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About the MediShield Life Fund

24 Aug 2018
    

The MediShield Life Fund is designed to be self-sustaining and based on actuarial principles, with each age group paying premiums to broadly support its own current and future claims. This means that the Fund has to set aside enough monies as reserves to honour payouts for projected future benefits, and to hold a buffer against adverse scenarios.

Setting aside adequate reserves based on actuarial projections, taking reference from the Monetary Authority of Singapore’s (MAS) Risk Based Capital (RBC) Framework for private insurers, will support the long-term sustainability of the Fund. Premiums are planned to be adjusted every three to five years, although the need for more frequent adjustments will depend on scheme experience and the Fund’s continued ability to pay claims. 

As at end 2016, the total assets of the Fund stood at $ 5.9 billion. Over the past 5 years, on average, about two-thirds of the Fund comprised reserves to fund the expected scheme liabilities. The remainder helps with the risk management of the scheme by providing a buffer against adverse scenarios, in line with MAS’s RBC Framework for private insurers.

The Fund size is affected by the size of premiums which in turn depends on MediShield Life benefits and coverage, and the consequent expected amount of claims to be paid. As expected claims increase, the Fund will need to grow to support the larger claims.
 

Liabilities Supported by the Fund

Reserves are monies that the Fund needs to set aside, after allowing for future premium collections, to honour expected future benefits (liabilities). The reserves of the Fund support the following liabilities:

Claims incurred but not yet submitted or paid
This is for expected incoming claims, where the treatment has already taken place (and hence hospitalisation expenses have already been incurred) but claims have yet to be submitted or paid. This includes estimated provisions1 for claims that are still being processed and those that have not been submitted.

Claims not yet incurred but expected to be paid in the future
This is for claims where treatments have not taken place but are expected to occur in the future (i.e. the next five years) based on actuarial projections after allowing for future premium collections. This also includes an allowance for the fact that premiums typically remain constant for several years at a time, whereas average claims go up each year with the increasing cost of medical treatments. The reserves also help the scheme meet all its obligations to members during these years.

Continuing claims
The Fund sets aside provisions to cover the projected total future costs for those who have started on multi-year treatments. For example, renal failure patients claim up to $1,000 per month, or up to $12,000 per year. Such treatment continues for many years and the claims for these patients are provided for from Fund reserves.

Future premium rebates
Policyholders currently pay some premiums ahead to finance the higher premiums at older ages. This helps to distribute premiums more evenly throughout policyholders’ lifetimes. These premiums are set aside within the Fund and used to disburse premium rebates.  As the majority of policyholders are still relatively young, it is expected that more monies will be set aside for now until more policyholders reach the ages when premium rebates get disbursed.For more information on premium rebates paid, click here

MediShield Life Fund Incurred Loss Ratio

The incurred loss ratio compares total premiums collected to total monies required to ensure that the Fund is able to meet its liabilities now as well as into the future. Total monies required for the fund includes immediate claims paid out each year and the change in required reserves needed for future payouts (as described above). This is in line with the approach used to assess the incurred loss ratio for insurers3.

A less appropriate approach sometimes cited to assess the adequacy of the Fund’s premium collection is to compare the total premiums collected to total claims paid in the same year. This approach is not a holistic representation as it omits a large part of what MediShield Life premiums are meant to support, namely future long-term claims and premium rebates.

The following table shows the Fund’s incurred loss ratio over the period 2012 to 2016. The incurred loss ratio over the period is 99%. This is derived from the Fund receiving $4,871 million in premiums while paying out or setting aside $4,815 million to support policyholders’ claims and scheme liabilities.

Table: MediShield Life Fund Incurred Loss Ratio (in $millions)  

Year Premiums Collected
[A]
Total Monies Required for Fund Operations
[B] + [C]
Incurred Loss
Ratio
([B] + [C] / [A])
Claims Paid
[B]
Change in Required Reserves
[C]
2013 $770m $335m $366m 91%
2014 $723m $381m $331m 98%
2015 $1,099m $437m $569m* 92%
2016 $1,858m $745m $1,182m 104%
2017 $1,882m^ $836m $969m 96%
2013-2017 $6,332m $6,151m  97% 

Source: CPF Annual Reports

^ In 2017, the Government provided $821mil (44%) in premium subsidies and other forms of support to help keep premiums affordable for Singapore Residents.

 * The change in required reserves in 2015 was adjusted to remove the effect of the one-off significant change in valuation basis mainly arising from the shift of MediShield to MediShield Life in Nov 2015 (e.g. universal coverage for all Singapore Residents, support for the Fund’s capital needs). The adjusted figure provides a more accurate reflection of the Fund’s operations within the year.  The change in required reserves before the adjustment was $12m and the corresponding ILR was 41%. 

The Ministry of Health and CPF Board will continue to ensure that MediShield Life premiums are priced actuarially, on a sound and sustainable financial basis in the long-term. Members can be assured that the Fund is able to honour all of its claims and remain sustainable in the future.  

[1] Provisions are made based on expected experience for incoming claims

[2] The eventual amount of premium rebates will depend on the amount of assets that are available. This is dependent on various factors, such as scheme experience and how much in premium rebates have been given out

[3] Based on the definition of incurred loss ratio as used in the annual reporting for MAS insurance statistics