Integrated Shield Plan (IP) – What Should I Do If My Premiums Keep Going Up?

IP Planning Today Is Really Planning Against Three Risks

Financial planning framework by Lee Meng Choe. AI-generated illustration.

When I first started advising clients more than twenty years ago, choosing an IP was largely about deciding which hospital they wanted to be treated in.

Today, I think IP planning has become much more complicated because, from a financial planning perspective, we are really planning against three different risks.

1. Public Policy Risk

Healthcare financing rules do not remain the same forever.

Over the years, we have seen changes to rider structures, deductible rules, co-payment requirements and the Cancer Drug List. These changes affect what is covered, how much policyholders pay themselves and ultimately the value of our healthcare protection.

The reasons behind the changes are sound but they do bring about real and impactful changes nonetheless.

With every change that created more “holes” in the IP umbrella, our potential out-of-pocket obligations increase and our financial uncertainty goes up. We can be a “good soldier” and follow through with the premium payment responsibilities but through no fault of any, the landscape has shifted. While we continue paying premiums, the protection available to us may gradually change over time.

Healthcare planning today is therefore no longer just planning against illness. It is also planning against future policy changes.

2. Path Dependency Risk

This is perhaps the most overlooked risk.

While not always irrevocable, IP decisions are often difficult to reverse. This means that once you have decided to be covered with an insurer, or to drop your IP rider or perhaps, to rely solely on MediShield Life, that is the path that you have chosen and you will have to face all future medical bills with the path that you have chosen.

The problem is that we don’t have a chance to rehearse or try out which path suits us best and we certainly have no idea what type of medical issues we will have (if any) in the future. In my experience of recommending and making claims on IPs for more than 20 years, I’ve seen my fair share of “buyer’s remorse” and it’s not the type where a client felt they bought the wrong plan, it’s the type where they regret not buying enough.

Every medical bill is the same when we are paying with our own funds – it costs $1 of our own money to pay a bill of $1. And, every medical bill is the same when we are paying with insurance – it costs “cents on the dollar”. The regret is using 100 cents dollar when we could have used 3 or 4 cents dollar.

Think, if I were to suggest that the person you should marry is the first person you know when you start work and you will have no opportunity to date or engage first. What are the chances of the marriage working out?

Not nil but certainly poor.

The path dependency risk is like you having to make an early decision to get married without dating or engagement and if you decide to, for whatever reason to divorce, you will not be able to get married again.

It does not sound right but this reality is a risk that many face, especially in making the difficult decision to downgrade or terminate their IPs.

3. Personal Health Risk

In investing, there is a concept known as price discovery.

Nobody knows today what a company is truly worth. Over time, the market gradually discovers its value. Some buy, others sell and eventually, a price emerges and that is the real value of the company.

Healthcare or rather, our lifetime health costs are similar.

None of us knows whether we will remain healthy throughout retirement or develop cancer, heart disease or another serious illness. We are all going through our own personal health price discovery.

The logic is simple – if our lifetime healthcare costs are zero, we don’t need medical insurance. If our lifetime healthcare costs are high, we need good insurance.

There is only one problem – we don’t know or rather, it is not knowable.

This is perhaps the ultimate risk multiplier because our health ultimately amplifies the consequences of every decision we make about healthcare protection.

So, What Can We Do?

Financial planning framework by Lee Meng Choe. AI-generated illustration.

If IP premiums are going to continue to go up, if the risks that are affecting IPs have changed and if IPs are here to provide a peace of mind, then we have to ask new questions and approach the planning differently.

Rather than asking whether we should keep or cancel our IP, I would suggest taking a financial planning approach using these three simple financial planning principles of portfolio approach, budgeting and regular reviews.

1. Portfolio Approach – Using Private Plans to Mitigate Public Policy Risks

An IP should never be considered on its own. It can stand on its own if the coverage is all-encompassing but it has never been a “cover it all solution”.

A comprehensive protection portfolio should also include insurance that covers personal accident, critical illness, disability, long-term care and perhaps even cancer-specific coverage. These privately owned policies that are not subject to changes in rules or regulations and the terms and conditions remain the same from the time of purchase.

If your portfolio is comprehensive, the pain from IP changes while still hurt, is mitigated and if you have very good coverage from other plans, that may set the stage to actually downgrade your IP with confidence.

2. Use Budget As A Guide

Every financial goal requires a budget. Healthcare should be no different.

The mistake many people make is to start with the premium and then ask whether they can afford it. In financial planning, we usually do the opposite. We first decide what we can sustainably afford, then choose the solution that fits within that budget.

Buying an IP should be no different.

Rather than asking, “How much does this IP cost?”, perhaps we should ask, “How much of my income should I allocate towards healthcare protection?”

As a starting point, I generally suggest budgeting around:

• 4% of income for those who wish to maintain private healthcare access with a private IP and rider.
• 2% of income for those who are comfortable with a public IP and rider.

For retirees, I generally suggest tripling these percentages. Retirement income is usually much lower than employment income, while healthcare risks continue to increase. As a result, healthcare naturally takes up a larger share of retirement cashflow.

If your current IP premiums remain within your budget, maintaining your existing coverage may still be the right decision. If premiums begin exceeding your budget, that is the point to review your options and consider meaningful adjustments.

The problem is not necessarily that IP premiums have become too expensive. The problem may simply be that healthcare was never properly budgeted for in the first place.

3. Review and Adapt

We have to change because everything around us changes. This is certainly true for health, healthcare and healthcare financing. What we can control are the changes we make and we hope to make changes that are sensible, practical and maintain our peace of mind.

To begin with, make an effort to stay updated or if not, get a trusted advisor to guide you through the changes – not just for a one-time decision to buy or downgrade an IP, but throughout a lifetime of healthcare planning.

Next, commit to take a planning approach in all decisions. If the right decision is to set aside more than 4% of your income for IP and that is perfectly okay but it must not be at the expense of other needs that can play just an important or even more important role. Taking a planning approach where every decision is considered as part of an overall plan is the way to keep planning the main thing.