Rising health insurance claims threaten all

By Claire Huang, Published The Straits Times, 18 Aug 2015

Calls have been made recently for the five Integrated Shield Plan (IP) insurers to cut their premiums, with the Government moving to mandatory universal healthcare by replacing MediShield with MediShield Life from Nov 1.

Its proponents noted that the five insurers - AIA, Aviva, Great Eastern, NTUC Income and Prudential - will save 6 per cent (in private hospital stays) and 14 per cent (in public hospital class A/B1 ward stays) in the amount of claims they will have to pay out under MediShield Life. If this is the case, insurers should pass on cost savings to consumers.

But let's backtrack a little.

IP insurance has two tiers:

The first is the basic national health insurance tier that applies to Singapore citizens and permanent residents. The premiums are set by the Government and the current MediShield or soon-to-be MediShield Life pays the claims.

The second tier applies to those who have IPs. It's the private tier where premiums and payouts vary according to insurer and consumer's choice of plan. This is for those who want additional coverage.

With MediShield Life, the Government picks up a larger portion of claims, which is commendable. Hence, the expected savings for IP insurers mentioned above.

But the average claims ratio (or the claims payable as a percentage of premium income) has risen over the years.

Under MediShield Life, the insurers have to pick up a larger share of the claims for private hospitals or public hospital Class A ward stays, which are expected to offset the supposed savings.

Based on the returns filed (see chart), the claims ratios for all insurers are generally higher between 2012 and last year, compared with the period of 2009 to 2011. It is important to note that the premium hike in 2013 helped offset more of the insurers' claims burden, which in turn affected the claims ratios last year.

Let's look at a real-life case study of a 55-year-old IP policyholder who went for total knee replacement surgery to treat his rheumatoid arthritis condition at a private hospital (see table).

This is a conservative example as it shows just the hospital bill inflation - a component of claims inflation. Claims inflation, as previously mentioned by the insurers, has ranged between an average of 12 per cent and 17 per cent per year since 2011. Assuming no bill inflation, insurers would be paying less in absolute numbers, with the Government picking up a larger tab under MediShield Life.

But the greater the bill inflation, the more insurers have to pay. So, while the proportion paid by insurers might be smaller, they still pay more in absolute numbers.

One thing is clear from the statistics and example: Both the Government and insurers have to pay more over the years as bill sizes grow, in both public and private hospitals.

So how long would it be before one considers escalating claims as out of control? And who should apply the brakes on rising hospital claims?

These questions should not be left unanswered.

Observers have quietly acknowledged that the supply-side issues are many, which contribute to higher claims. These include newer and costlier treatments or medical equipment, medical inflation, higher doctors' fees and greater healthcare consumption.

From the demand side, most IP policyholders seek the best available treatments, which naturally mean bigger bills. So the crux of the matter is, how do you ask patients not to seek the best available treatments when they're sick?

This is why some analysts have pointed out bluntly that the bottom line is to have good health - which essentially means people have to make a concerted effort to stay healthy.

To stop claims from escalating, all stakeholders have to pitch in.

Increasing premiums regularly is not affordable nor sustainable for both consumers and insurers.

It is also unrealistic to expect IP insurers alone to arrest the rising trend - because they have no authority to do so. What they can do is compile statistics on claims escalation, conduct studies to sieve out what exactly causes the higher claims, or recommend a panel of doctors to policyholders.

Logically, hospitals won't complain about bigger bill sizes that line their pockets.

That leaves the Government to do something about the situation. It needs to act firmly and swiftly before the issue gets out of hand - and the time to do so is surely sooner, rather than later.

This commentary was first published in the Business Times yesterday.