Out-of-country coverage facing increased scrutiny

Business travellers, retirees risk losing health coverage in new era

Globalization has meant that out-of-country travel, once seen as unusual, has become an everyday part of doing business for many organizations.

Meanwhile a significant transformation has hit the insurance industry, where demutualization of most Canadian life insurers has led to a more profit-driven culture as insurers strive to meet shareholder demands.

These new realities have plan sponsors and insurers looking for ways to balance the need of employees and retirees for suitable out-of-country health coverage with the business need to contain costs and manage risk. That’s quite a change from how things used to work.

In the mid-1970s, the Canadian dollar was stronger and at par with the American dollar. Depending on the province, the public health-care system covered from 50 per cent to 70 per cent of emergency out-of-country health-claim costs. At that time, health insurance plan costs were not material business expenses and emergency out-of-country claims represented no more than one per cent of those costs.

As a result group insurance companies readily agreed to extend employers’ health insurance coverage for short-term business assignments and regular business travel, as well as for vacations outside Canada. Most group health insurance plans automatically provided 180 days of coverage outside Canada simply because that was the maximum duration allowed for maintaining Canadian residency status.

At the same time, many employer-sponsored plans did not continue health insurance coverage into retirement.

Fast-forward to 2004, and it’s quite a different picture. While most group health plans still cover emergency hospital and medical costs arising outside Canada, the public health-care system covers only about 10 per cent to 25 per cent of such claim costs.

Although the Canadian dollar has managed to move up in recent months, it is still 25 per cent below the U.S. dollar. When compared with their parents’ generation, baby boomers are retiring with much more disposable income — perhaps not as much as they had in the late 1990s, but still a healthy amount.

Many employers have extended health insurance plans to provide coverage into retirement. Most of the health plans covering retirees have evolved from the plans they had as active employees. Accounting standards governed by the Canadian Institute of Chartered Accountants are now in place. These standards require plan sponsors to quantify the liability for their post-retirement benefit promises.

Because there is more business travel, out-of-country emergency medical claims represent as much as eight per cent of health plan costs for some retiree groups.

The marketplace

The marketplace has hardened for both pricing and coverage. In the last five years, many group insurance programs have imposed significant premium increases to pool out-of-country claims. At the same time, many insurers also tightened contractual provisions for emergency out-of-country coverage. While the limitations and exclusions applicable to health insurance plans are increasing, communication of these changes to employers and employees has been poor.

The protracted economic downturn and new accounting standards have helped plan sponsors focus on the “benefits promise” in the context of business needs. Plans sponsors are asking themselves if it is necessary to have extended health insurance coverage outside Canada. After all, an active employee can, at most, take six weeks’ vacation. Is it fair to privilege retirees by extending out-of-country emergency health-care coverage for up to 180 days?

Different coverage for different needs

The increasing prevalence of group health plans specifically designed to cover expatriates — employees who go on assignment for more than a year, generally accompanied by their families — is helping sensitize employers to the fact that trying to make “regular” group health plans serve this role is no longer appropriate.

Plan designs for out-of-country coverage should reflect the various groups of employees covered by them. Separate coverage standards make sense for:

•“regular” active employees, who can take only six weeks’ vacation, at most, in a year;

•employees who travel on short-term business trips and require full coverage at all times;

•employees who work on assignment outside Canada for less than a year and need comprehensive emergency health insurance coverage at the very least. In these instances, family members often remain in Canada, particularly if there are school-aged children;

•expatriate employees, and their families, who need comprehensive coverage to meet daily health insurance needs while they are away (emergency-only coverage is not enough);

•“regular” retirees who take vacation in the same manner as active employees; and

•“snowbirds” — those who often spend three to six months out of the country, often in the United States, for personal reasons.

Managing the risk

Since many emergency out-of-country health claims are catastrophic in nature, employer-sponsored plans generally have a pooling mechanism in place to manage the risk. In these instances, the insurers often assume a significant portion of the risk.

With recent world events, it is inevitable that insurers will ultimately introduce a “prudent risk management” approach along with more restrictive clauses for emergency out-of-country benefits. To name a few:

•benefit maximums may be reduced for emergency out-of-country claims;

•travel time limits may be shortened to no more than 60 days and a mandatory minimum stay in Canada may be introduced before the insured can be covered for the next trip;

•pre-existing medical conditions may be excluded to the extent that medical assistance is foreseeable or the condition is chronic in nature, including mental, nervous and emotional disorders;

•tardiness in notification of out-of-country claims may result in reduced or denied benefits;

•non-compliance with the assistor’s recommendations to repatriate the claimant to the home country may absolve the insurer from liability;

•war, riot and terrorism exclusions may be strengthened and expanded;

•“dangerous” recreational sports may be excluded from more plans; and

•countries or regions for which the Canadian government has issued a travel advisory may not be covered.

Pre-existing conditions

There has been a move by many insurers to exclude or severely limit their liability for claims due to pre-existing conditions. This should be a particular concern for plan sponsors. Employers have a business to run and employees are increasingly required to travel out of the country to do their job.

This is not an issue of anti-selection. Privacy and confidentiality laws limit the employer’s ability to screen employees for medical conditions. In fact, an employee may try to hide it from the employer in the event it compromises his career development opportunities. Employees and their employers must have full coverage for regular business travel. On the other hand, if the cost of claims for pre-existing medical conditions is or becomes material, then coverage for non-business travel should be discretionary.

In the same vein, retirees often encounter problems with the individual top-up plans offered by some insurers to snowbirds — retired employees who spend three to six months a year out of the country, usually in the southern U.S. Top-up plans typically provide out-of-country coverage after the period (often 45 to 60 days) covered by the employer’s group insurance plan runs out.

A snowbird who claims for a condition that arose during the period covered by the group insurance plan for out-of-country health care may be declined coverage for the same condition under the top-up plan. This is because under the top-up plan the condition is considered pre-existing, even though the snowbird did not have it when leaving on the trip.

This contract limitation is inevitably discovered the hard way when retirees learn they do not really have the coverage they thought they had purchased. Top-up plans will need to be better co-ordinated with the underlying employer-sponsored plans providing out-of-country coverage. Otherwise travelers can be left financially high and dry.

The onus is on the plan sponsors to make sure their employees and retirees understand the implications of the limitations and exclusions in their out-of-country coverage. The onus is also on travellers to do their homework prior to leaving the country.

At the same time, the insurance industry needs to be responsible and transparent in dealing with these issues and ensure the needs of clients are met — particularly for short-term business travel situations that are increasingly a part of everyday life for many individuals.

Margaret Sim and Liam Dixon are consultants in the health care and group benefits practice at Mercer Human Resource Consulting in Montreal. For more information contact [email protected] or [email protected]

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