Why It Matters

How best to run ElderShield

Should the Government run ElderShield as it runs MediShield Life? That is the call made by many people who took part in focus group discussions on how to make this long-term national disability insurance more relevant.

Currently, this 15-year-old scheme is run by three insurance companies: Aviva, Great Eastern and NTUC Income. People are automatically assigned an insurer at the age of 40, unless they opt out, with premiums deducted from their Medisave accounts.

This means people do not get to choose an insurer based on who is the most competitive. All charge the same rates and give the same payouts. So, this begs the question of why the need for three insurers. Why not stick to one for greater economies of scale?

Many think it would be better if the Government took over, like with the basic MediShield Life. They argue that private insurers are in it for profit, while the Government is not. Thus premiums might be lower, or payouts higher, if the Government were to run the scheme. But this might not necessarily be so, as insurance companies have decades of expertise in this area, which the Government might lack.

However, the Government might be more open-handed in marginal claims, where insurers might stick to the letter of the agreement.

There are pros and cons to both approaches. Being more open-handed would mean higher premiums for everyone, but being too strict would deprive some who truly need the payout from benefiting.

Whatever the final decision, one thing seems clear: There is no need for three insurers, as there is no competition among them. Instead, if an insurance company is used, a tender for the best offer might be best. This could be for a fixed term. This way, the insurer that wins the tender is guaranteed a large pool of policyholders, but must remain competitive or risk losing the tender in the next round.

Having only one insurer - whether it is the Government or a private company - would also ensure that decisions on payouts are uniform.

A version of this article appeared in the print edition of The Straits Times on July 11, 2017, with the headline 'How best to run ElderShield'. Print Edition | Subscribe