Forum: Way to ensure that insurance premiums are justified

Insurers have recently voiced their concerns about rising medical costs, and have raised the premiums of their Integrated Shield Plans (IPs) in tandem (Five of seven private health insurers hike IP premiums for existing plans, April 2).

A survey report found that factors influencing healthcare costs in Singapore include an ageing population, increased disease incidence, improved early detection and the long-term management of disease conditions. Other factors include adoption of costly new technologies, treatments and pharmaceuticals, and high operating expenses driven by increasing real estate prices, and salaries due to a shortage of healthcare staff.

There are already measures in place that have successfully controlled some aspects of medical inflation. The Ministry of Health (MOH) introduced fee benchmarks for doctors in 2018, and, since then, doctor fees have remained stable.

MOH also has an enforcement framework to deter doctors from submitting inappropriate claims. IP insurers have also contained costs by steering policyholders to panel doctors who have agreed to charge fees at insurers’ stipulated rates, and also to hospitals that partner with the insurers. 

With these measures in place, between 2019 and 2024, IP insurers kept their overall medical loss ratio (MLR) between 69 and 77 per cent. This ratio is the percentage of premium income that insurers pay out in medical claims, and can be used as a gauge of whether insurance premiums are appropriately priced.

Generally, an insurer with a lower MLR has a higher share of income remaining after paying medical claims to use for administrative costs or keep as profits. An overly high MLR may mean the insurer is under claims pressure, and sustainability is at risk. Between 2019 and 2024, most IP insurers kept their MLRs below 80 per cent. In contrast, in the United States, MLRs are typically 80 to 85 per cent or higher, depending on the insurance market segment.

MOH has mandated that new IP riders should not cover minimum deductibles, and the co-pay cap must be raised to at least $6,000 per year. The increase in out-of-pocket costs may instil financial prudence in policyholders when they make healthcare decisions. Claims may be moderated as a result of this new measure. Ideally, any further increase in IP premiums should be moderated as well. 

It is important to keep IP premiums affordable, so that policyholders can stay with private healthcare and avoid moving to an over-stretched public sector. As costs continue to increase, the MLR is a useful metric that can enable appropriate pricing of premiums commensurate with medical inflation. Keeping the MLR within a recommended range would ensure that premium increases are justified.

Ng Chee Kwan (Dr)
President
Singapore Medical Association