Rising Integrated Shield Premiums – How to Cope with It?
In Chinese, there is this saying: 可以死，不可病 – It means that you can die but you cannot fall sick. When it comes to medical planning, many people are aware that hospital bills can be expensive. Singaporeans/PRs can enhance their Medishield Life to an Integrated Shield Plan (IP), to cover themselves beyond the coverage provided by Medishield Life and to pay less or lower expenses in their medical bills.
Over the past few years, there were many questions revolving IPs. One of the most common concerns is, the rising premiums that policyholders received from renewal letters and updates on their IPs.
“How come the premiums increase so much?”
“I thought the premium just increased last year?”
“The increase is 20%???”
“Why do I need to pay for deductible now? I thought I bought the full rider before the 5% co-payment scheme?”
A few years ago, I wrote an article “5 burning questions on Medishield Life from you”. Since the launch of Medishield Life in November 2015, there have been many changes and a trend of increasing premiums in IPs. Insurers have been suffering losses and claim experiences have been high. This resulted in rising premiums for IPs.
The increases are most pronounced for private insurance component of private hospital Integrated Shield Plans (IP), especially for IP riders which typically have zero co-payment. Between 2016 and 2019, premiums of riders and the private insurance component of IP rose by an average of 24% and 10% respectively each year.
Below is an example of large claims (private hospital) paid by AVIVA from 2016 – 2018. It shows how expensive a medical bill can be.
Click above image to enlarge
Source: www.aviva.com.sg
Understanding Integrated Shield Plans (IP)
The nature of IPs is different from life insurances. IPs are mostly “As charged” (apart from older version IPs, where there is a limit on the coverage). Given that the nature of the claim payout is “As Charged”, medical inflation will result in a higher medical bill, for the same surgery or medical treatment over time.
Singapore has an average life expectancy of 83.6 and it is expected to increase further to 85.4 in 2040. The probability of a person falling sick increases, as a person grows older. With an increase in life expectancy, there is also an increase in the years of ill health. This is a part of ageing and one of the reasons why IP premiums increases with age band.
Due to the adoption of advanced technology, the prices of medical goods and services are increasing at a level two to three times of general inflation. For 2020, the global average medical trend rate is 8% and the average general inflation rate is 3.1%. Gross medical inflation rate in Singapore was 10%, which is about 2% higher than the global rate.
While insurers are doing their best to manage the claims experience, they are unable to eliminate the possibility of medical claim increase and medical inflation. To cope with medical inflation and claims experiences, the premiums of IPs have to change from time to time.
Launch of New IP riders by MOH
In order to make IPs sustainable, MOH has introduced several initiatives, one of which is the launch of new IP riders. As of 7/3/18, new IP riders from 1 April 2019 (date inclusive) will be required to incorporate co-payment with the following features:
- a 5% co-payment rate or more on hospitalisation/ outpatient treatments/ day surgery bills and
- a co-payment cap of S$3,000 or more in each policy year for pre-authorised treatments and/or treatments by any of the respective IP insurers’ panel of preferred healthcare partners.
Policyholders who purchased an IP plan (with full rider) after 8/3/18, will eventually have to switch (by 1/4/21) to the new rider with co-payment.
This rule does not apply to policyholders who purchased full riders before 8/3/18. They can still continue with their existing coverage. However, insurers are allowed to change their products or increase their premiums and some may choose to do so if their experience with policyholders having full riders resulted in higher claims.
Changes to IPs
While premium change is one of the changes in IPs, insurers will also make changes to the coverage in IPs.
Some examples include:
- Enhancing the policy year limit given medical inflation
- Higher policy year limit and post hospital treatment if treatment by panel doctors or specialist – This is to encourage policyholders to seek treatment with panel doctors, to keep the overall medical claims in control
- Inclusion of new treatment coverage eg Proton Beam treatment. Proton Beam therapy can target cancer cells with greater precision and uses about 60 per cent less radiation compared to conventional radiation therapy. It is available in Singapore in 2020.
The above examples are not exhaustive and they can be subjected to change.
From the many conversations with clients, below are some questions (with suggestions of course), which I hope will provide a better understanding and bring more clarity to your own IPs.
How can we cope with the rising premiums and changes?
Here are some points to consider in your IPs:
1. What is your choice of care?
Average bill size of private hospitals is about 3 times of that of public hospitals and is increasing more than 2 times faster than public hospitals. Premiums of IPs with entitlement to private hospitals will have a tendency to increase more than premiums of IPs with entitlement to public hospitals only. A person who is only looking at a choice of care in a public hospital, do not need to cover up to private hospitals in an IP. This can keep the premiums more manageable.
2. What if I would like to have entitlement to private care too?
People choose private doctors and hospitals over public hospitals for different reasons. Just like how a couple decides on a private gynaecologist versus a gynaecologist in a public hospital or a patient visiting a General Practitioner (GPs) versus visiting the polyclinic. Some of the reasons include convenience, preferred specialist, waiting time, friend’s recommendation etc.
While premium is a consideration in deciding which type of IP to go for, the choice of care is important too. A person, who wants to have entitlement in a private hospital and still keep the premiums affordable, can include some deductible / more co-payment in their IPs and this will vary from insurers to insurers.
3. Complementing with life insurance
Life insurance uses a different concept. Compared to IPs, the premiums of life insurance do not change once the plan is incepted, based on entry age. If a person is covered for $100k in a life insurance, the potential liability of the insurer to the policy holder is capped at $100k. In an IP, the potential liability to the insurer is “As charged” (up to the policy year limit of the IP) and the insurer is still subjected to renew the policy next year.
Because of the different nature in plans, IPs will have a trend of rising premiums and having the policies changing from time to time. A person, who wishes to keep the premiums more affordable in the long term and during retirement years, can consider complementing life insurances with their existing IPs. This will create a hybrid of fixed premiums in the midst of rising premiums in IPs.
Financial planning is planning for life’s major events. While rising premium in IPs is a concern for most, IP is still an effective tool to manage hospitalisation bills. Before making any changes to your IPs (if any), do consult a professional!
Stay healthy and stay in control!
Article by Sheela Tay
Email: Sheela.tay@gen.com.sg
The writer is an Executive Financial Services Consultant representing GEN Financial Advisory Pte Ltd.
