The Singapore government has accepted the recommendations proposed by a review committee on health insurance reforms in June. Ms Ang Sock Sun and Ms Woo Shea Leen from PwC Singapore note that while this is definitely a move in the right direction, there are still some key challenges for both consumers and private insurers such as the affordability of premiums and the complexity of the changes.
Background
Healthcare for Singaporeans is currently provided for through Medisave, a national medical saving scheme where compulsory savings via payroll deductions are made for Singaporean Citizens and Permanent Residents (PRs).
The savings in the Medisave account are meant to provide for potential expenses on hospitalisation, surgical procedures and certain outpatient expenses of Singaporean individuals PRs, or their immediate family members. MediShield, a national health insurance plan meant to complement Medisave, is designed to help Singaporeans and PRs pay for large hospitalisation bills (up to B2 class wards in public and restructured general hospitals), without which, individuals may not be able to cover the medical expenses incurred solely from their Medisave balances. Besides this basic national health insurance plan, individuals can also purchase integrated shield plans from private insurers which are designed to meet different needs and coverage.
In June 2014, recommendations were put through by the MediShield Life Review Committee to introduce certain health insurance reforms in Singapore. This committee was formed in November 2013 following Prime Minister Lee Hsien Loong’s National Day Rally announcement of the government’s intention to provide universal lifetime MediShield coverage for Singaporeans. Some of the key reforms introduced under MediShield Life are:
• MediShield Life will cover all Singaporeans/PRs;
• MediShield Life will provide a lifetime coverage;
• All individuals with pre-existing conditions will be covered; and
• The lifetime claim limit of S$300,000 currently included under the existing MediShield will be removed.
The proposed MediShield Life has many positive points and is definitely a move in the right direction to ensure an all-inclusive society in Singapore. However, there are some key challenges to both the private insurers and consumers worth considering.
Affordability of premium rates vs rising healthcare costs
Affordability and sustainability are closely intertwined. Sustainability has to be viewed with a medium- to long-term perspective. So the key question in the policyholders’ minds is when and how much premiums will increase by.
This, in turn, is very much dependent on how fast medical costs rise. We are all aware of the current high rates of medical inflation – Singapore’s healthcare inflation rose by 8.53% from 2011 to 2013 based on Healthcare Consumer Price Index figures from MOH – and nobody expects this to come down any time soon.
The affordability of premium rates will always be a key consideration for the man on the street, especially for the aged and retired. Those who are currently working, but are planning for retirement will also have to consider and plan how to fund these yet-to-be-known premium rates. At the moment, what the current working generation can do is to plan carefully and save for the future.
There has also been much concern over the rapid increases in integrated shield plans (IP) premiums in recent years. One lingering question is whether private insurers will increase the IP rates given the increase in the MediShield Life premium rates.
In a statement issued by the Life Insurance Association in Singapore, the five approved private insurers had agreed not to increase the top-up portion of existing IP premiums for class A and B1 wards in public hospitals for a year, following the implementation of MediShield Life.
While there will be uncertainties in the IP rates going forward, one has to recognise that the amount of premiums charged is a function of claims incidence, the medical costs and the type of benefits covered under the plan. Private insurers are, first and foremost, running a business, and they have to ensure that the rates charged make commercial sense. We have seen insurers introducing products which provide rebates to encourage wellness and healthy lifestyles, which is a good example of a preventive measure which will help curb premium increases through the reduction of claims incidence in the longer run.
So a key challenge would be how the balance is managed; it should be a combined effort/initiative by the healthcare industry, the government, the insurers and the insured. We expect that some form of government intervention would be necessary, for example to put in place the appropriate oversight and governance framework for both the healthcare and insurance players, coupled with adequate/relevant public education to drive desirable behaviours.
Complexity of the changes
There have been murmurs that the changes are complex and not easy to comprehend for the man on the street. There are also a lot of uncertainties and details yet to be shared. For instance, does the 30% premium loading for pre-existing conditions apply to all illnesses?
There is probably a need to differentiate the severity of pre-existing conditions. Also, the introduction of standard IP provides Singaporeans with more options in their selection of the appropriate coverage to suit their needs. However, further details with regard to the level of premiums and benefits for this standard IP need to be shared so that Singaporeans can make informed decisions.
There is a saying that “insurance is more often sold than bought”. Most Singaporeans rely on the advice of their insurance agents, many of whom are trusted friends or relatives who advise them on what to buy. They may not have a full understanding of the benefits and the long-term cost of policies that they take up.
With MediShield Life coming into play, Singaporeans should re-look at their needs and decide what would work for them and plan within their financial capability for the long run. The man on the street may still take the simplistic and short-term view that as long as the premiums are wholly covered by Medisave, they will still continue to buy an IP plan if they can currently afford it. The risk of having this mentality lies in the future, that as we age will we still able to afford these premiums?
Singaporeans need to take responsibility and plan for their future, and also ensure that they fully understand their financials and medical needs before committing into any IPs. The government can also play a part in continuing its public education of the proposed MediShield Life – the benefits and the costs involved with all these changes.
Private insurers, being providers of the IP (including the new proposed standard IP) also need to play their part in the community by providing more informed options. However, with more options also comes more complexity and confusion for the buyers.
The key solution is providing transparent information of these varying plans to the buyers. With more options now available to Singaporeans, it is even more critical for insurers to upgrade the skill of their distribution channels to ensure fair dealings of these products. The cost and benefits need to be clearly articulated to buyers in simple language.
Portability of health insurance
Another challenge we see is what Minister for Health Gan Kim Yong had also spoken about recently in parliament -- which is to encourage both employers and employees to take to portable medical benefits.
This would also address one of the premises of what the current reforms is hoping to achieve, that the people continue to be adequately covered for their healthcare/medical needs. It would appear that the most effective form of “portability” is to have the employers contribute to the employees’ Medisave accounts for purchase of the basic and integrated plans. It does seem, however, that the current incentives available are not attractive enough to employers. So it may be a case of reviewing these incentives to increase the take-up rate, which would mean that some form of government involvement would be required.
Conclusion
We are of the view that the current reforms we are seeing in the MediShield Life proposals are a step in the right direction. However, whether the objectives will be achieved will depend on how the challenges, some of which we have discussed above, are dealt with. The devil is always in the details, and often only upon implementation would new issues/challenges be uncovered and these would need to be dealt with expeditiously.
Ms Ang Sock Sun and Ms Woo Shea Leen are both Financial Services Insurance Partners at PwC Singapore.