Integrated Shield Plans: Taking stock of need vs affordability

IF YOU feel premium fatigue when it comes to your Integrated Shield Plan (IP), you are surely not alone.

The two-year moratorium on premium increases comes to an end this month. Most insurers I got in touch with were vague on the question of whether they are raising premiums.

The exceptions are Income Insurance and Singlife. Income says premiums will rise from September, “as we are rolling out enhanced coverage” for base IPs and riders.

Singlife says premiums will rise by an average of more than 5 per cent across its entire portfolio, “but over half will not see a premium increase”.

Given the overall poor performance of IPs in 2023, more insurers may well follow suit.

IPs suffered years of losses prior to 2019, but a wave of measures raised expectations that they would get on a sounder financial footing. Certainly, underwriting performance returned to the black for most.

Measures since around 2020 included a redesign of riders to require a co-payment; expansion of specialist panels and a system of pre-authorisation prior to treatment; and for some insurers, claims-based pricing to encourage policyholders to remain healthy. Add to that the Cancer Drug List which aims to dampen cancer claims.

IP premiums set to rise?

Yet the latest round of underwriting results, where almost all insurers fared worse than 2022, were sobering. Of seven IP insurers, five incurred losses. Even Prudential, the pioneer in claims-based pricing, did worse – its underwriting profits dropped from S$51.6 million to S$11.4 million.

Income’s underwriting profits held steady at round S$16 million for 2022 and 2023.

Are the 2023 results a precursor of worse to come? AIA chief marketing and proposition officer Irma Hadikusuma is relatively optimistic. She says the likely culprit of poorer performance is the resumption of elective procedures post-Covid, which caused a surge in claims and reduced profits.

Prudential’s chief health officer Dr Sidharth Kachroo notes a higher volume of claims and “significantly larger” average claim sizes in 2023 compared with 2022.

“There was also an increase in claims with large bill sizes of S$100,000 and above. The largest of such claims are for cancer treatments at private hospitals,” he said.

To be sure, as Dr Kachroo says, an ageing population raises demand for healthcare. Add to that advancements in medicines and medical technology, and you get yet higher rates of medical inflation.

The government is concerned. During the Securities Investor Association (Singapore)‘s anniversary dinner earlier last month, Health Minister Ong Ye Kung raised the alarm concerning “overly generous insurance policy design… which lead(s) to bigger bills and higher premiums for all”. Intense competition among insurance companies, he added, risks “a race to the bottom”.

Already 2 per cent of seniors have given up their IPs, and rely on MediShield Life (MSHL) alone, according to the Ministry of Health (MOH). More are also downgrading their private hospital IPs.

I myself downgraded to a Class-A plan a few years ago after surveying the future premium outlays which run into thousands of dollars as I get older. While I may like the idea of a luxurious room in Gleneagles Hospital, reports of excessive charges at private hospitals for routine procedures such as cataract operations were also off-putting.

Excessive claims are often blamed on the “buffet syndrome”, where more generous plan benefits raise moral hazards. This plays out when policyholders opt for unnecessary treatments and tests, simply because they are covered.

Scrutiny on doctors

While some policyholders do demand unnecessary tests, some in the medical profession are also complicit, as MOH’s enforcement action against six doctors for “non-compliant” or excessive and inappropriate claims for Medisave and MSHL shows.

Information asymmetry is high when it comes to healthcare. If a doctor tells you to go for cataract surgery as a preventive against another condition, would you veto this? You’d have to seek a second opinion, but who would pay for yet another specialist consultation?

The enforcement action is the first under MOH’s Escalation and Enforcement Framework (EEF) which was put in place in April 2023.

The extent of non-compliance suggests there is more to come: Out of 34 “outlier” claims, 25 claims (or nearly three-quarters) were not compliant. MOH has said the cases are part of a larger and separate review to uncover potential professional misconduct by doctors, as it seeks to ensure healthcare costs and premiums remain affordable.

What action can you take as a policyholder?

• Take stock if you need an IP and/or rider especially if premiums have become unaffordable. It is estimated that as at 2020, around 2.9 million or 70 per cent of Singapore residents have IPs, and more than half of them hold riders. About 1.2 million people have only MSHL.

As MSHL covers B2/C class wards in public hospitals, IPs cater to policyholders’ desire for higher class wards and more generous benefits. Yet, the experiences of two of my non-working friends who are seniors and do not have a regular income are eye-opening. They were both warded for roughly a week in class C wards for surgery more than a year ago.

After subsidies and payouts from Medisave and MSHL, their out-of-pocket expenses were very modest, if at all. My husband, also a senior, recently underwent cataract surgery for one eye at a government clinic. The payout from his IP was small at less than S$100. After payouts from MSHL and Medisave, his out-of-pocket expense came to nil.

Further escalation of IP premiums plus stricter controls on claims could cause even younger people to drop out of the IP net as well. This does not bode well for insurers’ risk pools where they rely on younger lives to generate better profit margins.

• Switch insurer or downgrade your IP. If you are frustrated with what feels like an unremitting rise in premiums, you may be thinking about switching your insurer. This is possible if you have not made any claims and have not developed conditions such as hypertension that could qualify as a pre-existing illness.

But make sure not to cancel your IP before your new plan is approved. The government is studying a framework for IP portability or the ability to switch IP providers despite pre-existing conditions. Depending on what is recommended, if at all, IP portability could substantially raise premiums for everyone. The more generous the portability rules the higher the premiums, as a study by the Singapore Actuarial Society (SAS) suggests.

Even if you are healthy, the choice of IP insurer isn’t straightforward because the size of IP portfolios isn’t made public, much less the age profiles of the lives covered. It’s possible to infer the size of an insurer’s IP pool from accounts filed with MAS.

My rule of thumb is this: larger insurers should have the critical mass for sustainability, but even that would not spare you from premium rises. In this context, it may be better to seek advice from advisers who are not tied to a specific insurer, as they may be able to compare insurers’ service records and history of premium rises.

• Top up your Medisave. Even in retirement, it is important to continue to top up your Medisave account. Medisave is, of course, your own money and not insurance. It earns a higher rate at 4 per cent in the CPF. You can top up your Medisave account up to the Basic Healthcare Sum, which is currently S$71,500 for CPF members under 65.

• Collective responsibility. Everyone suffers when excessive claims and high premiums make insurance plans unsustainable. If you don’t maintain a private hospital plan, it’s tempting to think this is a predicament that only one segment of policies suffers. But that is not so, because of what the SAS calls the “utilisation drift” between private and public hospitals.

This is defined as a shift in utilisation from private hospitals towards public hospitals. SAS cited this in a 2020 paper as a possible consequence of the reduction in the proration factor for the use of MSHL in private hospital bills. This drift is already happening, and perhaps not just because of the proration factor.

Claims-based pricing, which raises premiums for those who make a claim, could also drive people to public hospitals, raising the burden on the public system. Half of patients with IP-plus-rider protection still end up using subsidised public healthcare when hospitalised or receiving day surgery.