Current ElderShield premiums can sustain CareShield Life payouts

I believe the current ElderShield premiums can sustain the new CareShield Life scheme with higher monthly payouts (Current ElderShield insurers should return surplus premiums to MOH, by Mr Cheng Choon Fei; May 31).

I doubt private insurance companies would return the surplus premiums from ElderShield if it is allowed to continue, unless the Ministry of Health (MOH) takes over and changes the scheme.

The objective of insurance is to guard against unpredictable life occurrences. The mission of government-run insurance schemes is to offer better and longer payouts for the benefit of citizens.

There are many reasons why the compulsory CareShield Life scheme could be sustainable with current premium rates to offer higher payouts.

It is not difficult to figure out the annual premiums collected and claims from the recent report (Those on ElderShield will be able to upgrade from 2021; May 28).

The annual premium is around $206 million with opt-outs while the payout amount is about $8.32 million.

The claims-to-premiums ratio is less than 4.1 per cent, which is really a very small risk factor.

The average yearly number of eligible persons with severe disabilities - the person is unable to perform three out of six daily activities to qualify for ElderShield payout - was less than 1,750, based on $4,800 payout per person per year.

Without drastic changes in the prevailing social and environmental circumstances, the claims-to-premiums ratio should remain fairly stable with some fluctuation in the population with disabilities.

When CareShield Life becomes compulsory, the yearly premium collections will be more than $206 million.

It is expected that the claims-to-premiums ratio will remain within a small band while the increased premium would boost the funding pool.

Even at 50 per cent higher payouts for a longer period, the small claims-to-premiums ratio will keep the scheme sustainable because the number of people with severe disabilities would remain manageable. It may be justifiable to increase premium rate when the funds begin to shrink. Until then, the premiums should be kept at the current level.

Paul Chan Poh Hoi

A version of this article appeared in the print edition of The Straits Times on June 12, 2018, with the headline 'Current ElderShield premiums can sustain CareShield Life payouts'. Print Edition | Subscribe