ElderShield premiums collected meant to support future claims

MOH's Reply

The Straits Times, 4 Jun 2018 

ElderShield premiums collected meant to support future claims

Long-term care insurance like ElderShield works by pooling together premiums paid by policyholders in their younger years while most are still working (Current ElderShield insurers should return surplus premiums to MOH, by Mr Cheng Choon Fei; May 31).

These funds are collected and invested, so that they are available in future years, when policyholders are no longer paying premiums and are more likely to suffer from severe disability.

Premiums collected under ElderShield currently exceed the claims paid out because the age profile of ElderShield policyholders is relatively young, with a median age of 52. 

The premiums collected are not surpluses. They are meant to support future claims, when ElderShield policyholders become older and more of them become severely disabled and start to make claims.

To illustrate, annual claims paid out have risen by 12 per cent per year from 2013 to last year, much faster than the 3 per cent increase per year in premiums collected over the same period.

We expect this trend to continue, in tandem with the ageing demographic profile of policyholders. 

The Government will be administering CareShield Life on a not-for-profit basis. Any surpluses generated will stay within the fund and go towards benefiting policyholders through higher payouts or premium rebates.

For ElderShield policyholders who wish to join CareShield Life, the ElderShield premiums they have paid will be taken into account in their transition to CareShield Life and their new premiums. 

More details on the premiums and government support package for this group will be released later.

Some ElderShield policyholders may choose to remain on their current ElderShield plan, instead of switching to CareShield Life. 

Their ElderShield policies will continue to protect them, and the premiums they have paid will continue to be set aside for their future claims.

Lim Siok Peng (Ms)
Director, Corporate Communications
Ministry of Health

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Forum Letter

The Straits Times, 31 May 2018 

Current ElderShield insurers should return surplus premiums to MOH

A recent report said that private insurers collected $3.3 billion in premiums for ElderShield and only about $133 million has been paid out in claims (Those on ElderShield will be able to upgrade from 2021; May 28)

This raises the question of how exactly the surplus is used. 

In 2020, the state will take over the underwriting and, assuming that existing, though not all, ElderShield policyholders decide to upgrade to CareShield Life, what are the insurers going to do with the surplus and how? 

By 2021, the insurers would have accumulated more surplus. 

Therefore, it is necessary for them to transfer the surplus to the Ministry of Health, minus rebates given to their policyholders, to help lower the premiums of CareShield Life. 

While we understand the need to keep the surplus as reserves to pay for future claims for disability as well as to provide lifetime coverage for policyholders even after they turn 65 and stop paying premiums, such reserves become obsolete when ElderShield policyholders migrate to CareShield Life. 

That removes the risk from ElderShield providers. 

Because our Government takes over the coverage, there is no risk for the insurers to be able to provide adequate coverage for policyholders as our population ages nor is there a need to set aside amounts for future claims. 

Presently, nobody knows the claims-to-premiums ratio since the insurers started collecting premiums in 2002, nor the accumulated interest and investment returns on the excess premiums over the past 16 years. 

Rightfully, whatever the surplus, including interest earned and returns on investment, it should be transferred to MOH. 

There are many people, including myself, who have been paying ElderShield premiums for many years without claiming. 

These are the people who help to contribute to the pooling system of ElderShield. 

They should be given rebates on the CareShield Life premiums, on top of the subsidies. 

MOH must mandate that the three private insurers return all the surplus premiums, including interest and investment income, to the ministry. 

The extra revenue will certainly help to offset the higher CareShield premiums. 

Cheng Choon Fei