Explain reason for higher CareShield Life premiums

I refer to the article on CareShield Life (ElderShield to make way for compulsory CareShield Life, May 28).

Last year, Health Minister Gan Kim Yong revealed that only about $100 million of the $2.6 billion collected in ElderShield premiums between 2002 and end-2015 had been paid out, which amounted to less than 4 per cent of premiums collected being paid out.

In justifying the huge disparity between collections and payouts, Mr Gan explained that "it is prudent for the total amount of premiums collected to exceed the amount of claims paid while our policyholders are still young, because the premiums collected are meant to provide coverage against future claims throughout the policyholder's lifetime" as "the proportion of claims over premiums collected has been increasing since 2002".

Notwithstanding Mr Gan's explanation, the Government has yet to specifically justify the need for this huge disparity in more concrete terms, much less explain the need for the additional premiums levied under the new CareShield Life scheme.

Based on the provided data, it seems that the collected amountis more than sufficient to cover payouts, even if the cumulative value of these required payouts increases by a whopping 15 to 20 times over the next 15 years.

In addition, these substantial surpluses could potentially be invested to yield further returns, thereby reducing the need to regularly raise premiums.

The Health Ministry in the past had also furnished a similar explanation - that pre-funding was necessary - when asked why MediShield Life collected almost three times as much as what was paid out between November 2015 and September 2016.

Assuming that that MediShield Life - a more comprehensive and complex scheme - is sustainable on a 33 per cent collections-payout ratio, the Government needs to justify the need for premium increases for CareShield Life when the collections-payout ratio for ElderShield is currently at less than 4 per cent.

For instance, is the cost of the new CareShield Life expected to be more than eight times the cost of ElderShield? Is there a way to integrate the benefits of CareShield Life within the framework of MediShield Life, given that both are now compulsory?

The Government should answer these questions, for it otherwise risks giving the impression that it is conflating fiscal prudence with parsimony.

Lee Zhe Xu

A version of this article appeared in the print edition of The Straits Times on May 29, 2018, with the headline 'Explain reason for higher CareShield Life premiums'. Print Edition | Subscribe