SINGAPORE (Aug 6): When K Leela, 68, was diagnosed with kidney failure about a decade ago, she panicked about the cost. The homemaker needs to have dialysis at least twice a week, for life. Her husband works as a hotel bellhop, and they have three children.
Fortunately, Leela had purchased an Integrated Shield Plan (IP) several years before her diagnosis. Her policy comprised a public MediShield insurance component, as well as a private insurance component that covers stays in public hospitals up to Class B1, and treatments such as kidney dialysis. Since 2015, the MediShield component has been replaced by the mandatory MediShield Life.
Leela had also bought a rider — or an enhancement to the IP — that covers all deductibles and co-payment. A deductible is a sum to be paid before insurance coverage kicks in. Co-payment involves sharing a fraction of the bill. These “full riders” have been sold by insurers since 2006. “I am happy that everything is fully covered. I don’t feel stressed about paying more if I need additional treatment,” she says. Some 29% of Singapore residents hold full riders.
While the full rider may have eased the minds of patients like Leela, this product has pushed up IP premiums, according to the 2016 Health Insurance Task Force (HITF) report. And Singapore is now ending full riders. Will that be enough to keep healthcare costs and premiums down?
In March, the Ministry of Health (MOH) announced that insurers have up to April 1, 2019 to introduce new IP riders with at least 5% co-payment. Customers who purchase full riders from March will have to switch to those with co-payment by 2021. Insurers may cap co-payment at $3,000 a year minimally — but only if customers receive prior approval from insurers or are treated by insurer-approved doctors.
Insurers say they support MOH’s move, and the industry is now adopting other recommendations made by HITF. While healthcare experts say the reforms are positive, they add that insurers still need to do more soul-searching on what went wrong and how they should proceed.
“There is some validity in saying consumers developed a so-called ‘buffet mentality’ [in consuming healthcare]. But the system designers have to take the blame also. If one designs a perverse system, then we should not be surprised at the outcomes we get,” says Jeremy Lim, a partner in health and life sciences at Oliver Wyman. “The insurers have to look hard into the mirror.”
How did we get here?
Obstetrician-gynaecologist Dr Lee Keen Whye was sceptical when he first learnt about full riders more than a decade ago. “I asked my agent, if a surgeon charges me an unrealistically high sum, would you cover it? She smiled and said yes,” he recalls. “I then realised that [this] would open up a can of worms; the public would jump on the [full rider] bandwagon, and the insurance agents would encourage this.”
HITF did single out insurance product designs with little or no out-of-pocket expenses, where policyholders “lack the incentive” to manage costs. Indeed, a 2015 study by the Life Insurance Association, Singapore (LIA) found that, over the last three years, IP policyholders with riders incurred private medical bills 20% to 25% higher than those without riders.
IP insurers feel the pain. All six providers — excluding the latest entrant Raffles Health Insurance (RHI) — incurred underwriting losses for IPs in both 2016 and 2017. The providers’ 2017 losses totalled $146 million, even after excluding AIA’s one-off $244 million loss due to reinsurance. Premiums have risen and further hikes are expected.
The rider redesign is not a favour to private sector interests, MOH emphasises. “Let me be clear that MOH is not issuing these requirements to bail out the insurers. Our objective is to address the concerns with overconsumption, overservicing and overcharging,” Senior Minister of State for Health Chee Hong Tat said in Parliament in March.
LIA says the redesign encourages responsibility. “One key objective of this IP rider product redesign is to encourage greater ownership among individuals and reduce buffet syndrome behaviour of overconsumption of medical services which, if left unchecked, will continue to increase healthcare and claims costs,” the LIA tells The Edge Singapore.
Lim of Oliver Wyman thinks co-payment is necessary in the short term to “sensitise” consumers to costs, but cautions about the downside: “Any co-payment is fundamentally regressive. The poorer patients are the ones who are hit hardest, especially when co-payment is structured as a percentage of the total bill.”
Indeed, to patients such as Leela, rising premiums and the potential removal of her full rider seem like a double whammy. She fears having to switch to one with co-payment. “All these years, many of us have been paying our premiums to the insurers and claiming only what we need. We don’t understand how the industry works; this doesn’t seem fair to us,” she says.
Others, such as engineer Kyith Ng, 38, see both sides of the argument. “When insurers first introduced the full riders, they probably priced it cheaply to attract more customers. It’s just like when the private ride-hailing services first came. At some point, consumers must feel the true price,” he says.
Personal finance blogger Jeraldine Phneah, 27, questions whether other parties should bear responsibility too: “What about some doctors, hospitals and [intermediaries] who may also be contributing to the buffet syndrome by overcharging or overservicing?”
Fixing the system
While full riders are in the spotlight, the HITF report pinpoints other culprits for rising healthcare costs. “[Private] hospitals and medical professionals may have overcharged patients by inflating certain components of the bill, unbundling certain routine laboratory tests… or charging excessive amounts for consumables,” the report notes.
In response, MOH has set up a committee to reintroduce medical fee guidelines. Such guidelines were published by the Singapore Medical Association about a decade ago, but dropped for being potentially “anti-competitive”. Health economist Phua Kai Hong says the fallout was drastic. “What happened in the last 10 years is unprecedented; the costs went haywire.
“Some doctors would acquire certain technology, think it’s better and charge more. Some did what I would call a wallet biopsy — looking at how much the patient can afford and who is paying. There was no need for them to consult [others] and be cost-effective,” says Phua, a faculty member of the Lee Kuan Yew School of Public Policy.
Obstetrician Lee echoes this sentiment: “Everybody had a reference point, and once lifted, the doors swung open — everyone had more freedom to charge as they wished.” Lee thinks new fee guidelines will be effective, given that they are flexible enough to reward good quality and experience.
Insurers will also have to be part of the process. HITF recommends a pre-authorisation framework, where the insurer approves the procedure and cost in advance. It also advises insurers to set up a panel of preferred healthcare providers.
IP providers who spoke to The Edge Singapore say they have already taken steps. AIA Singapore has established a network of “Quality Healthcare Partners” and a pre-authorisation service. “We also recently launched Personal Medical Case Management services... to help our customers facing serious medical conditions by making sure they obtain the right diagnosis as fast as possible,” AIA says.
Aviva has a pre-authorisation service and more than 200 panel specialists, and Great Eastern launched a new call-in service, Health Connect, in March last year. “Health Connect will be able to review the customer’s insurance coverage versus the expected hospitalisation expenses, giving customers more certainty on any out-of-pocket expenses required, as well as provide pre-authorisation for medical treatment,” a GE spokesperson says.
AXA, which entered the IP scene in 2016, has more than 400 panel healthcare providers and encourages customers to use the pre-authorisation service. “This is to ensure greater peace of mind, as our policyholders will be able to find out whether their medical bills can be covered even before they are incurred,” says Sean Goh, managing director of AXA’s life strategic business unit.
Meanwhile, Raffles Medical Group’s RHI is shaking things up. For instance, it is offering consumers the choice of a $10,000 deductible that lowers the IP premium by 20% to 30%. It will also accept people with certain pre-existing conditions, subject to underwriting, with exclusions kicking in if the patient’s condition deteriorates. Christine Cheu, general manager of RHI, points out that RMG has an “alignment of interest” in being both a hospital operator and an IP provider. “RMG has the medical expertise, so our product is designed with the patient at the centre,” she says.
There has also been some collaboration. Incumbent NTUC Income partnered RHI last month to establish a panel of more than 200 private specialists. “It is important to understand holistically the reasons for IP premiums to increase, and not simply isolate it to the riders,” says Andrew Yeo, general manager for life and health insurance at NTUC Income.
Riding out the pain
Lim of Oliver Wyman believes more attention should be paid to long-term solutions, rather than simply removing full riders. “The full rider per se should not be blamed, but clumsy implementation,” he says.
“The industry collectively has been found wanting [in pre-authorisation and clinical governance]. There’s nothing wrong in offering a full rider if there are balancing mechanisms to ensure that there is no overuse or inappropriate use,” he adds. Once these long-term reforms begin to work, perhaps co-payment may even not be needed.
For now, however, insurance agents say their clients are bracing for pain. “In the short term, it will be difficult to prevent unhappiness among clients with the future implementation of [the] co-payment. [It] takes away the assurance clients used to have… especially in Singapore, where medical inflation is rising faster than in most countries in the region,” says Foo Xuan Kai, a financial services manager at Qiren Organisation, an authorised representative of AIA Singapore.
Nevertheless, Foo says his clients generally understand why the co-payment is needed for now. Interestingly, he finds that rising premiums have not shifted clients away from private hospital IPs, as many are still concerned about the public hospital bed crunch.
But others, such as Leela, are exploring how to save on healthcare costs. “Insurance premiums will just keep going up. People like me cannot do much about it,” she says.