CHOOSING THE RIGHT CURRENCY for Group expatriate healthcare plans

Transcription

1 Healthcare Focus by Henner CHOOSING THE RIGHT CURRENCY for Group expatriate healthcare plans This study was carried out by Henner on a portfolio of Henner clients in Henner manages 47,000 families, i.e. 110,000 beneficiaries, on Group international plans in 180 countries generating 153 million in premiums and 134 million in claims in A third of companies listed on the CAC 40 have entrusted Henner with their expatriate plans.

2 TABLE OF CONTENTS Managing currency risk Each currency is unique: Currency of cover Payment currency Currency for premiums Currency of expenses Currency of reporting CONTACTS

3 Managing currency risk For expatriate and multi-country healthcare plans, several currencies are used: the currency used to define the level of cover, the currency used for payment of premiums, the currency of the member s or provider s expenses (for direct settlement), the currency used for reimbursement and even the currency used to report the technical and financial aspects of the plan. During the reporting phase: quantify the real impact of currencies in terms of technical results, expenses, and patient contribution, and adapt them to suit the contract if necessary. Distribution of beneficiaries by zone For these types of plans, currency fluctuations can have various effects. Employers who understand currency risk can adapt the plan to suit their needs and manage the associated risks. 22% 15% 10% 7% Managing currency risk: Upon creation of the contract: analyse the population and their needs to choose the right currency for cover and premiums. Throughout the life of the contract: track currency changes, exposure, and anticipate the impact of the main currency fluctuations. Europe Asia - Pacific Africa 46% America Middle East Each currency is unique The currency of cover This refers to the currency used to define the limit of cover for each item (consultation, maternity, etc.). In almost all countries, healthcare providers are paid in the national currency, with a few exceptions: Countries with currencies that fluctuate strongly (e.g. Venezuela, Zimbabwe) which may use the dollar instead. Countries whose currency is pegged to another, stronger currency. The stronger currency is accepted (usually the USD or the EUR, e.g. CFA, United Arab Emirates) Countries that accept foreign currencies (e.g. Russia, Thailand, Turkey) for various reasons (weak currency, tourism, etc.). There are two main approaches: Uniform cover throughout the world: a single limit regardless of the country. If the limit is too high, it results in excessive costs, while if it is too low, the member is obliged to pay considerable amounts out of pocket. For this approach, the cover is listed in the currency used to pay premiums. Cover by country or region with similar levels of costs, which avoids abuse and allows for better management of excessive medical expenses. For this approach, either the local currency, or the currency of the zone (e.g. dollar or euro zone) for cover. 3

4 E.g. The impact of exchange rate fluctuations Take for instance a 100 limit on consultations for treatment in the United States: Date 01/01/ /01/ /01/ /01/2017 Cover $137 $121 $109 $105 The amount covered, which remains the same in euros, has significantly dropped in dollars. The limit is reached more easily, which means the insured member s share of the expense is considerably higher. Similarly, one week after Brexit was announced (late June 2016), the pound fell by 10% compared to the euro. The limits of benefits in euros rose sharply, without any change in the cost of treatment in the UK, which could widen the gap between the cost in euros. Choosing a currency for benefits equal to the currency of the expense protects insured members against rises and fall in their share of the expense caused by currency fluctuation, and reduces the risk of fraud. Impact on the location of treatment When choosing the currency of benefits, the employer should first analyse the distribution of the expatriate population and the types of treatment it seeks. Country of treatment by country of expatriation United States Hong Kong 0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100% Most commonly, expatriates seek treatment in their country of expatriation or country of origin, which do not necessarily charge the same amounts or use the same currencies. France Singapore Switzerland China (excluding HK) Depending on the country of expatriation, members may prefer to seek treatment there if the quality of the healthcare is good (e.g. USA, Singapore, Hong Kong, Switzerland), or they may choose to return to their country of origin (e.g. certain African countries or Russia). United Arab Emirates United Kingdom Nigeria Angola Belgium Some contracts also allow expatriates to seek treatment in a nearby country (or region) providing good quality treatment, (e.g. Hong Kong for expats living in China). In some cases treatment may be sought in countries further away from the country of expatriation (United States for expats living in Nigeria or Angola in certain cases). Brazil Russia Qatar Country of expatriation Country of origin Other countries Henner s advice Use the currency of expense as the currency of benefits for the interests of members. That way you can list benefits in the local currency (or the currency of the zone, e.g. USD in Hong Kong) unless the proportion of treatment in country of origin is too high. 4

5 Payment currency This refers to the currency used to invoice payment. Several exchange rates can coexist within the same country, which can enrich members or healthcare providers. For instance, in Venezuela in 2015, a consultation costing VEF 2,100 could be reimbursed 300 or depending on the exchange rate used. The currency for premiums This refers to the currency used for invoicing and paying insurance premiums. A group can use more than one currency. There are several possibilities: Centralised vs local management: premiums are more commonly managed in a centralised manner. It is simpler from an administrative point of view. Local management allows subsidiaries to remain aware of the costs involved. Single vs local currency for premiums While a single currency is clearly simpler, it can have an effect on the financial results. If the currency of the expense is different from the currency for premiums, the financial results of the contract will be exposed to exchange risk. E.g. The impact of exchange rate fluctuations On a contract with premiums charged in euros and benefits paid in dollars, a 10% fall in the euro will have an adverse effect on the financial result because a consultation costing $100 will be reimbursed 88 instead of 80. This phenomenon can be reduced if the limits are listed in euros. In our case, if the consultation limit is 85, the three-euro difference will be paid for by the member. If the premium had been listed in dollars, the premiums would have increased as much as the benefits, so the financial result would not have been affected. However, the premiums converted into euros would have increased. Exchange rate fluctuations also affect imported medication and other healthcare items, which can result in cost differences, even in the local currency. In practice, expatriate plans are generally exposed to various currencies. The effects are therefore mitigated. Henner s advice To determine the premium, you need to take into account the various currencies used to settle expenses (based on the distribution of expenses in the each country) and the chosen management method. If there is a main currency of expenses, we advise you to choose that currency. If there are several, choose the main currencies for local management, and limit yourself to one or two currencies for centralised management. 5

6 Currency of expenses This refers to the currency used to invoice treatment. Because treatment is generally invoiced in the currency of the country, the distribution closely follows the currency of the country of treatment (with the special case of the euro which is used by multiple countries): Henner claims 2016 by country of treatment Henner claims 2016 by currency of expense 5% 5% 4% 3% 3%3% 2% 2%2% 12% 7% 4% 3%2% 2% 2%2% 17% 12% 23% 31% 19% 35% France Switzerland Euro Pound Sterling Other United Kingdom US dollar Emirati dirham United States United Arab Emirates Singapore dollar Angola kwanza Hong Kong Belgium Hong Kong dollar Yemeni rial Singapore Brazil Swiss Franc Brazilian real China Russia Chinese yuan/renminbi Take for instance three different companies that have the following currency profiles: Company 1: Company 2: Company 3: 100% 100% 100% 80% 80% 80% 60% 60% 60% 40% 40% 40% 20% 20% 20% 0% % % EUR USD HKD AED Other 6

7 Company 1: Large population in the United States and to a lesser extent in Hong Kong, with a decreasing level of expenses in France. Company 2: Large population in Asia (China and Hong Kong in particular) with an increasing share in United Arab Emirates. Company 3: Population spread around the world with a large proportion seeking treatment in France. NB: 1 The share of expenses in Hong Kong dollars and UAE dirham was also indicated, the two currencies being pegged to the US dollar for the period in question. 2 For company 2, the main currency of expenses in the other currencies is the Chinese yuan/ renminbi for an average 14% of the total of the period. The impact is in line with the relationship between the real benefits and simulation, supposing that the exchange rate remains fixed throughout the year (renewed on 1 st January every year). Currency impact on benefits 16% 14% 12% 10% 8% 6% 4% 2% 0% -2% -4% Client 1 Client 2 Client 3 Change USD/EUR over the year st observation: the impact depends on the distribution of the currencies of the expense. However, the impact is only partial on benefits owing to the expenses in euros and other currencies, even for company 1 which is significantly exposed to the dollar (USD, HKD and AED). 2 nd observation: the impact was greater in 2015 than in In 2014, there was a gradual decrease, whereas in 2015 the decrease mainly occurred in the 1 st quarter, affecting almost all the claims for that year. Henner s advice Regular monitoring of the contract profile (in particular the distribution of the population and its spending habits) is desirable in order to anticipate changes to the results. Major exchange rate fluctuations can be subject to impact analysis according to the contract profile, after which the benefits or premiums may be modified. 7

8 Currency of reporting This refers to the currency used to calculate the plan s profit and loss report and tracking indicators for claims. The date of conversion for premiums and claims can have a considerable impact on the result. For a balanced contract in dollars, if you convert premiums into euros on the date of payment of premiums, and claims on the date of receipt of the claims, the financial results will be equal to the difference of the exchange (whereas in reality, the premiums and claims were never converted into euros). E.g. For a contract with: premiums in January of $100 and a claim made in January and paid in March of $100 EUR/USD exchange rate of 1.10 in January and 1.06 in March The net result in dollars for January is $0 (= ). If the reporting currency is the euro, and you convert premiums on the date payment is received, and you convert claims on the date of payment is made, you will obtain a result in euros of -4 (=100/ /1.06), which is equal to the exchange rate gap. Henner s advice In order to reduce the effects of exchange rate fluctuations, it is preferable to use the main currency of premiums. A study carried out by the Henner Group Authors: Bruno Devictor and Patricia Pengov, actuaries certified by the Institute of Actuaries of France 8

9 Henner - Simplified private joint stock company - Registered capital of 8,212,500 - RCS Nanterre VAT No. FR Registered in France with ORIAS under No and regulated by the ACPR (61 rue Taitbout Paris Cedex 09, - ISO 9001 certified - Headquarters: 14 boulevard du General Leclerc, Neuillysur-Seine, France Complaints: visit complaints section on