Strong medicine needed to sustain insurance coverage

PETALING JAYA: The all-in-one medical card is a very convenient accessory.

In every hospital admission, one only has to present it to the registration counter to raise a guarantee letter when getting admission to the hospital.

When the patient is discharged from the hospital, the bill is settled by the insurance company.

However, the privilege comes at a price, and the price is set to rise substantially.

In November, it was reported that premiums for medical and health insurance and takaful (MHIT) are set to rise by 40% to 70%. This has prompted some policyholders who cannot afford the higher premium to terminate their policies.

However, the increase in premium is not only justified but also a regular occurrence, according to Bank Negara Malaysia (BNM) and the finance ministry.

A 70% increase is still shocking but given the increase in the quantum of claims caused by the higher costs of medical treatment, this is inevitable.

An in-depth look at the cost of providing medical coverage and its impact on the insurance sector may perhaps explain the reasons for the increase in premiums.

The complaint

The cost of medical treatment in Malaysia has risen sharply. Worse than that, the increase is substantially higher in this country than across the Asia-Pacific.

For instance, BNM says, medical inflation was up 15% in Malaysia versus 10% across the region in 2024.

The cost is incurred mostly for hospital supplies and services (HSS), which include lab and scan charges, medicines, and medical equipment like ventilators, gloves, etc. These costs are not regulated so hospitals are at liberty to charge any amount.

In many cases, the cost of HSS accounts for up to 70% of a patient’s total bill.

While the increase in HSS costs is worrying, insurance companies have other challenges, too.

For instance, hospitals are required to issue itemised bills but the use of medical terminology makes it difficult for patients to fully understand what they are paying for and they are often left unchecked. This creates opportunities for hospitals to charge more.

Hospitals also typically impose higher charges on patients who have medical insurance than those who do not.

Since MHIT claims are only processed when admission is necessary, some policyholders, often encouraged by doctors, are getting hospitalised for diagnostic purposes and minor complaints.

As a result of the above, insurance companies have seen a steady increase in claims over the years.

For instance, statistics show that about nine out of every 100 policyholders submitted a claim in 2023, an increase from seven in 2020.

With rising medical inflation and more frequent claims, especially after the Covid-19 pandemic of 2020-2023, insurance and takaful operators (ITOs) are now paying more in claims than they are collecting in premiums.

The claims-to-premium ratio rose to 111% in 2023, and this is not even accounting for Covid-19 cases yet.

The pain

As everyone knows, keeping up with rising medical costs with decreasing revenue is unsustainable for any business.

There are ways to get out of this quagmire, but none of these methods will be painless.

Apart from MHIT products, most insurance companies offer a variety of other products, many of which are still profitable.

Some call for the profits generated in the non-medical-and-health insurance business to be used to cover the losses in the MHIT products segment.

However, while cross-subsidy may be viable, it is not sustainable in the long term and can lead to higher premiums for non-MHIT products. In any case, keeping a losing enterprise going is not a smart business.

The treatment sought

The obvious way out for insurance companies is to raise the premiums.

While some insurance companies reprice their MHIT products annually, most tend to do so every three years. This results in a more substantial increase for policyholders during the year of premium adjustment.

At an annual inflation rate of 15%, customers should expect their premiums to see an increase of up to 47% every three years.

A long-term solution is essential to ensure that people can afford medical insurance for life without putting MHIT providers out of business. More importantly, we do not want to reach a point when insurance companies are unable to pay the claims made by policyholders.

The medicine

On Dec 20, BNM announced a list of interim measures to help policyholders affected by the premium adjustments of their MHIT products. The objective is to ease the immediate financial impact on policyholders while preserving their MHIT coverage.

Instead of raising the premiums substantially at a stroke, insurance companies will spread out the increase in premiums over a minimum of three years. This measure will remain in place until the end of 2026.

According to BNM, this measure will result in at least 80% of policyholders experiencing yearly premium adjustments, due to medical inflation, of less than 10%.

Those aged 60 and above and covered under the minimum plan within the MHIT product will receive a temporary pause of their premium adjustments caused by medical claims inflation for a one-year period from their policy anniversary.

It is important to note that the interim measures do not apply to premium increases when a policyholder moves to a higher age band.

Those who hastily terminated their policies or had policies lapse in 2024 due to premium adjustments can contact their insurance companies to request reinstatement without additional underwriting requirements.

In addition to the above, insurance companies will be offering alternative products at a lower premium for policyholders who do not wish to continue with their repriced MHIT plans.

Insurance companies that do not currently have such products will make the products available by the end of 2025. Switching to these products does not require additional underwriting or any switching cost.

Policyholders are advised to contact their insurance companies starting from Jan 15, 2025 for further details.

While these are good “interim” measures, for now, the core issue of rising medical costs in Malaysia needs to be urgently addressed. Otherwise, premium adjustments might come again at even higher rates in the next two to three years.

We need to ensure that all policyholders can still afford their medical insurance while the products are still profitable enough to be offered by insurance companies.

Tackling medical cost inflation is a complex challenge. Structural healthcare reforms are crucial to controlling medical cost inflation.

But this is not just a one-party problem; everyone involved, including BNM, the health ministry, the insurance companies, the private hospitals, and even all the policyholders, will need to play a part.