New B1 insurance plan fails to address some concerns

This week, the Ministry of Health (MOH) announced the introduction of a standard B1 plan for those who want basic medical insurance coverage at the B1 level. That's one class above the B2 level that MediShield Life covers. At B1, patients can choose their doctors and enjoy air-conditioned rooms.

The new B1 standard plan is one of several Integrated Plans(IPs) that people can buy to enhance their MediShield Life coverage. It is the most basic of IPs. The problem is that it is anything but standard.

The so-called B1 standard plan, which becomes available on May 1, comes with different premiums, depending on which insurer a person buys the plan from.

MOH said it created this standard B1 plan in response to public feedback on four aspects of insurance coverage related to the launch of MediShield Life last November. They are:

Demand for affordable IPs that provide coverage beyond subsidised treatment;

Concern about the affordability of IP premiums over time;

Flexibility to reassess choice of IP over time and downgrade to a cheaper plan if needed, with many saying B1 would be enough;

Confusion about benefits since different plans offer different things.

The question is, does the introduction of the standard B1 IP address these concerns? In my opinion, the answer is "No".

Let's look at each of the four concerns in turn.

AFFORDABLE IPS

MOH has decided to leave it to insurance companies to decide on the premiums they want to charge. All MOH has insisted on is a set of standard, no-frills benefits.

As a result, premiums for the identical product do vary, by as much as $1,863 a year.

One wonders if some of these insurers are charging high premiums to discourage people because they really do not want to offer this standard IP, whether because they already have their own B1 plans or because they see little profit in this.

Furthermore, these premiums will remain unchanged only for two years, after which insurers are free to raise premiums.

So while this standard B1 plan might be affordable today, there is no guarantee that it will remain so in future.

In fact, the president of the Life Insurance Association of Singapore, Mr Khoo Kah Siang, has already warned of future hikes, saying: "IP premiums are not guaranteed and therefore different insurers may raise premiums differently over time."

The only concession to keeping this IP affordable is that it comes with no frills, so premiums will likely be lower than for those B1 IPs that come with bells and whistles.

Having said that, depending on insurer and age group, there are premiums for this standard no-frills B1 plan that cost more than some as charged B1 plans and even Class A plan for people of the same age group.

That is rather inexplicable.

AFFORDABILITY OF IP PREMIUMS

People worry about IP premiums rising over time and how they can afford to keep paying, especially after retirement, says MOH.

Yet, the premiums for the standard B1 plan for people over age 75 already exceed the Medisave withdrawal limits for most in this age group. They will have to top up in cash and that makes the plan less affordable to them.

The MediShield Life Review Committee had recommended that "the premiums for the Standard Integrated Shield Plan should form the basis for setting Medisave Withdrawal Limits" for such plans.

In the spirit of this recommendation, the full premiums for this plan should be payable by Medisave. But given the huge difference in premiums of almost $2,000 for older age groups, that is surely not possible.

To address people's concern about runaway premiums, MOH could have set a cap of a certain percentage increase a year. But it has not.

NEED TO REASSESS CHOICE OF IP OVER TIME

Many people are of the view that B1 class treatment would be sufficient for them once they have retired. With the introduction of the new standard B1 plan, all those who have bought or intend to buy IPs will be able to downgrade to a B1 plan if they wish.

In my view, there are better ways to achieve this end but, at least, this particular public concern has been addressed.

CONFUSION ABOUT BENEFITS

This concern, unfortunately, remains.

That's because with the introduction of the standard B1 plan in May, there will be a total of 12 B1 plans. True, three no longer accept new policyholders. That leaves nine B1 plans to choose from.

People's confusion over the different plans on offer could have been addressed if the standard B1 plan had replaced all existing B1 plans, so there is only one set of benefits for people to look at.

But doing so could have upset those who are on "better" B1 plans. After all, the standard plan comes with no frills, while some of the existing B1 plans offer more coverage, although at higher premiums.

For example, several existing B1 plans cover pre- and post- hospital treatment for up to 120 days. Some cover bills "as charged" with no treatment cap, so long as the treatment takes place in a public hospital B1 class.

With the plethora of B1 plans, it has just become harder to decide.

How important are pre- and post- hospital coverage? Is it worth paying slightly more for an "as charged" plan?

After all, MOH has said that the standard B1 plan would cover only 90 per cent of big B1 bills. The question people will ask is: Will that be enough for me?

Currently, fewer than 500,000 people, or just 19 per cent who have IPs, have opted for B1 coverage. By adding more B1 plans, is the ministry simply splitting the risk pool further? Will this result in greater premium fluctuation?

Looking at various IP categories today, generally the insurer with a larger market share tends to charge lower premiums while the insurer that has the smallest number of policyholders charges the most.

That makes sense, since one immense bill - if shared among a small pool of policyholders - could send premiums sky-rocketing. Knowing that, those insurers with fewer policyholders would need to protect themselves with higher premiums.

That same bill, shared by a large number of policyholders, would have a smaller impact. As these insurers face lower risks, they can afford to charge a lower safety margin.

By extension, diluting the B1 market could result in higher than necessary premiums.

If instead, all those who want the standard B1 plan form just one pool, then there is not only greater long-term stability, but it will also mean that everyone within an age group pays the same premium for the same benefits - instead of the current system where some pay more and others less for exactly the same coverage.

With health insurance, it's not a matter of just picking the cheapest on the market.

That's because the majority of older people have developed some chronic ailments that might result in exclusions should they change to a different insurer.

One way of ensuring both standard benefits and premiums is if the Central Provident Fund (CPF), which manages the basic MediShield Life, also runs this standard plan. It could then allow for people to downgrade from a higher IP with no penalty.

Alternatively, if the CPF does not want to administer the scheme, it could tender it out to one of the five insurers to manage. The other four would get a commission for passing on their existing policyholders who opt for the scheme.

That way, there will be only one standard B1 scheme, making it easier for people to choose an insurance plan that suits them best. With a larger pool of policyholders, premiums can also remain more affordable over the long term.

It will also not eat much into existing IP business as more than four in five people are choosing IPs that cover Class A or private hospital treatments.

Some would also prefer to choose as charged B1 plans that offer more coverage.

The standard B1 IP will serve, as originally meant, as a safety net for those who want more than subsidised care.

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This article was first published on March 17, 2016.
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