New withdrawal caps for Shield Plans spark supply-side concern

Singapore

THE new additional withdrawal limits (AWLs) set by the Ministry of Health spell good news for policyholders of Integrated Shield Plans (IPs) as they will be able to use the same amount or more of their Medisave to cover the private insurance component of their premiums.

But observers raised various concerns including the need to prevent Medisave depletion and supply-side issues that lead to rising claims, which in turn lead to higher premiums.

These concerns arose after the ministry announced the new AWLs on Thursday.

Health Minister Gan Kim Yong said: "With the introduction of MediShield Life at the end of the year, we also have to redesign our Medisave usage for MediShield Life so that it is in line with the new fee structure.

"For example, we have told Singaporeans they will be allowed to use Medisave for the full amount of their MediShield Life premiums, after applicable subsidies and therefore there is really no need for any limit on Medisave usage for MediShield Life premiums."

This also applies to the MediShield Life component in IPs, he said.

Medisave-approved IPs are made up of two parts - the MediShield/MediShield Life for Class B2/C wards, and the additional private insurance coverage for Class B1/A wards and private hospital stays.

The ministry has introduced AWLs for the additional private insurance component in the IPs.

For those 40 years or below on their next birthday, the AWL is S$300 - that is, no change from the existing limit. For those who will be between 41 and 70 years old, the AWL is S$600, with the allowance rising by up to S$250. And for those who are 71 or above on their next birthday, the AWL is S$900 - an increase of S$400 to S$700 from existing limits.

They differ from the current Medisave Withdrawal Limits applied on the entire IP premium payable.

The AWLs will apply to all IPs being renewed or those that start from when MediShield Life kicks in.

Mr Gan said the older Singaporeans face higher premiums, hence the higher limit.

By increasing the withdrawal limits, the government also has to balance between helping Singaporeans purchase private insurance plans, and to assure that their Medisave will remain adequate for their healthcare needs, Mr Gan said, adding that it was a balancing factor the ministry needs to consider as it designs the withdrawal limits.

He urged Singaporeans to consider if they will need to use private or Class A ward facilities and services, and whether they are prepared to pay higher premiums, especially when they get older and IP premiums are significantly higher.

Jeremy Lim, head of Oliver Wyman's health and life sciences practice for the Asia-Pacific, said that the primary objective was to minimise or control the out-of-pocket payments, especially in older age groups where there is limited income generating capacity.

"In the short term, this is welcome news for policyholders but the concern is always that Medisave dollars will be prematurely depleted. The government will need to ensure that insurers price premiums based on medical loss ratios (claims paid out over total premiums collected) or some other metric that reflects medical inflation."

Dr Lim said that there should be "explicit prevention of premium increases solely because of increases in AWL".

Two in three Singaporeans have IPs. Of these, 79 per cent have private hospital or Class A ward coverage.

Health analyst Phua Kai Hong said that while the new limits for each age band are based on insurance claims experience, they may not indicate real health needs or demand but merely reflect medical practices on the supply side.

"If Medisave as forced savings for medical expenditure is regarded as public financing, then its basic use should be subjected to affordable limits and cost-control on the supply side. Problems could surface later with calls for even more financing to meet greater supply-induced demand."

Some agreed that the ability to use more Medisave to pay for IP premiums could drive up claims, which in turn lead to higher IP premiums.

The bottom line, said Yong Chern Chet, risk consulting director at Deloitte & Touche, is not to fall sick.

He pointed out that the current healthcare industry/business model has its players - from medical device makers and pharmaceutical companies to healthcare providers - concentrated at the point when people become ill. "And the more complicated our disease, it becomes more expensive to cure it."

So there needs to be a redesign of the system, said Dr Yong, adding that part of this is to better incentivise healthcare professionals or businesses to get involved before one gets sick and old.

The Life Insurance Association Singapore also urged people to adopt healthy lifestyles as a preventive measure. It said that IP insurers would continue to work closely with the stakeholders to more effectively manage healthcare costs in Singapore so that IPs remain affordable.

David McKeering, PwC Singapore's healthcare leader, believes that the policy change is a step in the right direction. However, he said, Singapore should also be looking at how it can continue to provide affordable world-class healthcare services to all through new integrated care models and the advancement in health information technology.