Higher premiums for Integrated Shield plans put the squeeze on affordability

For insurers, raising premiums is a convenient tool to maintain profitability, but it is far from the only option

INTEGRATED Shield insurance (IPs), hospital and surgical plans that sit atop MediShield Life, are seen as an important element of healthcare financing. They are offered by private insurers and enable policyholders - an estimated 70 per cent of Singapore residents - to enhance the basic cover provided by MediShield Life. Policyholders' experience with IPs, whether they have made claims or not, has been something of a double-edged sword. While they enjoy peace of mind from coverage for illnesses, and premiums are conveniently funded out of CPF savings, they also have had to endure a steady succession of premium rises through the years. For several years until recently almost all IP insurers incurred underwriting losses as claims and expenses exceeded premiums, raising the risk that a plan might become unsustainable.

The latest round of premium rises this year, however, is a particularly bitter pill for policyholders, because they come on the heels of a year of relatively strong underwriting results. For the financial year 2021, almost all IP portfolios are now in the black. Policyholders will be dismayed that after years of enduring ever-higher premiums and adapting to measures to tamp down claims rates, it appears that their efforts are still not enough.

To be sure, private hospital IPs bear the brunt of premium hikes, due to the significantly higher costs of private hospital charges. Still, all IP policyholders have had to adapt to restrictions in the name of long-term financial sustainability. These include a co-payment feature in riders as opposed to the previous design which allowed plans to pay from the first dollar of costs. Many policyholders today also seek pre-approval for treatments and tap an insurer-appointed panel of doctors in order to enjoy lower rider premiums.

The turnaround in underwriting results is testament to the effectiveness of the measures to curb over-consumption of healthcare. But there is yet another challenge that is far less easy to rein in: stubbornly high healthcare costs, exacerbated by an ageing population and the accompanying increase in chronic illnesses. Singapore's healthcare inflation is estimated at over 9 per cent this year, significantly higher than consumer price inflation. Other factors conspire to keep costs high, including new and more advanced treatments and a staff shortage.

Yet another cost-restraint measure takes effect this year. From September, Medisave withdrawals and MediShield claims are allowed only for a list of approved cancer drugs. IPs are expected to follow suit next year. This is due to the soaring expenditure on cancer drugs, which is expected to rise from S$375 million in 2019 to S$2.7 billion by 2030.

Policyholders appreciate the benefits of insurance to reduce out-of-pocket expenses. But insurers need to strike a balance in premium adjustments. Ideally, premiums should sufficiently cover claims in any single year and provide a cushion for future years as an ageing population drives up claims. For insurers, raising premiums is a convenient tool when margins are thin, but it is by far not the option. Internal expenses like management and distribution costs need to be examined. Higher premiums are particularly hard for older policyholders who are retired and unable to easily switch insurers. Downgrading one's cover is an option to keep premiums affordable, but the CPF can also help by raising the cap on withdrawals from Medisave for Shield premiums. For their part, insurers should make premium adjustments only as a last resort and in a measured way. It would be a tragedy if the IP cover people rely on is priced out of their reach.



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