Integrated Shield Plans Premiums: Heads You Win, Tails I Lose

On 15 Aug 22, The Business Times reported on the financial performance of insurers providing Integrated Shield Plans (IP) for 2021 – “Strong profits for most insurers’ Integrated Shield portfolios, but brace for premium hikes”.

This opening paragraph highlights the situation facing policyholders this coming year: “Despite markedly stronger underwriting results in 2021, most insurers with Integrated Shield (IP) plans will raise premiums this year, mostly for private-hospital base plans and riders”. The article goes on to state that 5 out of the 7 IP insurers will raise premiums this year.

The article contained a table of the IP insurers underwriting results from 2016 to 2021 (6 years). There are a total of 7 IP insurers, with Raffles Health being the smallest and latest provider. It started operations in 2018 and only posted full-year underwriting results from 2019. It has reported small losses for 2019 to 2021 (<$3M each year). In any case, Raffles is an “integrated healthcare group”, which means that its policyholders usually obtain healthcare services from Raffles Medical Group. It can probably afford to sustain small losses in its insurance arm while it makes money from the healthcare provider arm to balance the books. So let’s ignore Raffles Medical Group for now in our discussion.

Of the remaining 6 IP insurers, here are the results:

Year	Number of loss-making IP insurers (out of 6)
2016	6
2017	6
2018	5
2019	4
2020	1
2021	0

Total underwriting profit was about S$170M for 2021. Singlife with Aviva made money for the first time in 6 years and said that its profit of $32.71M could be once-off (compared to only $680K for 2020) due to a “one-off release in reserves that was kept to cater for Covid-related costs”. Let us remove the effect of this one-off surplus of $32M from Singlife with Aviva and the total underwriting profit for the 6 IP insurers would still be in the region of $138M. In 2020, these 6 IP insurers’ combined nett underwriting profit was about $107M. From 2016 to 2019, collectively, the 6 IP insurers did not make money.

Now, let’s turn back the clock a little to the time when times were bad, when most of the insurers lost money. Then, the insurers said that the IP industry was unsustainable and argued for lower reimbursement rates for healthcare providers, especially the doctors. This led to the formation of the Health Insurance Task Force (HITF) and the subsequent introduction of the MOH Fee Benchmarks and Preferred Provider Panels in an attempt to lower costs.

In an about face, the IP insurers (other than Income) did not respect the full range of the MOH Fee Benchmarks because it said doing so will lead to higher premiums for policyholders. Some IP insurers also said that having more inclusive panels (i.e. more specialists) would also lead to higher premiums as well. In other words, it was signalling to policy-makers that any move along these two directions would inevitably lead to policyholders suffering financially. And with almost 70% of Singaporeans being a IP policyholder, this was a powerful signal indeed. Till now, most of the IP providers do NOT reimburse to the higher limit of the MOH Fee Benchmarks, and Preferred Provider Panels still exist, although they have increased in size.

It is therefore quite jaw-droppingly shocking that with record profits in 2020 and 2021, and with IP providers still not respecting the higher limit of fee benchmarks, IP providers still want to raise premiums this year. And the reason given? The same as when times were bad, to keep the IP sector “sustainable”. The word “sustainable” has become a word for all seasons for IP insurers.

The Business Times article reported “Insurers cite a number of challenges in the quest to keep IPs sustainable (emphasis mine), including an ageing population and rising medical inflation which is significantly higher in private hospitals compared to public or restructured hospitals” and “increased use of newer and costlier treatments have resulted in an increase in both the frequency and severity of claims”.

To sum it up, in bad years, some IP insurers will say they need to raise premiums and cut reimbursements to keep IPs sustainable. In good years, like in the last two years, IP insurers will say they need to raise premiums because of an ageing population and rising medical inflation, so that the IP business is sustainable.

So in other words, they have given reasons to raise premiums in both good and bad years. Isn’t that a case of “heads you win, tails I lose”? Looks like these guys have figured it all out – they will raise premiums under any circumstances to keep things “sustainable”. Brilliant.

This hobbit thinks the main problem with IP is structural – IP is an annual policy. The IP provider probably views the sale of IP policies as an annual affair and no more. Premiums are collected annually and reimbursements are made annually. They will argue that there is no guarantee that a policyholder will renew the policy, which is technically true but practically not so – as often cited, a policyholder with pre-existing conditions cannot switch IP provider yearly. Once there are pre-existing conditions, policyholders are essentially stuck with the same IP provider unless they choose not to have any IP plan at all. So the best strategy for a profit-maximizing IP insurer is to raise premiums as much as possible without losing policyholders. This was pointed out by Dr Jeremy Lim in the aforesaid Business Times article, “Hence, despite improving economics as reflected by the latest numbers, insurers would still want to maintain premium increases to improve their profit margins and also keep policyholders ‘used’ to regular premium increases” and “annual premium increases (should not be) so dramatic that policyholders choose to discontinue”.

As IPs are structured as a yearly insurance contract between the policyholder and insurer, the IP insurers have no incentive or interest in smoothening out business cycles or to share some profits with their policyholders. The IP insurers’ main interest is to maximise premiums and profits every year and thereafter extract maximum commissions and bonuses for the company and for their employees

This is in contrast to say Medishield Life (MSL), which is a not-for-profit scheme and premiums are paid on a life-time basis. For example, there is “front-loading” of premiums when a person is young, healthy and usually having a good income in MSL. MSL policyholders pay more than they consume when they are young and the surplus is then used to fund policyholders’ premium shortfall when they are old and they consume more healthcare but may probably be retired with no or less income.

The question before us now is that with the way the IPs are currently structured, do IPs best serve the healthcare financing needs of Singapore going forward? In the name of sustainability, we have seen how IP insurers have justified their decision to raise premiums no matter if times are good or bad and if they are loss or profit-making. There is no mechanism to return a bit of the profits to the policyholders when times are good so as to lessen policyholders’ premium burden.

This hobbit thinks the whole business of IP has become a frightening beast that will continue to inexorably grow at the expense of the interests of policyholders and healthcare providers. It has become painfully obvious that if we are to tame this all-devouring IP beast, the whole sector needs to be fundamentally restructured and tightly regulated. The way IP businesses are run now appears to be only sustainable for IP insurers, but not for policyholders or healthcare providers.