such as trends in demographics or science and technology, whereas short-term is the effect of year-on-year regulatory adjustments aimed at accompanying, correcting and even sometimes (often without success) countering these trends.

For example, life expectancy in France is still at a record level, contrary to that of our North American cousins, which has declined for the second year in a row. Life expectancy much later in life is rising rapidly, mainly since medical research has concentrated on these market segments. The natural, ever-increasing demand for medical treatment is putting a strain both on healthcare and retirement pension systems.

How can the ever-growing expenses for healthcare be divided equitably?

  Contrary to common belief, the share of healthcare expenses borne by the State systems in France has been growing in absolute terms but remains stable in percentage terms (76 to 77% over the last ten years). Each year, Social Security covers 91% of hospital expenses, 64% of the cost of visits to a doctor’s surgery and 62% of medicinal expenses (medicines, optical appliances, etc.)

Efforts by politicians to reduce the copay borne by people in employment are clearly set to continue. These efforts have resulted in several measures that have met with mixed success:

The widespread resort to complementary healthcare insurance schemes with a minimum contribution by employers of 50%. This has been largely successful despite some miscalculations in terms of scheme management and let-out clauses.

The introduction of responsible policies so as reduce fee overruns, something which is enormously complicated and has resulted, in fact, in higher copays on fee overruns, especially when admitted to hospital.

Making Direct Payment (by the insurer) the general rule, a measure that has been postponed and probably shelved.

‘Zero copay’ has been announced for optical, dental and hearing-aid items by end 2018. This flagship measure can only be put into effect if there is widespread use of healthcare professionals networks. Use of networks would enable such an objective to be met in the following areas:

Optical (and hearing-aid) appliances using existing ‘zero copay’ schemes on certain products and services.

Dental care with the implementation of the new national denture agreement combined with accredited practitioner centres.

At the same time the terms and conditions for cover could well be changed so as to concentrate on a “basket” of optical covers. Things are still up in the air.

All this should put the spotlight on a much-forgotten financial equation in the field of healthcare: productivity and cost savings.

Preparing for the digitisation of medicine.

There have been numerous start-ups launched e.g. making it easier to make an appointment with the doctor. In addition, teleconsultation can often save a trip to the doctor’s surgery or the hospital. Getting a second medical opinion can also avoid an unnecessary operation or lead to a revised diagnosis.

“Digital” solutions for medical appliances will also take off rapidly: glasses sold over the Internet based on the pupillary distance (PD) set out in the prescription or designing dentures in 3D. The widespread use of such technology should enable significant cost savings.

The State should do its bit by implementing deployment of Electronic Health Records (in French DPM – dossier médical personnel). So far DPM’s are only used in 9 French departments. DPM’s would certainly improve productivity and medical secrecy! Many insurers and start-ups would love to organise, process and sell such healthcare records. The race is on.

What will pensions be like in the future?

Demographics in France also raises the issue of retirement incomes, especially when long-term care is needed. Successive governments have so far not laid down a legal and tax framework for this. In any event, it is most important for people to make a realistic assessment of what pension income they will have and take the right decisions (aggregation, voluntary additional contributions, own savings, etc.). Nowadays, when calling for tenders on some pension schemes, we add a budget item for retirement income projections using digital tools.

As regards retirement pensions, the current French president, during his election campaign, promised to bring together the forty or so State schemes into one “universal” system. This would be a single scheme whereby each Euro in contributions would guarantee the same rights for all, preferably using a points system. The bill is due to be presented to parliament at end 2018, which should enable political discussions to commence in January until March. Whereas previous governments sought to limit the political impact by making semi-automatic changes to scheme “parameters”, the current approach is much more ambitious. It should be noted that already in 2017, the decision was taken to merge the non-management and management second-tier schemes (AGIRC and ARRCO) and take over the scheme for independent workers (RSI) together with their reserves.

By the same token, the issue of second-tier (complementary) healthcare insurance during retirement, which arouses little interest during one’s working life, becomes a major issue due to the duration of cover and the place it occupies in a retired person’s budget.

The government decree that took effect in July 2017 putting in place ceilings of 100%, 125% and 150% of premiums for retired people, is clearly an example of short-term political interference in a long-term issue. The underwriting break-even point for a healthcare policy at age 65 is around 170% of the premium for younger people. This regulation is complicated in implementation and has caused insurers to increase (or disconnect) premium rates after four policy years. What can we do? First, provide information. Lead future retirees to understand that they should concentrate cover on what is necessary and not expect the same cover as working people “at any cost”. Obviously some large to medium size companies have healthcare schemes specially for “retirees”. We have also observed that some companies are considering schemes for assuming part of the cost of complementary healthcare cover for employees after retirement.

For personal protection covers, apart from the modifications to policies required by changes to net salary as of early 2018, the long-term trend towards increased absenteeism and how this breaks down by socio-economic category, raises the issue of how to adapt work incapacity covers, under the social contract, to changes in social values.

Requesting follow-up medical certificates – and the suspension of cover if no response – has become market practice. Early in 2018, the last remaining reticent insurance bodies finally moved over to this system, which has now become the norm. The income support scheme for job seekers (In French Aide au Retour à l’Emploi) is being progressively rolled out. The financial conditions for eligibility remain to be tightened up and this will trigger some hard negotiating.

At the beginning of this new year, let me take you through a short forecasting exercise for our business in 2018 and beyond. When looking at social protection, we’ll concentrate both on the “long-term” and the “short-term,” and examine what pro-active measures can be taken in anticipation of things to come.

Long-term is what is driven by profound changes such as trends in demographics or science and technology, whereas short-term is the effect of year-on-year regulatory adjustments aimed at accompanying, correcting and even sometimes (often without success) countering these trends.

For example, life expectancy in France is still at a record level, contrary to that of our North American cousins, which has declined for the second year in a row. Life expectancy much later in life is rising rapidly, mainly since medical research has concentrated on these market segments. The natural, ever-increasing demand for medical treatment is putting a strain both on healthcare and retirement pension systems.

How can the ever-growing expenses for healthcare be divided equitably?

  Contrary to common belief, the share of healthcare expenses borne by the State systems in France has been growing in absolute terms but remains stable in percentage terms (76 to 77% over the last ten years). Each year, Social Security covers 91% of hospital expenses, 64% of the cost of visits to a doctor’s surgery and 62% of medicinal expenses (medicines, optical appliances, etc.)

Efforts by politicians to reduce the copay borne by people in employment are clearly set to continue. These efforts have resulted in several measures that have met with mixed success:

The widespread resort to complementary healthcare insurance schemes with a minimum contribution by employers of 50%. This has been largely successful despite some miscalculations in terms of scheme management and let-out clauses.

The introduction of responsible policies so as reduce fee overruns, something which is enormously complicated and has resulted, in fact, in higher copays on fee overruns, especially when admitted to hospital.

Making Direct Payment (by the insurer) the general rule, a measure that has been postponed and probably shelved.

‘Zero copay’ has been announced for optical, dental and hearing-aid items by end 2018. This flagship measure can only be put into effect if there is widespread use of healthcare professionals networks. Use of networks would enable such an objective to be met in the following areas:

Optical (and hearing-aid) appliances using existing ‘zero copay’ schemes on certain products and services.

Dental care with the implementation of the new national denture agreement combined with accredited practitioner centres.

At the same time the terms and conditions for cover could well be changed so as to concentrate on a “basket” of optical covers. Things are still up in the air.

All this should put the spotlight on a much-forgotten financial equation in the field of healthcare: productivity and cost savings.

Preparing for the digitisation of medicine.

There have been numerous start-ups launched e.g. making it easier to make an appointment with the doctor. In addition, teleconsultation can often save a trip to the doctor’s surgery or the hospital. Getting a second medical opinion can also avoid an unnecessary operation or lead to a revised diagnosis.

“Digital” solutions for medical appliances will also take off rapidly: glasses sold over the Internet based on the pupillary distance (PD) set out in the prescription or designing dentures in 3D. The widespread use of such technology should enable significant cost savings.

The State should do its bit by implementing deployment of Electronic Health Records (in French DPM – dossier médical personnel). So far DPM’s are only used in 9 French departments. DPM’s would certainly improve productivity and medical secrecy! Many insurers and start-ups would love to organise, process and sell such healthcare records. The race is on.

What will pensions be like in the future?

Demographics in France also raises the issue of retirement incomes, especially when long-term care is needed. Successive governments have so far not laid down a legal and tax framework for this. In any event, it is most important for people to make a realistic assessment of what pension income they will have and take the right decisions (aggregation, voluntary additional contributions, own savings, etc.). Nowadays, when calling for tenders on some pension schemes, we add a budget item for retirement income projections using digital tools.

As regards retirement pensions, the current French president, during his election campaign, promised to bring together the forty or so State schemes into one “universal” system. This would be a single scheme whereby each Euro in contributions would guarantee the same rights for all, preferably using a points system. The bill is due to be presented to parliament at end 2018, which should enable political discussions to commence in January until March. Whereas previous governments sought to limit the political impact by making semi-automatic changes to scheme “parameters”, the current approach is much more ambitious. It should be noted that already in 2017, the decision was taken to merge the non-management and management second-tier schemes (AGIRC and ARRCO) and take over the scheme for independent workers (RSI) together with their reserves.

By the same token, the issue of second-tier (complementary) healthcare insurance during retirement, which arouses little interest during one’s working life, becomes a major issue due to the duration of cover and the place it occupies in a retired person’s budget.

The government decree that took effect in July 2017 putting in place ceilings of 100%, 125% and 150% of premiums for retired people, is clearly an example of short-term political interference in a long-term issue. The underwriting break-even point for a healthcare policy at age 65 is around 170% of the premium for younger people. This regulation is complicated in implementation and has caused insurers to increase (or disconnect) premium rates after four policy years. What can we do? First, provide information. Lead future retirees to understand that they should concentrate cover on what is necessary and not expect the same cover as working people “at any cost”. Obviously some large to medium size companies have healthcare schemes specially for “retirees”. We have also observed that some companies are considering schemes for assuming part of the cost of complementary healthcare cover for employees after retirement.

For personal protection covers, apart from the modifications to policies required by changes to net salary as of early 2018, the long-term trend towards increased absenteeism and how this breaks down by socio-economic category, raises the issue of how to adapt work incapacity covers, under the social contract, to changes in social values.

Requesting follow-up medical certificates – and the suspension of cover if no response – has become market practice. Early in 2018, the last remaining reticent insurance bodies finally moved over to this system, which has now become the norm. The income support scheme for job seekers (In French Aide au Retour à l’Emploi) is being progressively rolled out. The financial conditions for eligibility remain to be tightened up and this will trigger some hard negotiating.

We have a number of interesting years of discussion and progress ahead of us…so watch this space!

We have a number of interesting years of discussion and progress ahead of us…so watch this space!