It was heartening to see that the MOH is getting down to some serious business with Integrated Shield Plans (IPs). It was announced and reported that the Multilateral Health Insurance Committee (MHIC) will embark on four specific four workstreams:
- Claims complaints process so that claims that IP insurers unfairly treating policyholders and doctors can be addressed
- Look into the composition of insurance panels and the pre-authorisation process
- Improve transparency across the board, including better itemised billings and publishing data on claims and premiums
- Examining the issues from a patient and consumer-centric viewpoint and see how improvements can be made from this perspective.
However, this hobbit hopes that the MHIC will resist the temptation to just address superficial issues and move on. This is especially so when we still have a pandemic to fight and people in the healthcare sector are just exhausted both physically and emotionally after more than a year of living dangerously.
It would be naïve to think that if we can just increase the size of the panels and get the insurers to reimburse more and then everyone will live happily after. In the real world, even if you kiss the frog and it turns into a handsome prince, the prince will stall fart and burp loudly from time to time.
It is therefore encouraging to hear that MOH is considering the issue of IP portability. This is a key strategic consideration in the process to make the IP sector more free-market through competition between IP insurers. Currently, because a IP policyholder often cannot change IP insurers because of non-coverage of pre-existing diseases, the competition landscape for the 70% of the population who have bought IPs is rendered sclerotic.
In addition to the issue of IP portability, there are other hard questions that this hobbit hopes the MHIC can answer:
1 What is the desired market penetration for IPs?
Today, almost 70% of Singapore residents have IPs. Is this desirable when only 35% of Singapore beds are private, A and B1 beds? This question needs to be answered clearly and quickly. Even as we speak the market size for IPs is increasing rapidly. The Business Times reported “As at end-March 2021, 20,000 more Singaporeans and permanent residents (PRs) were covered by Integrated Shield plans (IPs) and riders which provide coverage on top of MediShield Life”.
2 Should there be so many IP insurers?
As the SMA Position Paper on Troubled IPs stated – there is loss of economies of scale and duplication of costs when there are too many IP insurers. The Straits Times (ST) Forum writer Wong Sheng Min further suggested on 13 May 21 that “transferring the IP portfolio to a single, not-for-profit entity”. This hobbit thinks not-for-profit maybe a bit drastic.
Since IPs are products that bought on an annual basis MAS and MOH can come together and handle a tender exercise. Insurers can submit tenders to take over the IP portfolio. To avoid over-concentration of risk, perhaps two or three insurers with the most competitive tender submission can be awarded the right to sell IPs.
3 Should IPs be an insurance product bought on a yearly basis?
One of the key problems with the IP sector is a disjunction of expectations between the policyholder and the insurer. The IP contract is an annual one between the policyholder and the insurer. The insurer understands and behaves as such. However, this is often not the case with the policyholder. When a person buys an IP from an insurer, he doesn’t think of it as an annual contract. He is in it for the long haul and barring the unforeseen, he does not expect to ever change his IP insurer. So he gets very upset when he realises the terms of his IP may be varied from year to year or even in a matter of days, as some IP insurers tell their policyholders they can vary the terms and conditions of the IP policy by just giving the policyholder 30 days’ notice.
One of the key advantages of having a longer term IP or even “life” IP such as Medishield Life (MSL) is that of “front loading” of premiums. When a person is younger and earning a good pay, he can pay more premiums. These premiums can be used to fund claims later down the road when the policyholder is older and maybe retired.
Perhaps we can have this as well and IPs can be sold in blocks of 10 years or even 20 years with front loading of premiums. The insurers can therefore receive more premiums earlier in exchange for giving up the right to change terms and conditions at will.
4 Are IP contractual terms too loose?
The Aviva episode (whereby it was able to withdraw coverage for diagnostic scopes) highlights the issue that current IP contractual terms are probably worded too loosely so that policyholders can be adversely affected while insurers stay faithful to the wording of the contract.
LIA likes to make the case that the system is working because Aviva was made to revert to their original position of coverage of diagnostic scope.
Let this hobbit be blunt, I take little comfort that Aviva can be persuaded to do so. Will Aviva or other insurers behave responsibly in the future? There is no guarantee. I will sleep a lot better if contracts and laws are tightened instead. We should not mistake or conflate persuasion with the force of contracts and legislation.
5 What is the desired claims ratio or loss ratio?
Today, only 75% of premiums are used to pay healthcare providers. Even LIA in its position statement has said that this is a issue that should be explored further. Perhaps MHIC can come up with a desired claims or loss ratio?
6 What is the desired premium growth rate?
In the Singapore Actuarial Society paper, “Medishield Life 2020 Review, SAS Comments”, it was noted that premiums grew at a Compound Annual Growth Rate (CAGR) of 10% between 2016 to 2019. Claims grew at 11% while management costs grew at 16% and distribution costs (i.e. commissions) grew at 15% for the same period.
In the long run, costs cannot grow faster than premium growth. MHIC should come up with a sustainable premium growth rate and all major cost components must not exceed this premium growth cap.
7 How do we address the two “pre-existings” in the IP industry?
There are actually two “pre-existings” in the IP industry. There is the concept of pre-existing diseases which we are all familiar with. IP insurers attach great weight to pre-existing diseases and usually do not cover pre-existing diseases of policyholders when a new policy is bought.
On the other hand, IP insurers do not care much for the other “pre-existing” – pre-existing patient-doctor relationships which have enormous value in healthcare to patients, doctors and healthcare policymakers. In the implementation of preferred provider panels – IP insurers often seek to yank (or maybe inadvertently yank) policyholders from their existing doctors and introduce new panel doctors to them.
This great distortion in how IP insurers view pre-existing diseases vis a vis that of pre-existing patient-doctor relationships needs to be addressed urgently and comprehensively by the MHIC.
8 What is the role of claim-based insurance in IPs?
Two letters to the Straits Times Forum on 12 May 2021 highlighted the shortcomings of claim-base insurance. One was from no less the Chairman of the now-disbanded Health Insurance Task Force (HITF), Ms Mimi S. Ho.
Claim-based IPs are being introduced by several insurers now. Please note that all IP insurers are members of the Life Insurance Association (LIA), which in turn was a member of the HITF. The LIA endorsed and supported the Recommendations of the HITF when they were published. Claims-based insurance is simply a pricing mechanism or penalty that loads up your future premiums once you make a claim at a private hospital (even when you bought a private hospital IP). It is similar to what is practised in the motor insurance industry whereby once you make a claim, you lose a substantial portion of your no-claim bonus when you renew your policy.
In the current claim-based IP context, there is no penalty or loading up of premiums if you choose to go to a restructured hospital (RH).
There are two main problems with claim-based IPs. The first, as highlighted by Ms Ho, is worth quoting here,
“The task force rejected claim-based pricing as it was agreed that it is not right to incentivise policyholders to avoid seeking medical attention for fear of a premium increase.
Untreated medical conditions may lead to more serious, and more costly, health issues later on.
Policyholders should make health-related decisions based on medical needs, not a fear of premium hikes.
Claim-based pricing is a pricing mechanism. It is not a product feature. Mr Tan (Mr Tan Ooi Boon, ST Invest Editor) seems to think policyholders can shop for claim-based pricing like shopping for motor insurance.
Unfortunately, older policyholders or people with pre-existing conditions cannot easily switch health insurance companies.
The root cause of rising health insurance premiums can be attributed to advancement in medical care, increased use of diagnostic testing and higher demand for medical procedures resulting from greater consumer health awareness.
Claim-based pricing is an expedient solution because it aims only to alter consumer behaviour – when in fact consumers may not have the necessary knowledge to exercise judgment – without addressing the root cause of rising medical cost.
It is also not viable in the long run, because it undermines the fundamental principle of insurance – that of pooling similar risks of a group of similar individuals”.
She concluded by recommending that both Monetary Authority of Singapore (MAS) and MOH should ban claim-based IPs.
The second problem was highlighted by the author of the other letter, Lim Kah Wee “Claim-based insurance may lead to strained public healthcare sector”.
Claim-based IP will push policyholders to seek care back at the RHs simply because they are incentivised to do so – future premiums do not go up to a different and more expensive tier when you seek care at a RH. Premiums do go up when a policyholder seeks care at a private hospital.
Does MOH and the RHs really want more private patient business for the RHs? That is a question best answered by MOH and the RHs. But judging from my experience, appointment and waiting times are really going through the roof even for private patients at the RHs. This is more so during this pandemic when efficiency is very suboptimal because of infection and disease control measures that have been implemented to battle the scourge of Covid-19.
Also, from an IP sustainability point of view, should IPs be subsidised by government through these “voluntary downgraders” (which this hobbit has mentioned in earlier posts)? Claim-based IPs sanctions, if not rewards “voluntary downgrading”.
9 What is the role of Third Party Administrators (TPAs)?
Several IP insurers have made use of TPAs to manage their claims process. There is nothing wrong with that in-principle. But once again, TPAs are not regulated or licensed entities in Singapore, unlike insurers or doctors and ultimately the licensed entities must be held accountable for what the TPAs do. Also, how are the TPAs’ costs accounted for in IPs? Are TPA costs part of management costs (they should be) or part of the claims ratio (Which means healthcare providers are being paid even less than what the claims ratio suggests)? What is MAS’s stand on the reflection of TPA costs in the data submitted to them by IP insurers?
Which brings us to the last point…..
10 What is the role of Monetary Authority of Singapore (MAS) in IPs?
Contrary to what my crazy wizard friend, Gandaft the Demented, told me, MAS does NOT stand for “Mostly Absent and Silent” when it comes to the IP industry.
MAS is very important to the IP industry. It is the licensing authority for insurers and therefore holds very important and powerful cards in the game of IP sustainability. The role of MAS is as important as MOH, which licenses doctors and hospitals. Yet, strangely, while MAS was a member of the HITF, it is NOT a member of the MHIC. It is absent in the MHIC. This is regrettable.
There is a feeling that regulation of IPs is done in silos. The medical part of it is done by MOH while the financial aspects of it is carried out by MAS. MAS appears to look at the IP business just like any other insurance business. It should not, because no other insurance business sector involves 70% of Singapore residents and very sizeable CPF monies used to indirectly fund IP payouts through Medishield Life. Therefore, IPs deserve special attention from MAS. But the fact that it is not even a member of the MHIC when it was a member of the HITF, is baffling if not disconcerting.
This hobbit feels that the two aspects of healthcare provision and financial viability are actually greatly-intertwined and must be viewed together holistically. One cannot talk about financial sustainability without understanding what is happening at the medical or healthcare service provision level and one cannot just talk about ensuring good coverage and provision of healthcare services by IPs without also looking into the financial aspects of IP in detail.
If we are truly serious about examining the whole IP milieu comprehensively and improving the IP industry, then MAS must not take a backseat (or have no seat at all) in the MHIC but instead play a leading role in it.
As the word “multilateral’ in MHIC suggests, surely there must be some room in the MHIC for MAS to play a (big) role?