Debate on MediShield Life Committee Report

MediShield Life is a welcome shift in policy towards stronger social safety nets. In its 1993 Healthcare White Paper, the Government sounded a warning against an over-reliance on medical insurance and the risk of moral hazard. Now, 21 years later, the Government has responded to a louder voice of the people with a universal scheme that has better benefits, lower co-payments and subsidised premiums. This is a step in the right direction towards a more caring society.

Delivered in Parliament on 8 July 2014

Madam Speaker,

Anxiety about healthcare affordability weighs heavily on the minds of Singaporeans – not only the elderly, but also their adult children and those who will become old and face the risk of falling seriously ill. It is therefore important for us to work together as a nation to find solutions to the challenging problems regarding healthcare affordability, quality and accessibility in Singapore.

I would like to thank the MediShield Life Review Committee for widely consulting Singaporeans on their concerns and taking many of these into account when crafting their recommendations to the Government. I also commend the Committee for taking the initiative to address some key issues that went beyond the terms of reference given to them by the Government.

I support the motion endorsing the Committee’s report as the basis for designing MediShield Life. However, I have a number of concerns about some details of the Scheme, which I will focus on in my speech today.

At the heart of the report lies the recommendation to provide Singaporeans with better lifetime protection against large medical bills and to strengthen our social safety net. Pulling these recommendations in both directions are the competing priorities of, on one hand, the need to make MediShield Life affordable to all Singaporeans, and on the other hand, the need to ensure that the scheme is financially sustainable. This is the key challenge before the House today.

Premium subsidies

On the issue of affordability, I am glad that the Government will be providing permanent premium subsidies for low and middle income earners.

The Committee has suggested that the process for applying for subsidies should be as simple and convenient as possible. I agree and I would like to reiterate my earlier calls for premium subsidies to be provided automatically to households that have already undergone means-testing for other government assistance schemes.

For example, all households with Community Health Assist Scheme (CHAS) Blue and Orange cards should receive MediShield Life premium subsidies without having to apply separately. The same should apply to recipients of Medifund, Public Assistance and ComCare assistance.

Polyclinics, hospitals and private clinics should step up efforts to assist all their patients to apply for CHAS, so that they can receive both outpatient subsidies under CHAS, and MediShield Life premium subsidies. The Government should reach out to all lower and middle income Singaporeans before the start of MediShield Life, so that they do not miss out on the premium subsidies they are entitled to.

I would also like to suggest that the income criteria for premium subsidies be pegged to healthcare inflation so that the value of the subsidies is not eroded with rising healthcare costs and premiums.

Reserves and Capital Adequacy Requirements

On the issue of financial sustainability, the Committee has reiterated the Government’s conservative approach of setting aside substantial reserves in the MediShield Life Fund to meet current and future liabilities. It did not suggest any changes to the reserves framework.

This is an area that begs further examination. It is not just an academic exercise. The reserves framework impacts the premiums that people are required to pay.

Let me state for the record that I believe that MediShield Life should be financially sustainable in the long term, and that enough reserves must be set aside for temporary spikes in claims and long term liabilities.

However, there is a big difference between setting aside enough for reserves, and setting aside too much for reserves. Setting aside enough ensures that the MediShield Life Fund remains solvent even when claims in a particular year are higher than expected. Setting aside too much could mean collecting excessive premiums to cater to an extremely unlikely, but catastrophic event.

So how much is “enough” and how much is “too much”?

The Monetary Authority of Singapore (MAS) has in place a Risk Based Capital Framework which regualtes all insurance funds, including MediShield. The framework defines, among other things, how much the fund needs to set aside to ensure capital adequacy and solvency. This is measured using the capital adequacy ratio (CAR), which is the ratio of a fund’s net assets to its total risk requirements.

The MAS expects insurance funds to meet a CAR of 120%. According to an answer to my parliamentary question last October, the CAR of the MediShield Fund was 165% at the end of 2012, which is 45% higher than MAS requirements. At the end of 2013, the MediShield Fund had net assets of $613.3 million dollars, which is more than 1.8 times the total claims paid last year.

The Health Minister said in response to the same parliamentary question that the MediShield Fund has set a target CAR of 200%, which is 80% higher than MAS requirements.

Madam, is there really a need to set aside so much in reserves? While this manages the risk for the Fund, it could be placing an unnecessary premium burden on policyholders.

If the pace of reserves accumulation can be adjusted to be more in line with MAS requirements, premiums can be made more affordable. The Fund can still maintain a comfortable buffer above MAS requirements, but I do not see the justification for exceeding the requirements by 80% when the regulator’s requirements are already quite conservative.

Another result of parking aside too much in the reserves, is that the medical loss ratio of the MediShield scheme becomes very low. In 2013, the medical loss ratio of MediShield was 44%, which means that out of every dollar that was collected in premiums last year, only 44 cents was paid out in claims. This is the lowest loss ratio since 2001.

As I pointed out during the last Parliament sitting, under the Affordable Care Act in the United States, commercial insurance companies are required to issue premium rebates to policyholders if their loss ratio falls below 80-85%. Can MediShield Life, which is a not-for-profit scheme, do something similar, so as to reduce the premium burden on Singaporeans?

Transparency of actuarial data

Healthcare expert Dr Jeremy Lim has commented on the lack of actuarial data on MediShield Life being made available to the public. I agree that more detailed data will enable the public and independent experts to validate the conclusions put out by the Government, especially with respect to the premiums that need to be collected to keep the Fund solvent.

It would be helpful if the Government could make known its targets for the medical loss ratio, capital adequacy ratio and reserves for MediShield Life.

Since the Government says it needs to keep a large amount in reserves for “adverse scenarios”, it should explain what kind of adverse scenarios it is expecting and how much it expects them to cost.

Finally, as MediShield Life will be front-loading premiums, its annual reports should distinguish how much is being collected for pre-funding and how much is being collected to fund current claims.

Portal medical insurance

Next, I would like to discuss the issue of portable medical insurance. It is good that the Committee has brought this up in its report.

The report noted that less than 5% of employers offer portal medical benefits, and most companies that provide inpatient benefits do so through Group Hospitalisation and Surgery insurance plans (GHS) that are separate from MediShield. It acknowledged that GHS plans are “usually more attractive” than those provided by MediShield, MediShield Life and Integrated Shield Plans, and tend to offer “higher perceived value” to employees at relatively lower costs for employers.

This presents a steep challenge to adoption. We are essentially asking many employers and employees to shift to an inferior plan that may cost more.

Because of this, I think we need to approach the messaging from a different angle to encourage adoption. First, we need to explain to employees that there are clear benefits to portable insurance. When they move jobs, they can still retain their cover. Second, the universal mandate for MediShield Life means employees will already be paying premiums, whether or not their employers offer portable plans. So portable benefits provided by employers could help lower the premium burden on employees.

Third, having a single comprehensive insurance cover instead of a patchwork of duplicate covers means the employee should be able to claim a larger share of his hospital bill. And fourth, not all employers offer inpatient medical benefits to their employees. These employers could be encouraged to take the first steps by helping their employees pay their MediShield Life premiums, as this will make them more attractive organisations to work for.

To make portable benefits more attractive and comprehensive, employers could not only contribute towards their employees’ MediShield Life premiums, but also consider purchasing riders to cover some of the co-payments, so that the out-of-pocket payments by employees will be reduced.

The Government should take up the Committee’s suggestion for an adoption grant to be made available to companies to assist them in making a move to portable medical benefits that ride atop MediShield Life. MOH should also increase its efforts to better educate companies of the continuing tax incentives available, and the benefits of providing portable insurance to their employees.

Integrated Shield Plans

Next I would like to touch on Integrated Shield Plans. The Committee has suggested that the Government should work with the insurance industry to develop key features for a Standard Plan that will provide coverage at the B1 class level in public hospitals.

This Standard Plan appears to serve two main purposes: First, to provide a benchmark for consumers to compare against the plans offered by private insurers. Second, to set the Medisave Withdrawal Limit for Integrated Shield Plans.

On the first point, I share the frustration of many consumers in choosing the best Shield Plan. The Plans are currently offered by five insurance companies, with each trying to differentiate itself by offering a different set of benefits. Sometimes comparing them is like comparing apples with oranges.

Worse still, many consumers get their information about the Integrated Shield Plans from insurance agents representing individual insurers. Naturally, we cannot expect these insurance agents to give completely unbiased advice, since it is their job to market their own company’s products.

The net result is that consumers end up either choosing a plan that is not the best for them and their families, or they end up confused and unsure of which plan to choose.

I note that the MOH has a section on its website that provides a comparison of MediShield and different Integrated Shield Plans. This is a good initiative that should be better publicised, so as to reduce confusion and also encourage more consumer self-service. It could also spur more competition and lower prices, as the insurance companies will compete more on features and price, and less on their marketing ability.

I would like to seek more clarification on how the Standard B1 plan will be implemented:

First, will the Government tender out the Standard Plan to one insurance company or will all insurers be expected to offer this plan? If it is tendered to one insurer, how will it ensure sufficient competition such that the premiums and benefits are to the advantage of consumers’?

Second, if existing Integrated Shield Plan policyholders decide to switch to the Standard Plan, will they be subject to underwriting, where their pre-existing conditions will get excluded or risk-loaded? If so, then it probably would not make sense to switch, especially for older policyholders who are likely to have developed pre-existing conditions.

For many Singaporeans, the main issue they have with Integrated Shield Plans is that the Medisave Withdrawal Limits are too low, forcing them to cough out cash to pay their premiums. This is especially so for older policyholders, who now have to top up anywhere between $100 and $3,500 a year in cash to pay their B1 plan premiums. This is frustrating for many of them, especially retirees who are short on cash but have sufficient Medisave balances.

I hope the development of a Standard B1 Plan will raise the Medisave Withdrawal Limit to better meet the cost of Integrated Shield Plan premiums, especially for older policyholders.

Conclusion

Madam Speaker, MediShield Life is a welcome shift in policy towards stronger social safety nets. In its 1993 Healthcare White Paper, the Government sounded a warning against an over-reliance on medical insurance and the risk of moral hazard. Now, 21 years later, the Government has responded to a louder voice of the people with a universal scheme that has better benefits, lower co-payments and subsidised premiums. This is a step in the right direction towards a more caring society.

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Afternote:

Following my speech, PAP MP Janil Puthucheary said that the minimum medical loss ratio of 80 to 85 per cent under the Affordable Care Act (“Obamacare”) includes not just direct claims but also the money put aside for “unpaid claim reserves and contingent benefits”. On further research after his speech, I found a US state government website which defines “medical claims” as including “adjusted incurred claims”, not just direct claims. I realise I made an oversight about how insurance companies in the US define “medical loss ratio”. Dr Puthucheary said that a more appropriate comparison in Singapore is the incurred loss ratio, which compares the premiums people pay with the claims that are paid out as well as what the MediShield fund will need to meet its future liabilities. While both medical loss ratio (in the US) and incurred loss ratio (in Singapore) include future liabilities, it is not clear whether they both use exactly the same input factors. Therefore, comparing MediShield’s incurred loss ratio with the medical loss ratio of US insurance companies may not yield a like-for-like comparison either. This is one of the reasons why I asked for more transparency of MediShield’s actuarial data, so that the public can make their own assessments and arrive at their own conclusions.

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