Amidst the COVID-19 pandemic, the Ministry of Health (MOH) announced the MediShield Life Review 2020. While it may seem like a bad time to be making changes to our national healthcare insurance during a pandemic, the truth is that public awareness of public healthcare is at an all-time high during the pandemic. It is probably an opportune time to turn our attention to healthcare.
The one key headline on proposed changes is the increase in premiums by more than 35%. In this article, we will delve deeper into 4 reasons why your MediShield Life premiums are increasing by so much.
#1 The Proposed MediShield Life Premium Increases Differ By Age Disproportionately
One immediate thing you would notice about the premium increases is that 1) they differ by age and 2) the increase is not distributed equally across the ages.
This is actually an intended design of the premium increases. Premiums increase with age because the likelihood of claims and larger claims increases as we age. Instead of increasing premiums later in life, the MediShield Life Review Committee recommended frontloading the premium increases to our prime working years, such that the premium increases during our older years will be more manageable.
As seen in the table below, while it can be expected that the younger you are, the less premium you are expected to pay, the premium increase has been designed to disproportionately increase more in premiums from age 21 to 40 where the premium increase is 28.2% to 26.8%. This drops to 20% premium increase for age 41 to 50, while the premium increase from age 61 onwards remains flat at around 35%.
|Age On Next Birthday||Current Premiums Before Subsidies ($)||Revised Premiums Before Subsidies ($)||Premium Increase ($)|
#2 Two-Thirds of The MediShield Life Premium Increases Is Due To Increased Number Of Claimants And Higher Payouts
Since the start of MediShield Life, premiums have remained the same. However, as Singaporeans continue to enjoy the universal coverage of MediShield Life and more Singaporeans continue to age, more Singaporeans are using MediShield Life for their healthcare needs. Over the last 4 years, the number of Singaporeans who made a claim has increased by 30% and the amount of payout has increased by 40%.
In order to maintain MediShield Life in its current state, premiums will have to increase. 67% of the proposed premium increases is to support MediShield Life coverage and payout. This is before factoring in MediShield Life Review Committee’s proposed benefit enhancements or increased claim limits.
#3 One-Quarter Of The MediShield Life Premium Increases Is Due To Increased Claim Limits
Part of the recommendations from MediShield Life Review Committee is to increase allowed claim limits with the most significant being raising policy year claim limit from $100,000 to $150,000 as well as introducing more granular claim limits for specific treatments.
The refresh of the claim limit is driven by the recognition that as healthcare becomes more accessible and healthcare costs increase due to medical inflation, bill sizes are increasing while the existing claim limit has remained stagnant. The average hospitalisation bill size in public healthcare has increased by 6% a year on average between 2001 and 2019.
In order to ensure that MediShield Life will cover 9 in 10 subsidised bills, the claim limits will be raised, and this will drive about 25% of the proposed increase in MediShield Life premiums
#4 Benefit Enhancements Only Take Up 8% Of The Proposed Premium Increases
While there has been public reaction regarding the proposed removal of standard exclusions for treatments arising from attempted suicide, intentional self-injury, drug addiction and alcoholism, the fact is that such cases do not make a significant contribution to the overall increase in premium costs.
Less than 10% of the proposed premium increase will go to supporting the proposed and existing benefit enhancements. It is also important to note that previous benefit enhancements have not been funded by premium increases, including those implemented since 2018, such as the extension of coverage to inpatient hospices and serious pregnancy complications. Thus, the premium increases for these earlier enhancements have been deferred until the MediShield Life Review was completed.
What About MediShield Life Fund?
MediShield Life Fund is designed to be a self-sustaining source of reserves for MediShield Life. Based on actuarial principles, each age group’s premium payments would support its own current and future claims. The fund sets aside enough reserves to continue payouts for projected future benefits as well as a buffer against adverse scenarios (a pandemic being one such example).
Unlike private insurers, MediShield Life (and MediShield Life Fund) is a not-for-profit scheme. As of the end of 2019, MediShield Life Fund has a total asset value of $8.3 billion. About three-quarters of the reserves is set aside to fund the expected scheme liabilities. These include claims incurred but not yet paid out, claims not yet incurred but are expected to be paid in the future (e.g. projected future treatments required), continuing claims, and future policy rebates. The remaining reserves act as a buffer against adverse scenarios, in line with Monetary Authority of Singapore (MAS)’s Risk Based Capital Framework for private insurers.
In line with actuarial principles and MAS guidelines, MediShield Life Fund is the government’s way of ensuring the MediShield Life continues to be a sustainable scheme. However, it does not detract from the fact the premiums need to be revised in light of the increased usage and higher claim payouts under MediShield Life or to fund much-needed revised claim limits and benefit enhancements.
While the proposed premium increases appear to be a huge jump, the fact remains that Singaporeans are consuming more healthcare services. While MOH has made a commitment that no Singaporean will be left behind and excluded from MediShield Life due to financial difficulties, we also need to examine our healthcare habits and ask if we are driving up healthcare costs by using healthcare services unnecessarily just to claim insurance or worsening our health situation by not seeking early and appropriate treatment.
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