Sunday 29 September 2013

Curb rising cost of health insurance, allow switch

By Salma Khalik, The Straits Times, 28 Sep 2013

IN ITS current tweaking of health-care financing, the Ministry of Health (MOH) should give some thought to MediShield integrated plans and see how they can be better regulated. After all, 60 per cent of residents here have opted for this higher coverage, which sits on top of the basic MediShield plan that covers 92 per cent of residents.

Five insurance companies now provide more than 20 different MediShield integrated plans. Coverage is typically grouped into three categories: the priciest plan covers treatment in private hospitals; another plan covers A-class patients in a public hospital; and a cheaper plan offers coverage up to B1-class rates in a public hospital.

Policyholders may go to more expensive wards than their coverage allows, but top up the difference in rates themselves.

At a quick glance, with more than 20 integrated plans to choose from, the Integrated Shield market appears to be highly competitive. But health insurance is very different from, say, car insurance, where drivers can switch companies to get the lowest premium rates.

There are two issues that need addressing: people cannot easily change plans; and the premiums rise sharply.

Stuck with a plan

THE first problem occurs because once people enrol for a MediShield integrated plan, they are stuck with it - and its premium rises. This is because insurance companies provide full coverage only for people who are healthy at the time they join.

It becomes almost impossible for someone over 60 - or even 40 - to switch plans without incurring hefty penalties. That's because a profit-driven insurer will reject those already deemed unhealthy, or cover them but exclude those conditions.

By the age of 40, 12 per cent of people here have diabetes, 17 per cent have high blood pressure and 18 per cent have high cholesterol levels.

An MOH spokesman explained: "Individuals who have chronic conditions that are not well controlled, such as poorly managed hypertension, high cholesterol levels or diabetes, could also be considered as having pre-existing conditions."

So, once you have picked an integrated plan, in your 20s or 30s, you will need to stick with it. Changing a plan after being diagnosed with a disease makes no sense.

The trouble is that the plan you picked in your 20s may have premiums that you find too high in your 50s, but you're stuck with it. Or the level of coverage may not be enough for your needs.

Solution: MOH should allow policyholders to switch between plans with no penalty.

Risk adjustment between the old and the new insurance company can be done at the back-end. This means that if a high-risk person switches his plan, his insurance company should pass some of the unused premiums paid to the new company.

Allowing switches gives people choice at any time of their lives. It also makes insurance companies compete for customers by improving their insurance products.

But frequent plan switching could become an administrative headache, so some restrictions might be helpful, such as insisting on a minimum period before allowing a no-penalty switch.

Spikes in premiums

THE second issue, related to the first, is the sharp spike in premiums for MediShield integrated plans. A look at premiums of four insurance companies' B1 integrated plans five years ago and today shows that premiums for people aged 66-70 have gone up by between $168 and $407 a year over this period.

For those aged 81-83, premiums today are $155 to $930 more than they were in 2008.

At the oldest covered age of up to 100 years and more, premiums went up, in just five years, by between $197 and $1,663 a year.

The $1,663 increase is in premiums for people beyond the age of 85, from $3,250 a year to $4,913, for treatment in a public hospital B1 ward.

Today, only up to $1,200 - and from November, $1,400 - in Medisave savings can be used for premiums for this age group. The remaining amount of $3,513 has to be paid in cash - a daunting prospect for many retirees.

Solution: MOH should regulate premiums for B1 integrated plans. This can be done by capping premiums and letting insurers make their best offers within those parameters. MOH should also allow the full premium to be paid with Medisave.

This is because people opting for this lowest integrated MediShield plan are likely to be less well-off and need subsidies.

Many may have signed up for more than the basic MediShield plan because they no longer enjoy maximum subsidies under existing means-testing rules.

For example, retirees with no income but who live in landed property, or permanent residents (PRs), would fall into this group.

PRs receive only 32.5 per cent subsidy in C-class, compared with a maximum of 80 per cent for a Singaporean.

Retirees in landed property, who account for about 15 per cent of people aged 65 and older, get 65 per cent subsidy in C-class and 50 per cent in B2 - or 15 percentage points less than the maximum subsidy.

These people may sign up for a MediShield integrated plan offering B1-class coverage that will cover the cash amounts they have to pay.

Others may have opted for the B1 integrated plans because they need more coverage than provided by MediShield basic, which pays out a maximum of $70,000 a year and $300,000 over a lifetime. Once limits are hit, patients can't claim from MediShield basic, even if they still need medical treatment.

Limits for the B1 integrated plans are higher: from $110,000 to $250,000 a year, and from $800,000 to unlimited lifetime coverage.

Because MediShield integrated plans are profit-oriented, insurers will periodically raise premiums to the maximum they think policyholders can accept. In recent years, the scope of MediShield coverage has also expanded, which has fuelled premium rises.

MOH has stated clearly that expanding MediShield to MediShield Life - with significantly enhanced coverage - will see premium hikes for MediShield.

Private insurers offering MediShield integrated plans will also certainly adjust and enhance their coverage - at premiums to match.

Unless MOH regulates premium rises, there is a real risk of health spending spiralling out of control.

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