31 July 2015

MediShield — Membership Has Disadvantages

When MediShield Life is introduced later this year, it will provide all citizens and permanent residents with hospitalisation insurance, including people with pre-existing conditions.

Existing MediShield Members

When MediShield was introduced in 1990, many people decided not to opt out even though their employers provided them with hospitalisation insurance that was more comprehensive than that under MediShield.

In other words, they had overlapping hospitalisation insurance coverage.

Since they can make a claim for hospitalisation expense against one policy only, they typically claimed against the hospitalisation insurance provided by their employers, rather than MediShield.

Were they silly, throwing away their hard earned money by paying MediShield premiums but not making claims against MediShield?

Definitely not.

Their rationale for double hospitalisation insurance was simple: unless they continue working until they die, they will stop work one day. At that point in time, they will no longer enjoy the hospitalisation insurance that their employers used to provide.

However, at that future point in time, there is the significant risk that they may have medical conditions — a not unlikely possibility as they age — that render them not eligible for standard hospitalisation insurance (i.e., without exclusions) or any hospitalisation insurance.

In order to ensure that they will have at least basic hospitalisation insurance, irrespective of the state of their health, when they stop working, they have been loyal MediShield members, paying MediShield premiums (in many cases, for the past 25 years), but hardly making any claims against MediShield.

Introduction of MediShield Life

Now the Government wants to bring people with pre-existing conditions under MediShield Life. Many of them have not been insured under MediShield and have not been paying MediShield premiums.

Bringing people with pre-existing conditions under MediShield Life is estimated to cost $1.1 billion over the first five years, which will be borne as follows[1]:

▪ Government will bear about 75 per cent of the costs of bringing those with pre-existing conditions under MediShield Life, at an estimated cost of $850 million over the first five years.

▪ Individuals with pre-existing conditions will pay an additional 30 per cent of the standard premiums for the first ten years.

▪ All other Singaporeans will co-share a modest part of the costs [estimated to be not more than 3 per cent of current MediShield premiums].

It is right to bring people with pre-existing conditions under MediShield Life.

But how is it right to require MediShield members to pay higher premiums to help defray the cost of doing so? As mentioned above, many MediShield members have been paying premiums for years, if not decades, for no reason other than to avoid the predicament that people with pre-existing conditions now find themselves in.

The MediShield Life Review Committee's rationale for MediShield members to pay higher premiums is weak[2]:

▪ Everyone shares in the national risk pool and plays a part in supporting pooled health care costs.

▪ This is in line with the philosophy of greater collective responsibility, and reflects each person's contribution toward a inclusive society.

Collective responsibility means that MediShield (and MediShield Life) members share in the national risk pool, which they join before they are aware that they have pre-existing conditions.

Collective responsibility does not mean that MediShield members — who paid to assure themselves of uninterrupted hospitalisation insurance irrespective of the future state of their health — being forced to share the cost of bringing people with known pre-existing conditions under MediShield Life.

Do the many years of premiums paid by MediShield members count for nothing?

Future Costs

Some people argue that existing MediShield members will only pay 3 per cent more in premiums, and this additional amount is minuscule.

This is not true.

Firstly, the Government has committed to bearing about 75 per cent of the cost of bringing people with pre-existing conditions under MediShield Life. However, determining such cost clearly is easier said than done because deciding whether or not a condition is derived from the initial pre-existing condition may not be an exact science.

Secondly, people with pre-existing conditions will pay a loading for 10 years, after which they will pay standard premiums. Does this mean that the Ministry of Health assumes that these people will be either dead or in remission by 2026?

Thirdly, the cost of bringing people with pre-existing conditions under MediShield Life is estimated to be $1.1 billion over the first five years[3]. If it exceeds $1.1 billion, the higher cost will be borne by all MediShield Life members, and presumably the Government, when the premiums are adjusted based on actual claims experience, which will be attributable an assortment of factors not just the treatment of pre-existing conditions alone.

MediShield Life members will likely see a nasty increase in premiums when the premiums are next adjusted, which will possibly coincide with the expiry of the transitional subsidies.

Separate Pool

The Committee considered, but rejected, setting up a separate risk pool for people with pre-existing conditions because it would result in highly concentrated costs and a potentially unsustainable scheme. While the Government had indicated its willingness to assist with subsidies, such scheme will be inefficient and not the best use of tax payers' money. Claims would be volatile and premiums would be higher.

The Committee's decision makes no sense. The premiums for this separate risk pool can be set at 30 per cent of the standard MediShield Life premiums, with the Government subsidising the rest of the cost. How difficult is that?

Conclusion

The reason why the Committee recommended putting people with pre-existing conditions and existing MediShield members in the same risk pool in MediShield Life is clear: reduce the Government's burden by forcing MediShield members to cross-subsidise people with pre-existing conditions based on the flimsy notion of greater collective responsibility.

In the process, it makes a monkey of the many people who have been paying MediShield premiums for years, if not decades, for no reason other than to avoid the predicament that people with pre-existing conditions now find themselves in.

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Notes

1. The MediShield Life Review Committee Report, 2014.

2. Ibid.

3. Ibid. There currently are an estimated 60,000 people with pre-existing conditions of varying severity among the 270,000 people not covered under MediShield, and another estimated 65,000 people covered under MediShield with exclusions. The annual claim limit under MediShield Life will be $100,000. There will be no lifetime claim limit. The co-insurance amount will be reduced.

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