By Jeremy Lim
Making MediShield Life even more robust
Published on Jul 1, 2014 11:59 AM
The MediShield Life Review Committee's final report was thoughtfully prepared and presented. The authors took great pains to frame the decisions from the perspectives of competing and perhaps even mutually exclusive priorities and should be congratulated for a job very well done.
However, there are three aspects of the report that warrant further deliberation.
The first is the way premiums are adjusted according to age. In a full "community rated" scheme, an insurer charges everyone covered by the same type of policy the same premium without regard to age, gender, health status or other factors. Under MediShield Life, we have what is probably best described as an "adjusted community rated" scheme where premiums are priced based on age.
This is very reasonable from an actuarial point of view, but I wonder whether we run the risk of premium pricing running amok for senior Singaporeans in the years to come, especially for those blessed with longevity. Will we have mechanisms then to rein in sky- rocketing premiums?
Premiums are moderated in part by large numbers. The larger the risk pool, the easier it is to "spread" extreme health-care costs among the insured.
In the MediShield Life actuarial model as recommended, we retain the age bands and so the dispersion is large. Come 2019, when transition subsidies expire, Singaporeans aged between zero and 20 from high-income families would pay an annual premium of $130 while those over 90 years would pay $1,530, an almost 12-fold difference!
One option would be to use "rate bands" together with "adjusted community ratings". Rate bands limit the amount premiums for higher-risk groups can vary from the index, or base, rate and so prevent variation beyond the prescribed boundaries. In the American Affordable Care Act, known colloquially as Obamacare, the law limits the rate band to 3:1, meaning that higher-risk individuals, in this case, older individuals, will pay not more than three times what a younger one would pay in premiums.
My second concern has to do with the lack of publicly available actuarial data. The Government's commitment to MediShield Life over the next five years is an impressive $4 billion, but these numbers must be accepted on faith. If more detailed information was made available on expected medical loss ratios and accumulation of reserves, independent experts would be able to validate the numbers.
My guess is that the official numbers are conservative and MediShield Life will see very healthy increases in its reserves in the coming years. If the reserves accumulation was too large, critics might accuse the Government of setting premiums too high and adding a MediShield Life "tax" to a populace already struggling with rising costs.
The final issue concerns cost control. During feedback sessions it was clear that many citizens were worried about rapid rises in premiums for the Integrated Shield Plans (IPs), which are private insurance plans that offer more coverage than that provided by the MediShield plan. There were also calls for legislation to rein in premium increases.
However, the committee felt that doing so would not help hold costs down. Instead it would eventually "render Integrated Shield Plans financially unsustainable. This would in turn hurt existing policyholders".
While the committee encouraged "collaboration between insurers, Government and private medical professionals" to rein in medical inflation, it states elsewhere in the report that increases (in IPs) were "driven significantly by rising claims due to (i) as-charged feature of IPs and (ii) high professional fees in the private health- care sector".
It is true that doctors play a part in medical inflation. But insurers should not be let off scot-free. My colleague Jim Bonnette gave a lecture at the National University of Singapore last year entitled "Forced innovation: Experiences from the US health system". He described how the United States model was so broken that there was no choice but to innovate.
What drove this innovation?
Remember that what we regard as costs are actually revenue to health-care providers, including the salaries and bonuses of many thousands of health-care professionals. Why would the health- care system try to keep prices down?
Instead of accepting the claims submitted by health-care providers, insurers and other payers in the US began pushing back, declining to pay for re-work and hospital-acquired infections.
Other innovations are also in the works. Payers are beginning to dictate payment based on performance outcomes, rather than process or input,
Geisinger Health System in the US has been very successful with its Provencare model for heart surgery, which effectively offers a warranty for heart surgery. The New York Times describes the model simply as " …taking a cue from the makers of television sets, washing machines and consumer products, Geisinger essentially guarantees its workmanship, charging a flat fee that includes 90 days of follow-up treatment". Whether staying a day or 10 in the intensive care unit following surgery, the patient pays the same fee.
A local example just announced over the weekend would be the way the Ministry of Health will pay home palliative care providers. Instead of funding based on the number of home visits, which is the model now, funding from next month will be based on the number of patients looked after.
Health-care providers are also using Big Data analytics to know which patients to proactively focus on and what specific therapies would work on specific patients Using wirelessly enabled devices, high-cost patients are also being cared for more cost-effectively outside the confines of health- care institutions.
In the Singapore context, perhaps insurers can be encouraged to push health-care professionals to be more cost-conscious and mindful of the need for total system cost containment. But how can insurers be "pushed"? "Premium caps or limits on premium increases", which the committee rejected, come easily to mind.
The Government has accepted the committee's report and will table it as a White Paper for discussion in Parliament next month. They have scope to consult with constituents and come up with robust suggestions during the debate, to fine-tune the recommendations. Our health and our children's health deserve no less.
The writer is a partner in the global consulting firm Oliver Wyman.
This is an edited excerpt from the writer's blog http://insightshealthassociates. wordpress.com.
In the Singapore context, perhaps insurers can be encouraged to push health-care professionals to be more cost-conscious and mindful of the need for total system cost containment.