IP rider changes: Yet another stab at dampening claims and improving insurers’ results

[SINGAPORE] Integrated Shield Plans (IPs) are once again in the spotlight, and policyholders are likely – yet again – to find that the goalposts have shifted.

The Ministry of Health (MOH) has just announced two major changes to IP riders from April next year: One, new riders will no longer cover the IP deductibles. Two, the co-payment cap – currently set at a minimum of S$3,000 a year since 2018 – will be raised to a minimum of S$6,000 per policy year.

Insurers may continue to sell existing rider plans from now till Mar 31, 2026, but new policyholders will transition to the new riders no later than their next policy renewal after April 2028. Insurers will study their own approaches for existing riders, and policyholders are free to switch to the new riders to save on premiums.

Are policyholders better off with the changes? How far will the latest measures go towards shoring up the financial sustainability of insurers’ IP portfolios?

For policyholders, the changes mean less coverage of a hospital bill. On the flip side, rider premiums are expected to be 30 per cent lower, which will be a relief. Rider premiums which must be paid by cash are a heavy financial burden, especially at older ages.

According to MOH, private hospital rider premiums have risen by about 17.2 per cent a year between 2021 and 2024. In contrast, those for private IP base plans have risen by 8.6 per cent a year.

At older ages, the cost of a rider typically far exceeds the base plan.

The last time the riders were amended was in 2018, when a minimum co-payment of 5 per cent and a co-payment cap of a minimum S$3,000 per policy year were imposed. But even with that move, insurers’ claims experience and profitability worsened.

There are two elements that policyholders must pay in an IP. These are the deductible which is pegged to the ward class, and the co-payment, which is a percentage of the claim amount. These features ensure that IPs do not cover from the first dollar of costs. By making policyholders bear a portion of the bill, it is hoped that their behaviour would shift away from the buffet syndrome of overconsumption, towards a more responsible and judicious use of healthcare.

Cost drivers

Of course, there are other elements to the ever-larger bill sizes and claims. Cost drivers include medical inflation; an ageing population and rising incidence of chronic diseases that accompany age; and new advances in treatments and therapies.

Higher charges at profit-maximising private hospitals are yet another factor, as well as overservicing by healthcare providers. Even now, one hears anecdotes of private specialists who quote differing bill estimates – depending on whether a patient intends to claim from insurance.

MOH has taken steps to tackle such aspects of the cost equation, such as setting fee benchmarks in an effort to deter overcharging; disciplining errant doctors who make inappropriate claims and exploring the feasibility of a not-for-profit hospital.

The 2018 changes to riders have proved woefully insufficient. The median bill size at private hospitals has risen by an annual compounded growth rate of 11.5 per cent, from S$9,100 in 2019 to S$15,700 in 2024.

Insurers have resorted to substantial and frequent premium hikes. Despite that, their underwriting results have worsened. MOH says in 2024, four out of seven IP insurers reported losses of 9 per cent to 48 per cent, and the remaining three “barely broke even”.

This was not for want of trying on insurers’ part. Some, for instance, have taken Prudential’s lead to introduce claims-based pricing. In this framework, those who do not make claims enjoy premium discounts.

In addition to panel specialists, some insurers also specify “partner” institutions or hospitals as part of their panel, picking those whose costs are more reasonable, such as Mount Alvernia Hospital and Raffles Hospital.

Providend chief executive Christopher Tan believes the system “must be careful not to place the bulk of responsibility on patients alone”. “Addressing this challenge requires tackling the other structural drivers as well – such as reducing unnecessary treatments and preventing medical institutions from over-servicing.”

Alex Lee, president of the Singapore Actuarial Society (SAS), says: “A main attraction of the current rider design is that policyholders can avoid most, if not all, out-of-pocket expenses when they seek treatment...

“By comparing the speeds at which premium rates of IP (which requires policyholders to pay a meaningful amount of cost out-of-pocket for treatments) and riders (which largely removes such out-of-pocket expense) have increased in recent years, getting people to pay some meaningful amount of healthcare cost out of pocket does seem to influence their choice of where to seek treatment and the services they consume, which in turn help to control healthcare cost.”

Implications for policyholders

For now, the new riders have a couple of implications for policyholders. One, they will need to ensure they keep sufficient funds in their MediSave accounts if they are to minimise out-of-pocket cash payments. When the new riders kick in next year, MediSave may have to pay a larger share of the bill since riders will pay out less.

Two, policyholders will need to keep in mind that their out-of-pocket cost may rise if the bill size is smaller.

This drives home the reality that MOH wants to emphasise – that health insurance must be brought back to its original objective, “which is to protect patients against larger healthcare bills”. “It will increase cost discipline over minor episodes and reduce overservicing and overconsumption associated with non-essential hospital admissions or treatments.” The changes “entail more co-payment for smaller bills”.

Tan said: “I do think that people will be more careful from now on before they go to a doctor to seek treatment, especially so if they are going to a private practice and the purpose is more screening in nature, which they used to claim under IP. An example is endoscopy services provided by gastroenterologists. This will in some ways reduce claims and hopefully keep premium rates stable.

“However, the concern here is that it may also discourage people from going for regular screenings, which have been proven to be effective in critical illness prevention.”

Do riders still make sense? Yes, for some, particularly as they can enlarge cancer coverage beyond the caps set under the Cancer Drug List, which apply to the IP base plan and MediShield Life.

Ultimately, however, insurance is a risk pool where overconsumption by a small minority will affect everyone. SAS has pointed out in a paper on IP portability that typically less than 20 per cent of the insured in an IP risk pool make a claim in any single year.

Lee said: “To those actively using their riders, the upcoming changes may make riders less attractive. However, for the other 80 per cent who did not claim, especially those who have been keeping their health well, the changes will help to keep riders affordable for longer.”