This article was first published on 24 December 2019 and was updated with clarifications on 27 December 2019 after feedback from readers.
From the moment our child is born, they are covered under Singapore’s universal basic health insurance plan – MediShield Life. MediShield Life coverage is sized for large hospital bills and selected costly outpatient treatments that are already subsidised by the government in public hospitals.
By focusing on large hospital bills and costly outpatient treatments that are already subsidised by the government at public hospitals, the premiums of MediShield Life is kept at an affordable level.
If we wish to provide more comprehensive healthcare coverage for our child, we need to consider purchasing an integrated shield plan (IP).
Your Child’s MediShield Life Premiums
When a Singapore Citizen child is born, a MediSave Account (MA) will be opened for them. In it, they will receive a $4,000 MediSave Grant for Newborns, to support parents in paying for the child’s MediShield Life premiums, as well as other approved healthcare expenses.
For our newborn, the annual MediShield Life premium is $130, before any government subsidy. According to the MediShield Life website, the annual premium for those whose next birthday is between 1 and 20 is the same.
This means that our child’s MediSave grant should be more than sufficient to pay for his or her own MediShield Life coverage until they turn 21 or older. Of course, MediShield Life premiums may increase in subsequent years and we could also tap on our child’s MediSave grant for other important healthcare expenditure.
Should You Pay For Your Child’s MediShield Life Premiums?
At DollarsAndSense, some of us have recently became new parents, and that got us thinking about this question – should we pay for our child’s MediShield Life premiums from our own MediSave Account (MA) or should we let our child pay for their own MediShield Life premiums from their newly funded MA?
Beyond the fact that we love our children and would do anything for them, there are several reasons why it makes financial sense to pay for our child’s MediShield Life premiums.
# 1 The First $60,000 In Our CPF Earns An Extra 1% Interest Annually
For those of us who have worked for a few years, we may have built a combined CPF savings worth more than the $60,000. On the other hand, our newborn will only have $4,000 in their CPF.
By paying for our child’s MediShield Life premiums, we allow our child’s MA balances to take full advantage of the extra 1% annual interest, and grow at a faster rate. The MA funds that we use to pay for our child’s MediShield Life premiums would not have benefitted from the extra 1% annual interest.
As a family, we are better off.
# 2 You Receive Regular CPF Contributions From Employment
With regular CPF contributions from your employment, your CPF balances will increase. On the other hand, your child’s CPF MA remains static or will likely fall as a result of using the funds for approved medical expenses.
By using your own MA balances to pay for approved expenses, such as your child’s MediShield Life premiums, you are safeguarding his or her future by keeping their MA pot intact, and compounding over the long term.
# 3 Effectively Gaining Tax Relief For Top-Ups To Your Child’s CPF MediSave Account
When you contribute to your own CPF MA, you receive a dollar-for-dollar tax relief. When you do this, you also have to note of your CPF Annual Limit of $37,740, which takes into consideration CPF contributions from both employer and employee. You also have to be within the Basic Healthcare Sum (BHS), of $60,000 in 2020.
However, you do not receive this tax relief for CPF top-ups made into your child’s MediSave Account. Instead, your child will be the recipient of the tax relief. Obviously, your newborn is not earning an income or paying any taxes, to benefit from the tax relief.
By using your MediSave to pay for your child’s MediShield Life premiums, or other healthcare expenditures, you are effectively able to receive a tax relief for contributions into your child’s CPF MediSave Account, by making the corresponding top-up into your own MA.
Even better, you have the flexibility to convert your MA balances into SA balances at the same time by making utilising the Retirement Sum Topping-Up (RSTU) Scheme rather than topping up your MA.
Of course, these are relatively small amounts, but can still add up if you consistently do this over several decades.
If we ever find ourselves in a situation of having to pay for our child’s MediShield Life premiums in cash, whether by choice or because their MA balances have been fully utilised, we should always contribute to our MediSave Account first. Thereafter, we can use our MediSave Account balances to pay for our child’s MediShield Life premiums. This is because we get to enjoy the dollar-for-dollar tax relief (if we qualify) for doing so.
Consider How This Will Impact Your MediSave Account Balances Or Savings
While there may be financially-savvy reasons to pay for your child’s MediShield Life premiums, we need to consider how our own MA balances or cash savings will be impacted.
Firstly, we should already understand that any cash top-ups that go into the CPF system is irreversible. This means that if we find ourselves short of liquid savings or become financially distressed, we cannot tap on these funds anymore.
While trying to maximise tax reliefs and other benefits, we should not lose sight of longer-term sustainability of our actions and the risk we potentially expose ourselves to.
Using our own MediSave Account balances to pay for our child’s MediShield Life premiums also diminishes our ability to use this fund for our own healthcare. Again, if we find ourselves in a healthcare emergency and require more MediSave Account balances to afford treatments, tapping on our child’s MA balances may not be straightforward, especially if they are still minors.
How To Apply To Pay For Your Child’s MediShield Life Premiums?
If we want to embark on this strategy of paying for our child’s MediShield Life premiums, we need to submit an online request on the MediShield Life website. On it, we will see an option to “Change of Payer for MediShield Life Cover”, and we can simply apply online by logging in with our SingPass.
By taking over the premiums payments on your child’s MediShield Life coverage today, you are not beholden to continue paying for it going forward. You can also apply to stop payment via your MediSave Account balances, and to use your child’s MA balances instead.