MediShield Life: Don't let private insurers pick all the cherries

MediShield Life: Don't let private insurers pick all the cherries

SINGAPORE - Singaporeans should welcome MediShield Life, the updated universal health insurance plan being designed.

It improves on the current Central Provident Fund (CPF) MediShield scheme by providing lower out-of-pocket medical expenses due to reduced co-payment rates. There are also higher benefits, higher annual claim limits, and an unlimited lifetime limit. There is even an extension of cover from the current maximum 90 years of age to lifetime.

In addition, those who opted out previously or have been excluded due to pre-existing conditions will be included in MediShield Life. But as a finance professional, I have some longer-term policy concerns.

In my view, the Government should consider a more sustainable universal health insurance model where risks are pooled even more, in order to avoid "cherry-picking". Cherry picking occurs when private insurers take on healthy individuals and leave the remainder in the underlying CPF MediShield pool.

This was happening prior to 2005. Those who signed up for private insurance plans were taken out of the MediShield risk pool. Their premiums also left the basic MediShield pool. Since many who took up these plans were younger or healthier, the basic MediShield pool was left with a large number of older, and sicker people, paying lower premiums.

In insurance parlance, the private insurers had the pick of the sweet "cherries"; MediShield was left with the sour "lemons".

In 2005, reforms to MediShield put a stop to this by restoring a common national pool of lives to the underlying CPF MediShield layer. Rather than take these people out of the basic MediShield risk pool, they were left in the national risk pool.

Private health insurers would then come in to offer "enhanced benefits" such as higher class wards and increased benefits. Private insurers had to pay a basic premium to the CPF MediShield pool for every insured member taking on enhanced benefits.

After the 2005 reform, the so-called "private Integrated Shield" insurers began offering higher benefits and higher annual limits. They also extended the maximum age from 90 years to lifetime cover.

In this sense, MediShield Life today is only catching up with the private Integrated Shield insurers in terms of treatment at Class B2/C wards in public hospitals.

The really important policy change about MediShield Life is the costly inclusion of all uninsured and hitherto, uninsurable. I hope this point is not lost on Singaporeans.

This is a once-in-a-lifetime benefit that uninsured and uninsurable citizens of other developed economies such as the United States and Hong Kong can only look on with envy.

The US is struggling with Obamacare while the Hong Kong government is hesitant to act given the estimated HK$50 billion (S$8.1 billion) cost of bringing in the uninsured.

But my longer-term policy concern is that the overall MediShield structure will still offer "actuarial cherry-picking" opportunities to private Integrated Shield insurers.

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