‘No-claim bonus’ has its risks

26 July 2012, TODAY

The proposal last week to increase MediShield claim amounts and lengthen the age coverage is unquestionably beneficial. With these, insurance premiums will be increased, not unexpectedly.

Of the feedback and suggestions tendered in the press, common ones are on the quantum and affordability of premium increases and that the Government should consider an annual co-contribution for part of the increases.

Premiums are determined primarily on historical and projected data. It is also unsurprising if an additional margin is built in to cushion insurers from unexpected adverse circumstances. Hence, we have seen MediShield accumulating large surpluses over the years, to the tune of over S$100 million a year in recent times, due to premiums exceeding payouts.

I am unsure how growing surpluses are or will be applied.

Perhaps the Health Ministry could take a leaf from the car insurance industry to help lower the premiums payable under MediShield and linked schemes such as IncomeShield.

I am referring to the “no-claim bonus” feature, whereby graduated discounts on normal premiums payable are granted annually to deserving insured who have not made claims for specified periods. While it is fair that insurers get reasonable returns for risk taking, at least part of extraordinary surpluses beyond that, due to overestimation of premiums, should flow back to the insured and not to further benefit the insurers.

MediShield is an essential, lifelong scheme. It is rational and equitable to have a variable bonus structured with features pertinent to the scheme. In this way, those who make no claims would bear lower premiums.

The devil is in the details. Before the enhanced MediShield scheme is finalised, I hope a study would be made on a “no-claim bonus” benefit, with the advantage of not having to reinvent the wheel.

Quek Soo Beng 

26 July 2012, TODAY

At first glance, there will be improvements to MediShield coverage. When one gets to the details, though, one wonders.

On one hand, it is necessary to increase premiums. And, as the Health Minister stated, government top-ups will offset the increases. Hence, this is not a tangible burden.

But the critical impact is in the deductibles, the amount patients pay before coverage kicks in, a direct burden to many now and which will be increased. The minister has said that policyholders could seek help from Medifund. However, it has its own set of obstacles to prevent abuse.

While Medisave could be tapped, this is our own money, not a government-sponsored fund.

Arthur Lim

Reply from MOH 

4 August 2012, TODAY

We thank Mr Quek Soo Beng (“MediShield should have no-claim bonus”, July 26) and Mr Arthur Lim (“Increase premiums more, freeze deductibles”, July 26) for their interest in our efforts to enhance MediShield.

The MediShield insurance scheme helps Singaporeans pay for hospital bills that are large, even after substantial government subsidy.

Mr Quek suggested introducing a “no-claims bonus”, in favour of those who do not make claims.

We agree that such a feature could be helpful in the car insurance industry. It incentivises insured members to drive with greater care in order to minimise claims against their insurance policy unless necessary.

However, there could be risks in applying this approach in healthcare. As MediShield is intended to help members pay for large medical bills, a “no-claims bonus” might end up penalising those who fall ill and incur large bills, and might even discourage patients from seeking needed medical attention.

Mr Quek is right that “premiums are determined primarily on historical and projected data”, and that “an additional margin is built in to cushion insurers from unexpected adverse circumstances”, such as a significant increase in demand for healthcare.

MediShield is a not-for-profit, self-sustaining scheme. Funds are set aside, in line with Monetary Authority of Singapore guidelines, to cover expected payouts and future liabilities.

A portion of the funds collected from policyholders is also set aside to support premium rebates for them in their old age, in order to help maintain premium affordability. Any surplus is channelled back to ensure the scheme’s long-term sustainability.

Given that the insured population is relatively young, it is unsurprising that the amount of premiums collected exceed the payout amount. As the insured population ages, we can expect payouts to grow.

Mr Lim suggested keeping deductibles unchanged while raising premiums. In arriving at the changes in premiums, deductibles, claim limits and other parameters of the enhanced scheme, we have carefully balanced the various considerations to retain MediShield’s focus on large bills.

If deductibles are not adjusted, premiums would need to increase by more. Patients can pay for the deductible with Medisave and similarly for the MediShield premium.

Singaporeans who face difficulty with their bills can be assisted through Medifund. 

Bey Mui Leng (Ms)
Director
Corporate Communications
Ministry of Health