As Integrated Shield insurers pursue profits, they must also uphold a social contract

NEARLY three million policyholders who maintain Integrated Shield Plans (IPs) have endured multiple changes over the past decade. These include the requirement for a co-payment in riders. More recently was the Cancer Drug List, where the IP base plan will cover only drugs on the list. More changes are in the offing. Just last year, the Medishield Life (MSL) review made a slew of recommendations, including enhanced benefits for MSL, higher deductibles and higher premiums. Some recommendations will have a knock-on impact on IPs which is not yet evident. MSL is the basic, compulsory plan that is activated to meet the first layer of a claim.

At what point do changes become intolerable? Put another way, what is the threshold at which policyholders begin to feel that the changes have unfairly deprived them of benefits? The most recent development, as reported in The Straits Times, is that Great Eastern Life (GE) has substantially reduced the pro-ration factor that applies when policyholders seek treatment in a higher-class ward than their plan entitlement.

For instance, a policyholder with a Class A public hospital plan, who chooses to be treated in a private hospital, will have just 35 per cent of the bill covered – down from 70 per cent. The pro-ration factor for a Class B1 policy is also being reduced from 50 per cent to 25 per cent for private hospital treatment, and from 80 per cent to 70 per cent for Class A treatment.

Pro-ration is one of many levers that insurers apply to rein in claims and keep plans sustainable, and premiums affordable. Private hospital bills are far higher than public hospital bills, and pro-ration factors have not kept pace. For MSL claims, for example, a private hospital bill will be prorated to the equivalent of a Class B2/C bill, to arrive at the MSL payout. The MSL review recommended substantial reductions in pro-ration factors to prevent unfair cross-subsidies. These will take effect later this year.

All insurers apply pro-ration factors. The rub, in the case of GE, is that the cut in pro-ration is sizeable. Most policyholders resign themselves to plan changes. After all, a health policy is unlike any other product. It can’t be lightly discarded. Even an upgrade is challenging. On one level, policies are governed by a legal contract which policyholders do their part to uphold. Their obligations include the full disclosure of health conditions at the start and faithful payment of premiums. On their part, insurers extend coverage on a guaranteed renewable basis, which means you are covered even if your health subsequently deteriorates – as long as you pay premiums.

The catch is that in all contracts, insurers may change the policy and adjust benefits – with a notice period. Some changes may be mandated by the health ministry. But most changes, such as premium adjustments, are made at the insurer’s discretion to ensure plan profitability. In this respect, the reasons for an underwriting loss – or even that there is a loss at all – are not transparent. This makes some changes hard to swallow.

But quite apart from a legal contract, there is also a social contract, where insurers have an obligation to communicate fully and advise policyholders on alternatives. Policyholders accept that their plans must remain sustainable. It benefits no one – least of all the insurer – if changes cause people to give up coverage.