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MediShield Life must be sustainable in the long run

The introduction of MediShield Life in 2015 must rank as one of the most important planks of healthcare provision in Singapore. It covers all Singaporeans, even those with pre-existing conditions that would typically either be excluded or subject to heavy premium loading.

THE introduction of MediShield Life in 2015 must rank as one of the most important planks of healthcare provision in Singapore. It covers all Singaporeans, even those with pre-existing conditions that would typically either be excluded or subject to heavy premium loading.

The proposed enhancements, based on a consultation paper by the MediShield Life Council, are surely good news. Virtually all policyholders would welcome an expansion of benefits, such as a higher annual claim limit and the ability to claim for certain mental health conditions. But the proposals are likely to elicit a mixed response. The prospect of higher premiums, particularly after the subsidy package of around S$2.2 billion runs out in three years, may be hard to swallow.

The premium hikes will hit older policyholders hard, as they are likely retired and may not have the means to top up their Medisave accounts.

Worse still, the hikes are expected to unleash a chain of premium adjustments among private Integrated Shield plans (IP), and not just for plans catering to private hospitals. Private hospital plans will definitely be hit, due to a planned reduction in the proration factor from 35 to 25 per cent. But IP insurers may well take the opportunity to raise premiums for other plans, to shore up their overall underwriting results. An estimated 70 per cent of Singaporeans subscribe to an IP plan, to complement their MediShield Life cover.

To be sure, healthcare provision is a costly affair, particularly in Singapore which has an ageing population and rising expectations of the quality of care. A survey of medical insurers by Willis Towers Watson estimates Singapore's medical inflation in 2020 at 9.3 per cent, compared to 8.3 per cent in 2019. These rates outpace Asia-Pacific's medical inflation rate of 7.1 per cent for 2019 and 2020.

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The cost drivers, as cited by Willis Towers Watson's survey, are familiar. The biggest factor is the overuse of care - or, medical practitioners recommending too many services. The second also qualifies as overuse - the over-consumption of healthcare by members. These same factors were earlier blamed for the poor underwriting results of IP providers.

Interestingly, while cancer and cardiovascular diseases are the top two conditions by cost, two-thirds of insurers expect behavioural and mental health conditions to form the bulk of expenses, apart from hospital and inpatient care, over the next five years. According to Willis Towers Watson, as many as half of insurers in Asia-Pacific exclude mental health disorders from standard health coverage.

MediShield Life grapples with much the same pressures as private insurers - and then some. As a compulsory scheme, it does not cherry pick the best risks.

Singapore's low birth rate suggests its portfolio is an ageing one, and likely increasingly unhealthy. As a national scheme, its mandate isn't profit generating, but it does need to retain a level of surplus to ensure that it can meet claims. Ultimately, it must be sustainable in the long run.

What should give some comfort is that government hospitals' bill size inflation has been found to be a fraction of private hospitals. The 2016 study "Managing the Cost of Health Insurance" by the Health Insurance Task Force cited private hospital bill size inflation of 8.7 per cent a year between 2012 and 2014, compared to 0.6 per cent for public hospitals.

MediShield Life benefits were enhanced in 2018 and 2019, and the proposed premium adjustments take these into account. Some of the new refinements such as treatment-specific claim limits for community hospital care and higher claim limits for ward and treatment charges for the first two days of hospital stay will surely help to meet the objective of covering nine in 10 subsidised bills.

Greater transparency in MediShield Life's portfolio of risks may help Singaporeans understand why premium adjustments are necessary. So far, the Council has disclosed that between 2016 and 2020, the scheme paid out S$3.5 billion for 2.3 million claims. Fifteen per cent of the payouts were for around 350,000 claims from those previously uninsured.

On a yearly basis, does the scheme run a surplus? How much is the accumulated surplus or loss? What would the portfolio look like in another 10 or 20 years, taking into account the expected shifts in the composition of the population, the underlying health conditions and the expected rise in claims?

The S$2.2 billion of support and subsidies will keep the net premium increase for citizens to about 10 per cent in the first year. In 2023, the net premium increase after applying subsidies for the lower- to middle income, and excluding Pioneer and Merdeka Generation subsidies, may range between 26 and 35 per cent for age groups older than 50.

With the government promise that "no one will lose MediShield Life coverage because of financial difficulties", it looks as if subsidies will be needed well beyond three years.

Ultimately the healthcare system will need to shift from a curative approach - that is treatment after people fall ill - to a preventive approach, which includes screenings and counselling for a healthy lifestyle. Some insurers have already launched holistic healthy lifestyle apps, for instance.

The government, with access to vast amounts of personal data, can do a lot more, leveraging on healthtech to counsel people on diet and fitness, for instance. Healthcare costs are undoubtedly on the rise, but helping people to take a measure of responsibility for their own health will go a long way to mitigate claims costs.

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