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Why over-insuring is not that assuring

MUCH has been said about the strengths and weaknesses of the long-awaited recommendations crafted by the MediShield Life Review Committee, but one issue has stuck out like a sore thumb: the overbuying of Integrated Shield Plans (IPs).

In the clearest indication that something is amiss, the committee's report released last Friday stated that about three in five Singaporeans covered under MediShield purchased IPs.  

Nothing wrong there. After all, it is the consumer's perogative to have higher healthcare assurance. But seven in 10 armed with IPs that target Class A wards in public hospitals chose to stay in lower ward classes when hospitalised. Only one in 10 from the same group chose private hospitals.

Echoing a similar trend were those with IPs that target private hospitals - six in 10 chose lower ward classes in public hospitals. The committee noted twice in its report that many Singaporeans want medical treatment beyond that provided in Class B2/C wards but have "over-stretched themselves to buy the most expensive product for higher protection". 

Having said that, it qualified that this typically happens during the working years, when premiums can be paid entirely or mostly through Medisave, the national medical savings scheme used to foot hospital bills, among other things.

A quick comparison of the IPs offered by the five insurers - AIA, Prudential, Aviva, NTUC Income and Great Eastern - showed that premiums for the first 40 years of an individual's life were priced suitably low to gain market share.

For example, existing private IPs for Class B1 in public hospitals range between $78 and $207 annually, according to the comparison provided by the Ministry of Health's website. The amount payable doubles to about $297 to $410 when the consumer is between the age of 41 and 50. It rises to between $425 and $921 for those aged 51 to 65, and for those who are 66 to 90, the yearly costs go up to between $888 and $4,245.

While information is relatively accessible and most people understand that they have to pay more as they get older, only a small number of people truly realise the exponential spike in IP premiums from age 60 onwards, not to mention the accumulated lifetime costs.

All these point towards a poor comprehension of the workings of IPs - a point that the committee also made sure to reiterate throughout its report. This is why there is a pressing need for the government to educate the wider public of its entire healthcare financing system, as well as the things to look out for in choosing an IP if required, so that the individual can make an informed decision.

The knee-jerk reaction to the introduction of MediShield Life is to drop the existing IP, but hold your horses.

Typically, the existing IPs should provide enough coverage. The Life Insurance Association Singapore has assured policyholders that "there will be minimal impact on the top-up portion of policyholders' IPs".

Steven Lim, health insurance consulting and actuary partner at PwC Singapore, cautioned that the individual should compare apples to apples. "Basically, most people will be weighing the increase in the premium price against the increase in level of coverage, and also looking at other secondary factors such as the insurer's reputation and the level of service by the insurance agent.

"However, lower income earners, who currently have a Shield Plan for which the increase in premium is significant, will now have to make a choice on whether they can afford to continue with an IP."

In a similar vein, MOH advised the public to factor in their "preferred ward class" and "the affordability of premiums over the long term".

Woo Shea Leen, financial services insurance partner of PwC Singapore, said that the uncertainty surrounding IPs in terms of pricing, coverage and the treatment of pre-existing conditions is the single biggest challenge that consumers now face. "There has been some effort from MOH to address this by way of FAQs on their website, but more can be done by private insurers to inform and educate their customers on how exactly the rollout of MediShield Life and IPs will affect them."

Honestly, besides educating the consumer, perhaps the same can be done for those promoting the IPs. After all, the committee did urge the authorities to improve the existing regulatory framework by setting "clearer guidelines and rules". It also pushed for "reader-friendly" information to be disseminated and "responsible selling requirements".

For now, consumers may feel assured that the proposed changes make sense and are necessary to plug the gaps in our healthcare system. But as medical inflation and claims limits balloon, the path to universal health care is undoubtedly uphill.