A Commentary on SMA’s Position Paper on Troubled Integrated Shield Plans (IPs)

It is not every day that SMA hits the front page of three newspapers: The Straits Times, Business Times and Lianhe Zaobao. But that’s exactly what happened on 29 March 2021 in response to the abovementioned Position Paper. The paper was already released to SMA members I think about a day earlier.

The reporting on 29 March focused on “Future SMA Initiatives” which involves ranking of IP insurers and setting up of a SMA Complaints Committee for IPs and Health Insurance.

But this Hobbit thinks this this is not the real main thrust of the paper.

The main narrative of the paper is how and why we got to where we are, and draws a BIG question mark on whether IPs, the way it is structured, sold and managed, is sustainable at all.

Blameworthy or Blameless IP Insurers?

The first point made in the paper is to debunk the narrative that doctors and patients are the chief cause for overservicing, overcharging and overconsumption that are seen more commonly in as-charged plans and comprehensive first-dollar riders. They are bad, but the SMA puts a large part of the blame back at the IP insurers who first offered these insurance products. SMA is right. The IP insurers narrative of assigning blame to doctors and patients is like saying the cigarette companies are complaining about rising rates of lung cancer amongst smokers and blaming the smokers for this and that the cigarette companies who created and sold the cigarettes are themselves blameless.

The HITF Report Recommendations

The SMA clearly draws the line in the sand with how it sees the Health Insurance Task Force (HITF) Report’s recommendations vis a vis LIA.

In her letter to the ST Forum on 18 March, The Life Insurance Association’s Executive Director, Ms Pauline stated that “The HITF, which included the SMA, recommended a suite of measures to do so, including panels, pre-authorisation, fee benchmarks and co-pays”, in an apparent attempt to infer what the IP insurers are doing has/had the blessings of SMA through both parties’ membership in the HITF.

In this Position Paper barely 10 days later, the SMA resolutely states (para 18) “the SMA council wishes to make clear that it is unable to support the way how the LIA and many of its members have implemented these recommendations”.

It is clear that from SMA’s perspective, LIA and many of its members have misinterpreted and misapplied the HITF recommendations. Which party is right here? This is a point that is worth mulling over.

The Cookie Monster

This is going to take a bit longer to explain but please bear with this Hobbit. The HITF was formed in 2016 and the Report released in October 2016. Buttressing this Report is a 26-Page “LIA Study On the Cost Of Health Insurance In Singapore” (Annex D of HITF Report). It is with this study that LIA made the case that healthcare costs with respect to IPs were increasing at an alarming pace and measures to control this increase were urgent and necessary. The Study used data mainly from 2012 to 2014, a three-year period or a Compound Annual Growth Rate (CAGR) over 2 years.

Now what did this LIA Study actually say?

For the study period, it showed that IP inpatient bill sizes increased by a CAGR of 8.1% vs 2.1% for A class beds in Restructured Hospitals (Page 8: Table 1). According to LIA, this 8.1% is a very bad thing.

The Study then broke down the inpatient bill further into Room and Board Charges, Surgery Charges and Implant Charges (Page 11: Chart H). The CAGR for the same period (2012 to 2014) for the three categories were 8%, 10% and 13% respectively for private hospitals. The corresponding figures for A class were 4%, 1% and 0%. Doctors are responsible for surgery charges and 10% CAGR was held up to be a very bad thing as well.

So this was the starting point or platform for the HITF which the LIA had constructed in 2015. They obviously did their homework and credit must be given when credit is due.

Unfortunately, they stopped their homework after the HITF Report was published. Or at least if they didn’t, they chose to ignore some very significant and odious trends that were building up post-LIA Study (2015) and post-HITF Report (2016).

They probably thought everyone bought their “Insurers are sibeh cham” narrative. As recently as 18 March, in the aforementioned letter to ST Forum, Ms Pauline Lim mentioned, “(the HITF measures) are collectively intended to address overcharging, overservicing and overconsumption of healthcare services”. She was implying clearly that the HITF recommendations (implemented in the manner that LIA’s members see fit) were necessary because the three evils of overcharging, overservicing and overconsumption still existed.

Then came the Singapore Actuarial Society’s 100 mega-ton warhead “SAS Comments: Medishield Life 2020 Review” document (https://actuaries.org.sg/sites/default/files/2021-01/SASResponseMSHLReview2020FINAL.pdf)  which was published just in January this year. The Review used more recent data and a longer period covering 2016 to 2019.

It countered LIA’s claim that (at least in this period) there was overcharging, because Average Payout Per Claim went down by 1% (not up!) over this period.

It also completely countered LIA’s claim there was overservicing because the claims incidence rate for IPs (9%) was actually 1% lower than for Medishield Life (10%). It is noteworthy that this is a good comparison because Medishield Life (and Medishield before this) is well designed with copayment and deductibles being a part of the product design as compared to the as-charged and comprehensive riders being offered by IP insurers in the past

Overconsumption = overcharging X overservicing.

If there is neither overcharging nor overservicing, then it is nigh impossible to have overconsumption.

But hang on folks. There is more.

From the table given in SAS’ Comments (Page 20: Table A4), it can be inferred that the CAGR in Management Fees (16%) and Commissions (15%) were growing at much faster rates than that of Gross Premiums (10%) and Gross Claims (11%).

Gosh, how the tables have turned! The 16% and 15% are much higher than the numbers used in the 2015 LIA Study to justify their call to control doctors’ fees (10% for 2012 to 2014)  through fee benchmarking and over-provision of services through panelling and pre-authorisation. This hobbit won’t say it’s disgraceful, but these figures collectively interpreted are pretty embarrassing for LIA.

In case anyone thinks that a few percentage points do not make a big difference, please note these are COMPOUNDED rates, and they tend to have a multiplicative, explosive effect with time. This can be seen by the fact that Gross Claims increased absolutely by 35.9% over four years (when its CAGR was 11%) and Management Expenses increased absolutely by 56.6% (when its CAGR was 16%). A five-point CAGR difference translates into an absolute 20.7% difference over a four-year period. And this absolute difference will increase more rapidly with time as long as the gap exists.

As it turns out, the SAS Comments paper have revealed why there seemingly aren’t enough cookies in the jar – there is a cookie monster helping itself to more and more cookies. And the greatest irony is that the one party complaining most loudly and frequently about not enough cookies is the cookie monster itself!!!

Expensive Tradeoff Between Risk-Pooling And Cost Of Running IP

Another snippet is that that Gross Claims accounted for 75% of gross premiums collected. This means for every four dollars collected, one dollar goes to non-healthcare cost items. Insurance, at its core, is a construct that is supposed to extract more funding efficiency through risk-pooling. But if the “funding efficiency” is only 75% (i.e. only 75% goes to healthcare providers to pay for healthcare), one must wonder is this risk-pooling worth the bother at all. In the Affordable Care Act (i.e. Obamacare), it is mandated that 80% to 85% of premiums must go to healthcare providers, so as to maintain a baseline efficiency in the system. This is also why SMA calls for a 85% to 90% Gross Claims figure to be imposed on IP insurers so as to “instill cost discipline”.

One Payor To Rule Them All

Which leads us to the last point SMA was trying to make – the prospect of a single-payor system that can extract far more efficiency than the current IP sector involving seven players. In 2019, $363M was spent on management costs and commissions. This is a huge sum. If a single payor can run the whole IP system for say $63M, that is $300M in savings. This hobbit is told $300M is the ballpark figure a ‘smaller’ restructured general hospital receives in operational subsidies a year. In other words, the savings so gained can be used to fund another general hospital the size of KTPH or maybe even NTFGH. Alternatively, the money can be put into Medifund to help poor patients in the subsidised healthcare sector. This hobbit can think of no better single payor system operator than MOH. If MOH can run Medishield Life, it can certainly run IPs.

The counter argument to all this is that market competition is good and market forces must be allowed to play themselves out. But as experience has shown, the IP market is hugely imperfect as policyholders cannot freely switch IP insurers once they have pre-existing disease(s). That is why IP insurers can raise their share of the pie in terms of management costs and commissions with relative impunity.

Bad Apples and Dirty Linen

Finally, we come to some of the concerns raised about SMA’s big pushback against IP insurers. People are concerned that with SMA’s Position Paper, the LIA, its members or just their sympathizers will push back with horror stories of unethical doctors overcharging, overservicing etc. In other words, they will publicise all our bad apples and wash our dirty linen in public.

There are some 2000 specialists in the private sector and there will always be bad apples to show and dirty linen to wash. In fact, this hobbit knows quite a few examples too. But that is NOT the point. No matter how many bad apples we have (and this hobbit would like to think there are but a few) and dirty linen to wash, they are ALL encapsulated in the 11% CAGR in Gross Claims. That’s it.

This 11% is just one percentage point higher than the CAGR for Gross Premiums. It means that Gross Claims growth is very close to growing in tandem with Gross Premiums, which is the first precondition to making the IP environment financially sustainable. Now contrast this 11% to the 15% to 16% figures for commission and management costs and one will quickly realise who is the main culprit in this whole issue of IP sector being unsustainable.


The 15% to 16% CAGR for commissions and management costs makes IP unsustainable. Period. Extracting more friction through pre-authorisation, higher deductibles and copayment when using non-panel doctors or having highly restrictive panels won’t address the root cause of the problem. Reimbursing doctors at even lower rates than now may help, but at current rates how much lower can you go? MOH might as well throw in the towel and concede defeat to LIA and its members by withdrawing its Fee Benchmarks if the IP insurer fee scales go any much lower than now.

The SMA Position Paper highlights the findings of the SAS Comments on Medishield Life, and points the way to where we should look for solutions. With payout size stable and claims incidence rate for IP being 1% lower than Medishield Life, the focus of efforts to make IP sustainable must now be on the IP insurers themselves.

The numbers don’t lie….

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