Ensuring MediShield Life's long-term sustainability

[SINGAPORE] MediShield Life will need to be sustainable for the long run, which will require the management of overall healthcare costs as well as setting aside sufficient reserves to meet both short-term claims and long-term commitments.

These were some of the points discussed when the MediShield Life Review Committee's (MLRC) recommendations was debated in Parliament over Tuesday and yesterday, which saw 24 members of parliament (MPs) making suggestions or raising concerns in relation to the committee's recommendations.

Overall, however, they were unanimously in favour of the report. The revised national health insurance scheme will offer lifelong coverage and better protection come end-2015.

In his closing speech yesterday, Health Minister Gan Kim Yong stressed that co-payment remains a key safeguard to prevent overconsumption and to deliver cost-effective treatments. An annual cap on out-of-pocket payments - as mooted by Nominated MP Mary Liew - could encourage "unnecessary consumption beyond the cap", which is why some level of co-payment must remain a fixture, he pointed out. As suggested by some MPs, he said that the government would keep a close watch on insurance claims and healthcare consumption patterns. It will also work with healthcare providers and insurers to better manage healthcare inflation, which could end up pushing premiums higher in time to come.

But while the government has committed some $4 billion in financial aid for MediShield Life over the next five years, Mr Gan said the government does not plan to raise taxes to pay for these MediShield subsidies. "Whether taxes have to be raised in future depends on our overall spending and our overall revenues in government," he stressed.

Although total healthcare spending in Singapore is set to increase significantly over the next decade, the government will work with healthcare providers to curb healthcare cost increases, while also ensuring it has the revenues needed over the next decade to cover the increase.

The MLRC also suggested that sufficient reserves be set aside to ensure the long-term sustainability of MediShield Life. Mr Gan said: "The reserves enable MediShield to honour not just current-year claims but also long-term commitments such as continuing claims for dialysis and cancer treatments, and premium rebates for the older age groups."

Merely balancing annual premiums to match yearly payouts would mean that the scheme would not be able to meet continuing commitments for long-term patients or premium rebates, he pointed out.

Tackling a point by Non-Constituency MP Gerald Giam who questioned the need for MediShield Fund's targeted capital adequacy ratio (CAR) of 200 per cent, Mr Gan said that the target is "broadly in line" with industry practice and recommended by MediShield's appointed actuary to ensure that the Fund can meet its liabilities to policyholders even in adverse scenarios such as worse-than-expected claims or a major fall in investment returns. As at end last year, MediShield Life's CAR was 157 per cent.

Mr Gan also cautioned against suggestions of a premium ceiling for the elderly or flat premiums for all age groups as this would lead to intergenerational cross-subsidy where the young end up paying for the elderly given an ageing population. "Instead, what we have done is to determine the premium on an actuarial basis, as recommended by the committee, while putting in place government subsidies and additional support to help the older generation and the needy with their premiums."

In response to MPs such as Fatimah Lateef on the use of annual value of homes to ascertain eligibility for premium subsidies, Mr Gan said that those who are not eligible for the premium subsidies can appeal if they need financial help and will be assessed on a case-by-case basis. Premium subsidies will not be given to those with an annual home value above $21,000 but all Singaporeans will receive transitional subsidies for the first four years.

"For those unable to afford their premiums after premium subsidies, the government will also provide additional premium support," said Mr Gan, adding that no Singaporean would drop out due to an inability to pay premiums.

In calculating MediShield Life premiums - which will be higher than current premiums in line with the better coverage - several factors were considered based on actuarial principles, such as the benefits and expected claims experience, provision for premium rebates for policyholders when they grow older as well as provisions for reserves, capital and administrative costs for the scheme.

Meanwhile, those with pre-existing conditions are being brought in under MediShield Life but will pay an additional 30 per cent of the premium for the first 10 years. In line with their higher risks, the figure should have been more but the committee recommended 30 per cent so it wouldn't be too burdensome on this group.

Mr Gan said: "The ministry is currently reviewing the types of pre-existing medical conditions which will be subject to additional premiums, and will share more details when ready."

And while he said that the government would study the MLRC's recommendation to bolster the regulatory and accountability framework for Integrated Shield Plan (IP) insurers, he also highlighted that it would be mindful not to over-regulate IPs since stringent requirements could end up limiting choice or cause higher premiums for policyholders.

For an infographic summarizing MediShield Life, click here.