Thursday 12 June 2014

Getting MediShield Life off on the right foot

By Jeremy Lim, Published TODAY, 11 Jun 2014

When Prime Minister Lee Hsien Loong announced the establishment of MediShield Life at the National Day Rally last year, he articulated three objectives: Universal coverage, coverage for life and better protection against very large hospital bills. The recommendations of the MediShield Life Review Committee clearly achieve these, but will MediShield Life be financially fair to all Singaporeans? And just what does “fairness” mean?

There are three major stakeholders in this reform of MediShield, the most significant since it was launched in 1990: The 93 per cent of Singaporeans currently enrolled in MediShield, the 7 per cent who are today outside the scheme and the Government. Which groups will be better off, which groups worse off? And will all this be for the greater good?


In structuring MediShield Life, the review committee and its chairman, Mr Bobby Chin, have pushed for the additional costs of bringing the 7 per cent into MediShield Life to be borne largely by the Government. Currently enrolled Singaporeans would contribute no more than 3 per cent of current premiums towards including the 7 per cent in the scheme. The newcomers do not get a free ride either; their premiums will be 30 per cent more than that of their counterparts for 10 years.

The review committee has exercised sagacity in this arrangement. The 30 per cent additional premium should not prove unduly onerous on the newcomers and is an attempt to be fair to the 93 per cent who have been paying premiums all these years. Of course, some may ask why the 93 per cent should even have to pay extra. After all, the Government currently helps pay for the 7 per cent through subsidies and other schemes and some among them are out of MediShield due to poor lifestyle choices such as smoking and lack of exercise.

New York Times writer David Brooks, commenting on the Bergdahl prisoner swap, puts it eloquently in words equally applicable to us in Singapore: “The debt we owe to fellow (Singaporeans) is not based on individual merit. It is based on citizenship, and loyalty to the national community we all share.”

If we want to build a better Singapore, this means looking out for one another and digging into our pockets for our fellow Singaporeans, for no less a reason than a common nationhood.


Critics have challenged the projected medical loss ratio (the ratio of claims to premiums) as being much too favourable to the insurer. An insurance veteran estimated the increase in premiums to be 90 per cent but the increase in benefits to be only 43 per cent in dollar terms.

Regrettably, the intended medical loss ratio cannot be definitively demonstrated without going through the actuarial model and assumptions the Government used in coming up with the premium increases and benefits.

No one disputes that MediShield Life must operate on sound financial principles, but many have the niggling suspicion that MediShield Life premiums, like its predecessor MediShield, will prove to be too conservatively computed.

The current MediShield scheme, despite running on a not-for-profit basis, has built up reserves of more than a billion dollars since inception, on a medical loss ratio of just 63 per cent, said Nominated Member of Parliament Gerald Giam. Most insurers globally operate with ratios of above 85 per cent, meaning that for every dollar collected in premiums, eighty-five cents are paid out in claims.

What is needed, then, to win stronger informed public support for MediShield Life? It would be worthwhile for the Government to put out its assumptions, including financial projections, so its commitment is clear in dollar terms.

The Ministry of Health has stated the Government “will bear most of the cost of bringing in those with pre-existing conditions”. What does this mean in dollars? I am sure the vast majority of the 93 per cent asked to pay 3 per cent more in premiums will do so with far more enthusiasm if they see how much more the Government is bearing the cost, in real-dollar terms.

Releasing more data for public scrutiny will also dampen criticisms of excessive premium increases. The last thing the Government needs if its projections are indeed too conservative is for MediShield Life reserves to balloon into the billions. An honest mistake today will be construed tomorrow as a disingenuous attempt to shore up the Government’s finances even further to the detriment of citizens already trying to cope with high costs of living.

Why not invite independent academics and actuarial firms to review its analysis and offer their views? Even better, why not release the data to Members of Parliament, so they can engage with experts and constituents before the parliamentary debate on MediShield Life?

I dedicated my book Myth Or Magic: The Singapore Healthcare System to my children, hoping that their world will be for all people, with fewer “struggling to cope” and more “daring to hope” and one marked by “less me and more we”.

MediShield Life is the seminal expression of ordinary Singaporeans working hand in hand with the Government to build a better Singapore for all Singaporeans. Mahatma Gandhi once said: “Truth never damages a cause that is just.” We should not let such a noble scheme start off on a cynical footing.

Dr Jeremy Lim is a partner in global consulting firm Oliver Wyman and leads its health and life sciences practice in Asia.

Fitting the other pieces in the MediShield Life puzzle
By Jeremy Lim, Published TODAY, 20 Jun 2014

The MediShield Life Review Committee has done an admirable job in calibrating premiums and benefits and I hope the Government shares widely the actuarial models and assumptions to garner the support MediShield Life deserves.

Three particular questions weigh heavily on the minds of Singaporeans: “What is the role of the Integrated Plans and at what price?”, “Will Medisave be sufficient to pay premiums for MediShield Life and Integrated Plans and, if insufficient, what is the cash outlay anticipated?” and finally “What will be the means testing criteria for those with insufficient cash or Medisave?”

Some have also lamented MediShield Life does not address primary care or preventive health.

However, premiums and benefits are only half of the equation. MediShield Life, just like MediShield, is intended to be an inexpensive health insurance scheme to address primarily large hospital bills; other aspects of healthcare need to be addressed separately. In the weeks to come, we can expect the Ministry of Health to complete the picture in three important areas: Describing MediShield Life’s role in the overall health ecosystem, instituting supply-side control measures and ensuring MediShield Life has mechanisms to evolve and adapt to future changes in medical practice and funding.


There is concern that the increased benefits under MediShield Life will be in vain if hospitals and clinics simply raise medical charges. Does the scheme guard against this? The answer at this point is no.

As Professor Phua Kai Hong of the Lee Kuan Yew School of Public Policy has pointed out, the Central Provident Fund (CPF) Board, the administrator of the current MediShield and the future MediShield Life schemes, sets limits on claims from MediShield, but not pricing. Whatever MediShield or MediShield Life does not cover, patients will have to pay.

Furthermore, MediShield (and MediShield Life) claims are also paid out on the basis of utilisation and not appropriate utilisation. Had a treatment that might not be evidence-based? The CPF Board will still pay out based on the number of days of hospitalisation.

Around the world, in virtually every scheme funded primarily by the government, structures are established to decide which clinical services should be paid for out of the public purse.

England has the National Institute for Health and Clinical Excellence (NICE), whose decisions on funding are binding on the National Health Service. Its decisions are based not only on clinical effectiveness, but cost-effectiveness and total budget impact.

Australia has the Pharmaceutical Benefits Scheme, which is administered by experts who collectively make recommendations to the government on what medicine should be funded publicly and the appropriate price to pay.

What about Singapore? Well, it has the free market and a private sector known for its high medical bills.

With the expansion of the national health insurance through MediShield Life and continued calls to liberalise Medisave, it is timely that Singapore creates its own agency to address clinical appropriateness and healthcare expenditure.


The benefits and claims offered under MediShield Life might look attractive today, but what about in the future?

Is there a mechanism to factor in general inflation? How about healthcare inflation? Claim limits for radiation therapy have increased from a ceiling of S$160 to S$500, which is wonderful news for today’s patients. But what if the ceiling rises to S$700 in a couple of years?

I will not belabour the point, but it is clear that healthcare is dynamic, complex and wholly unsuited for a static, one-off fix. It needs regular review and multi-stakeholder engagement to manage changing technology, rising costs and public expectations.

Sounds like many other essential public services? It should, because it is one.

We have a plethora of councils such as the National Wages Council and the Public Transport Council to guide government policy. Is it time for an equivalent healthcare body? A NICE-type institution could take charge of an ongoing healthcare review.

It is too early to jump for joy or scream with rage. The MediShield Life story is far from complete. The first chapter has only begun. Singapore needs to write the next chapter together as a nation.

I hope Singaporeans contribute actively and thoughtfully to the most important healthcare transformation since Medisave 30 years ago.

The next generation deserves our best efforts.

Dr Jeremy Lim is a partner in global consulting firm Oliver Wyman and leads its health and life sciences practice in Asia.

MediShield Life: Don't let private insurers pick all the cherries
By Victor Lye, Published The Straits Times, 14 Jun 2014

SINGAPOREANS should welcome MediShield Life, the updated universal health insurance plan being designed. It improves on the current Central Provident Fund (CPF) MediShield scheme by providing lower out-of-pocket medical expenses due to reduced co-payment rates. There are also higher benefits, higher annual claim limits, and an unlimited lifetime limit. There is even an extension of cover from the current maximum 90 years of age to lifetime.

In addition, those who opted out previously or have been excluded due to pre-existing conditions will be included in MediShield Life.

But as a finance professional, I have some longer-term policy concerns.

In my view, the Government should consider a more sustainable universal health insurance model where risks are pooled even more, in order to avoid "cherry-picking". Cherry picking occurs when private insurers take on healthy individuals and leave the remainder in the underlying CPF MediShield pool.

This was happening prior to 2005. Those who signed up for private insurance plans were taken out of the MediShield risk pool. Their premiums also left the basic MediShield pool. Since many who took up these plans were younger or healthier, the basic MediShield pool was left with a large number of older, and sicker people, paying lower premiums.

In insurance parlance, the private insurers had the pick of the sweet "cherries"; MediShield was left with the sour "lemons".

In 2005, reforms to MediShield put a stop to this by restoring a common national pool of lives to the underlying CPF MediShield layer. Rather than take these people out of the basic MediShield risk pool, they were left in the national risk pool.

Private health insurers would then come in to offer "enhanced benefits" such as higher class wards and increased benefits. Private insurers had to pay a basic premium to the CPF MediShield pool for every insured member taking on enhanced benefits.

After the 2005 reform, the so-called "private Integrated Shield" insurers began offering higher benefits and higher annual limits. They also extended the maximum age from 90 years to lifetime cover.

In this sense, MediShield Life today is only catching up with the private Integrated Shield insurers in terms of treatment at Class B2/C wards in public hospitals.

The really important policy change about MediShield Life is the costly inclusion of all uninsured and hitherto, uninsurable. I hope this point is not lost on Singaporeans.

This is a once-in-a-lifetime benefit that uninsured and uninsurable citizens of other developed economies such as the United States and Hong Kong can only look on with envy.

The US is struggling with Obamacare while the Hong Kong government is hesitant to act given the estimated HK$50 billion (S$8.1 billion) cost of bringing in the uninsured.

But my longer-term policy concern is that the overall MediShield structure will still offer "actuarial cherry-picking" opportunities to private Integrated Shield insurers.

Insure when young, push out when old?

THE problem arises from a structural policy anomaly.

To understand what I mean, it is necessary to take a look at how the system will work.

MediShield Life will cover treatment at government Class B2/C wards. Private Integrated Shield plans, on the other hand, will continue to allow treatment in higher class B1/A wards or private hospital wards.

As we know, medical expenses are correlated with age. Research suggests that half of one's lifetime medical expenses accrue past 60 years of age. And more than one-third of lifetime medical expenses will accrue beyond 85 years of age.

With the expected tripling of the number of Singaporeans aged over 65 years to 900,000 by 2030, medical insurance claims will rise. Given the even higher medical inflation rates for better class wards, the cost of private Integrated Shield age-banded premiums will likely escalate over the next 10 to 15 years.

Private Integrated Shield insurers can simply entice healthy individuals to take on enhanced benefits and features at higher premiums than equivalent age-banded premiums for MediShield Life. Those attracted to these plans are likely to be young people with steady employment income.

However, as they age and retire with little or no income, they are likely to downgrade to lower ward class plans, or give up their private Shield plans and rely on MediShield Life alone.

In effect, this means private insurers stand to reap actuarial profits while policyholders are young and healthy, and can avoid or divert the older age groups simply by raising premiums as they age, to discourage them from continuing with their policies when they become more likely to make more claims.

If this happens, the burden of rising medical claims as policyholders age will shift from private insurers to MediShield Life.

This development will strain public health facilities; raise government budget spending on health subsidies and put upward pressure on MediShield Life premiums.

Pre-existing conditions

ANOTHER anomaly lies in the coverage of pre-existing conditions. MediShield Life will accept all with pre-existing conditions.

But will private Integrated Shield insurers have to accept those with pre-existing conditions for treatment at B1/A/P wards? If they have to, how will they price their premiums? If premiums are set at unduly high levels, they will be pushing such people to CPF MediShield Life at B2/C wards.

In order to create a truly national and universal risk pool for health care, and reduce the incentive for cherry-picking, I have two suggestions.

The first is to create a truly national single risk pool. This means merging back all private Integrated Shield plans into one national pot with MediShield Life.

Have a national insurance plan, with a single premium for a given class of treatment, regardless of age, to replace age-banded premiums. So anyone who wants treatment at Class A wards will pay higher premiums than those at B2 wards.

This may mean a hefty increase for those below 30 years of age, but can be phased in over time with government funding.

If doing away with private plans is too drastic, an alternative is for MediShield Life to extract a share of the actuarial profit enjoyed by private Integrated Shield insurers, in addition to the basic MediShield premium. This will mitigate a situation in which private insurers cherry-pick younger and healthy individuals while pushing these same people back to MediShield Life when they age and become riskier.

MediShield Life is a boon for Singaporeans who are uninsured, uninsurable or likely to live a long life. But thought must be given on how best to dovetail MediShield Life with private Shield plans, to prevent "actuarial cherry-picking". Otherwise, private insurers may pass the "unhealthy" buck to healthy Singaporeans - for life.

The writer is CEO of an insurance company. He is also the People's Action Party branch chairman at the Bedok Reservoir-Punggol division of Aljunied GRC.

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