Monday, 6 January 2014

Health coverage: Are you overinsured?

Many who buy top plans may face cash crunch as premiums shoot up in later years
By Salma Khalik, The Sunday Times, 5 Jan 2014

Many Singaporeans complain about paying high premiums for health insurance plans, especially after last year's rather steep rise in premiums, with some premiums more than doubling.

But what most of them don't realise is that they are probably forking out such high premiums because they have over-insured themselves and are paying for a level of insurance they are unlikely to need.

Today, more than two million Singaporeans and permanent residents are paying for higher medical insurance coverage than offered by the basic MediShield. They are on Integrated Shield Plans or IPs, which ride on the basic MediShield, but offer higher payouts based on private hospital rates or the equivalent of being treated as private patients in a public hospital.

This is good since the basic insurance is pegged at subsidised B2 and C class rates and will not offer enough coverage for those opting for a higher ward class, such as B1 or A class in a public hospital.

What is surprising, however, is that more than half of those on IPs, or 34 per cent of all Singaporeans and permanent residents covered by MediShield, have opted for the most expensive plans - those pegged at treatment in private hospitals. This does not reflect the actual usage of hospital care today, with less than 20 per cent of local residents opting for private hospitals and the rest going to a public hospital.

Do one in three Singaporeans require private hospital medical insurance when fewer than one in five are treated at private hospitals?

Why do so many buy insurance plans they are unlikely to use?

They do so partly because it is easier to downgrade a health insurance plan than to upgrade. Four of the five insurers - NTUC Income, Great Eastern, AIA and Aviva - have plans in all three IP categories. Prudential no longer offer IPs for public hospital B1 wards.

Also many buy into the plans when they are young and when the premiums are highly affordable. Up to the age of 49, Medisave can fully cover the premiums charged for these private plans, so policyholders do not feel the pinch of out-of-pocket payments

But from age 50 onwards, policy holders will have to top up their premium payments in cash, as the premiums all exceed the $800-a-year cap for premiums paid with Medisave. Each year, up till the official retirement age of 62, they will need to top up their premium payments with cash amounting to several hundred dollars. But again, as many are still working, the amounts appear affordable.

But beyond the age of 62, premiums rise steeply, averaging $4,000 a year for those aged 75. The highest premium currently charged, at the age of 100, is $8,483 a year.

Today, on average, men can expect to live to the age of 80 and women 84.5 years. A man aged 65 in 2012 can expect to live to the age of 83.5 years and a woman to 86.9 years. And life expectancy is still going up.

Already, there are more than 10,000 people aged 90 years and older and close to 1,000 who have passed the century mark.

Based on current premiums, people on private hospital plans will need to pay between $120,000 and $180,000 in premiums for those 30 years after retirement, depending on which insurer they are with.

Unless they buy riders, which pay for the portion of their hospital bill which they will still need to pay in spite of insurance, they will also need to pay thousands, perhaps even tens of thousands of dollars, for their hospital treatment.

Riders which start at about $30 a year for children, go up to about $2,000 a year for seniors.

The actual amount people will need to put aside is likely to be far higher, as health inflation has always been higher than general inflation, and premiums will rise as cost of medical treatments goes up.

So those who opt for insurance pegged at treatment in private hospitals must ask this basic question: Can they afford the thousands of dollars in premium payments in their post-retirement years?

Different people have different priorities, as well as different levels of savings. After doing my maths recently, I've decided to downgrade my medical insurance plan.

One reader wrote to me to say that she opted for the top plan, and pays extra for a rider, so she will not need to pay any out-of-pocket expenses should she need to be hospitalised. She said: "Even though the premium and rider are costly, I am determined to continue with my plan for as long as I can. In the worst-case scenario, I am willing to cut down on my transport and food to service my plan, including the rider."

She has considered her options and made her choice. But not many people have given as much thought to their IPs.

I prefer to downgrade and spend more on living healthily and getting regular health screening to stay healthy and out of hospital.

And should I fall seriously ill in my old age, I will turn to public hospitals, which have excellent doctors and whose bills I can probably afford on my downgraded health insurance plan.

Comparisons of premiums alone may be misleading

We refer to senior health correspondent Salma Khalik's commentary ("Help! I'm confused about health insurance plans"; Dec29 last year) and Mr Sia Cheong Yew's letter ("Clear air over confusing health insurance plans"; last Sunday).

Integrated Shield Plans are designed to cater to different segments of the population. Individuals have diverse needs, requirements and levels of affordability.

The ever-increasing costs of health care - coupled with a rapidly ageing population that will consume more health-care services, as well as a growing segment of affluent people who wish to access premium health-care services - have resulted in a wider spectrum of health insurance plans and supplementary benefits, which cater to different budgets and market segments.

Premium comparisons on their own may be misleading as the benefits differ between insurers.

Integrated Shield Plans offered by life insurance companies are long-term financial contracts that provide additional benefits and coverage to supplement the MediShield scheme.

Policyholders of integrated plans are given guaranteed renewability throughout the tenure of the plans, regardless of their future health conditions.

In pricing Integrated Shield Plans, life insurers take into account the benefits and features of each plan, as well as the projected incidence rates and utilisation, based on market statistics and the insurers' own experience.

Similar to other medical plans, pricing of integrated plans is subject to regular reviews to reflect emerging trends and benefit modifications.

Life insurers have always been committed to being progressive and responsive, constantly looking to enhance basic benefits as well as innovate with new features to meet consumers' evolving needs and expectations. Hence, the number of plans available to give consumers choices that best suit their individual needs.

We encourage consumers to seek advice from their financial advisers about the options available for Integrated Shield Plans that best fit their needs and means.

Pauline Lim (Ms)
Executive Director
Life Insurance Association Singapore
ST Forum, 12 Jan 2014

Insurers should treat customers better
If they can't explain premium increases and policy changes plainly, they need closer regulation
By Han Fook Kwang, The Sunday Times, 12 Jan 2014

Like thousands of other Singaporeans, my annual health-care insurance letter came in the mail last month.

It was time to renew my insurance plan.

I usually don't give it a moment's thought because the premium is automatically deducted from my Medisave account. No action needed - so no need to fuss over it or read the fine print.

Or so I thought.

But this year's letter was different.

It started by saying there were going to be improvements to my MyShield plan, in line with the recent announcement by the Health Ministry.

That's when I knew it wasn't going to be business as usual.

The new premium was now $1,589.08, and since the maximum I could use from Medisave was $800, a payment of $789.08 was due, the letter stated.

It was the first time in years I would need to use cash to renew the plan.

But how much more was it compared to last year? There was no mention in the letter, and since I couldn't find last year's, I had no idea.

A quick call to the company revealed the answer - $800, fully paid by Medisave.

So, my premium had doubled, give or take a few dollars.

Now, if you are asked to pay twice as much for a product, you would expect some nifty new additions or improvements to justify the hefty increase.

There was something about the letter, though, that made me lower my expectations.

I think it was this line: "These revisions are necessary in order for us to stay aligned with the latest claims experience, so we can keep up with Singapore's changing healthcare landscape."

That was it?

Because health care was now a landscape - and changing - I now had to pay double?

Wait, there was a four-page annexe listing details of the changes.

But try as I did, I could not find anything in the list relevant to me. In fact, only two items sounded like anything new: the improved plan now covered cornea transplants (how many corneas get fixed this way every year?), and Accident and Emergency (A&E) treatment within 24 hours prior to hospitalisation.

The rest read like very minor tweaks and clarifications to the original plan.

One other item on the list made my blood pressure rise - my deductible had now gone up. That's the amount you pay in cash before the insurance kicks in. In my case, it went from $3,000 to $3,500.

So, to recap: My premium doubled and my deductible amount increased by $500, for some very small additions to my original plan.

I believe most other Singaporeans received similar letters, were asked to pay more, and had their deductible raised.

But because I had opted for an A Class ward plan, my increases were probably among the steepest.

Can insurance companies raise their charges this way without asking their customers whether they wanted these changes?

Since MediShield is a national health insurance scheme, do they need government approval to do so?

Who regulates their business to make sure what they do is in the public interest?

These questions are especially pertinent now because there is a government-appointed committee looking at how best to implement a new scheme called MediShield Life that is being touted as the next big thing in health-care financing.

The new approach is meant to give Singaporeans "greater peace of mind", according to Health Minister Gan Kim Yong.

That's a heroic promise to make, but I didn't get much of it from my insurer's latest moves.

How then to make good on the pledge and ease Singaporeans' health-care worries?

Here are my three suggestions for the MediShield Life committee to consider.
First, there has to be some degree of stability and predictability to the premiums to be paid.
It would be unrealistic to expect them to be frozen in time. But premiums should not be allowed to be doubled arbitrarily from one year to the next without reasonable justification.

For those approaching retirement, it is a big worry. Would we be able to afford these premiums and deductibles over the next 20 years or so, if they keep rising?
Second, what about having an incentive built into the plan for those who stay healthy and have not made any claims, similar to the no-claim bonus scheme in motor vehicle accident insurance?
In the latter case, premiums can go down by as much as 50 per cent for those with accident-free records.

And what about even lower amounts for those who are health-conscious, exercise regularly and take their medication religiously?
Third, there has to be greater transparency in the way insurance companies operate and conduct their business.
My colleague, Salma Khalik, wrote last week in this newspaper how premiums can vary by as much as 100 per cent, from one insurer to the next, even when they involved exactly the same plans.

Because most people don't really understand health insurance and whether one plan is better than another, they depend on insurers to be open, accountable and honest about their products and how they work.

If insurers are unlikely to do this on their own, they need to be regulated much more stringently so that there are minimum standards of transparency and disclosure.

The funny thing about my own insurance plan is that I know I won't need to use it even though I've just paid to renew it.


It's because I'm already covered by the company I work in as part of its staff benefits.

Yet, I'm compelled to buy my own health insurance in the event I leave the company or when I retire.

If I don't, I risk not being able to get myself insured when I no longer enjoy my company's medical benefits.

Like many others, I have been dutifully paying for years, for insurance cover I don't need but will eventually do.

Who benefits from this wasteful arrangement?

You guessed it, those same insurance companies which get two premium payments - from me and my company - and then go on to promptly raise these premiums.

There should be a way to avoid this unnecessary duplication which only adds to the total health-care cost of the country.

But please do this quickly before I retire.

Why Integrated Shield premiums had to go up

There has been much discussion on Integrated Shield Plans in recent weeks.

The coverage they offer is generally comprehensive, covering the bulk of hospitalisation costs, some pre- and post-hospitalisation expenses, as well as certain non-hospitalisation charges relating to chronic disease treatments.

Importantly, the renewability of such plans is guaranteed, which means insured persons who make claims continue to be insured by paying the standard premium rate. Policyholders also get to select their level of benefits to match their choice of either public or private hospital and the ward type.

Such plans are integrated into the basic MediShield plan; the premium includes the basic MediShield plan premium. Policyholders who purchase additional "on-top-of-the-basic" coverage can claim higher benefits.

Claims made under the basic MediShield plan and Integrated Shield Plan are administered by the insurers.

Integrated Shield Plans operate in a competitive market environment, and consumers can obtain a comparison of these products in the Ministry of Health's website.

The pricing of a health plan is predominantly driven by the costs of medical health care in Singapore. The costs include doctors' charges, hospital charges and drug fees, all of which are beyond what insurers alone can effectively control. Health insurance essentially acts as a risk-pooling mechanism.

In March last year, there was an upward revision to the benefits and, hence, premium rate of the basic MediShield plan.

In turn, insurers revised their Integrated Shield Plans. This necessitated revision to the premium rates, not only to absorb the increase in the premium rate for the basic MediShield plan, but also to reflect enhanced benefits and escalating medical costs over the recent years.

On an individual level, the policyholder pays higher premiums when he moves from his current age band to the next one.

In July 2012, the Health Ministry revealed that the number of MediShield claims made per policyholder had increased by 9 per cent a year, while the average payout per policyholder had risen by about 12per cent a year.

The Integrated Shield Plan claims experience has been similarly affected. This explains the large increases in premium rates. Also, the last adjustment made was in 2008/2009.

Ultimately, the objective of delivering universal and sustainable health care to Singaporeans can be achieved only collectively, whereby inflation in health-care costs is effectively managed, the funding mechanism is optimised, and overall consumption of health-care services is lowered through improved health of individuals.

We will continue to support government initiatives, so that Singaporeans can continue to enjoy affordable health-care services.

Khoo Kah Siang (Dr)
Life Insurance Association Singapore
ST Forum, 19 Jan 2014


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