MEDISHIELD Life will not collect too much in premiums in order to set aside huge reserves, Health Minister Gan Kim Yong made clear yesterday, saying it is a "misconception that MediShield is collecting more premiums than needed".
He was responding to Non-Constituency MPs Gerald Giam and Lina Chiam, who questioned the way the Government calculated the amount of reserves needed by MediShield and the impact this would have on premiums.
Other MPs, including Dr Lily Neo (Tanjong Pagar GRC) and Ms Tin Pei Ling (Marine Parade GRC), asked how MediShield Life premiums are decided.
Mr Gan said they are decided based on actuarial principles, and take into account benefits and expected claims, provisions for premium rebates as people age, reserves, and capital and administrative costs. He also rejected suggestions to cap premiums or to have the same premiums for all ages as that would mean older people would be claiming more than the premiums they paid. "The deficit will have to be paid for by the younger generation," he said.
Mr Gan also explained that long-term health insurance schemes like MediShield and MediShield Life must set aside enough reserves to honour not just current-year claims but also long-term commitments, such as continuing claims for dialysis and cancer treatments, and premium rebates for older age groups.
"It would not be responsible to all Singaporeans and policyholders if yearly premiums for MediShield just exactly balanced yearly payouts, as Mrs Lina Chiam has suggested, for this would mean that it cannot meet any continuing commitments for long-term dialysis patients or premium rebates," he said.
On Tuesday, Mr Giam, a Workers' Party NCMP, had suggested that the Government might be "setting aside too much for reserves".
He also asked why MediShield has a target capital adequacy ratio (CAR) of 200 per cent when that set by the Monetary Authority of Singapore (MAS) is 120 per cent.
CAR compares an insurance fund's financial resources with the capital it has to hold under MAS regulations. It is to hedge against risks - higher amounts represent safer products.
Mr Gan explained that 120 per cent is the minimum that MAS requires, and that "most commercial insurers typically aim for 200 per cent or higher".
Mr Giam also pointed out that last year, out of every dollar in premiums collected, MediShield only paid out 44 cents. In the United States, insurers that pay out less than 80 cents per dollar collected have to give premium rebates. The minister explained that the figure of 44 cents did not take into account future liabilities. A better comparison was with the incurred loss ratio, which did. For example, someone with kidney failure will make dialysis claims not just in the first year, but also for the rest of the person's life.
If this payment is included in the calculations, then MediShield's incurred loss ratio over the last five years was 96 per cent - "sufficient to ensure sustainability of benefits but not excessive".
He added that a buffer is also needed in case there were unexpected claims.
Said Mr Gan: "I am keenly aware of the impact on premiums, but I would rather have sufficient reserves in MediShield Life and provide the necessary premium subsidies, than to put Singaporeans' health-care needs at risk."
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