Puthucheary v Gerald Giam on MediShield reserves

Puthucheary v Gerald Giam on MediShield reserves
Yesterday’s exchange – on the topic of MediShield Life – between WP’s Gerald Giam and PAP’s Janil Puthucheary continued from their face-off in May, when Parliament last sat to debate the President’s address.


A PEOPLE'S Action Party (PAP) MP and a Workers' Party (WP) MP have clashed for the second time over whether MediShield is storing too much in its reserves.

The exchange between PAP MP Janil Puthucheary (Pasir Ris-Punggol GRC) and WP Non-Constituency MP Gerald Giam yesterday continued from their face-off in May, when Parliament last sat to debate the President's address.

Rising to speak on the MediShield Life review committee's report, Mr Giam asked if the MediShield Life fund is setting aside too much for reserves.

This would come at the price of "excessive premiums to cater to an extremely unlikely, but catastrophic event", he said.

He pointed to requirements set by the Monetary Authority of Singapore's (MAS') Risk-Based Capital Framework, which regulates all insurance funds, as a gauge.

Mr Giam said MAS expects insurers to meet a capital adequacy ratio of 120 per cent.

This ratio measures a fund's net assets against its total risk requirements.

The ratio of the MediShield fund at the end of 2012 was 165 per cent.

The fund has set a target ratio of 200 per cent, which Health Minister Gan Kim Yong has said is in line with industry best practices. Mr Giam, however, said he did not see the justification for exceeding the requirements by 80 percentage points.

Dr Puthucheary later rebutted him, saying the 120 per cent set by MAS is not a target but a floor insurance schemes must operate above.

Many private for-profit companies operate with a capital adequacy ratio of 200 per cent or more to avoid putting their operations at risk, he said.

"This is the correct thing to compare with."

In his speech, Mr Giam also cited the "very low" loss ratio of MediShield. Last year, he said, its medical loss ratio was 44 per cent, meaning that out of every dollar collected in premiums, just 44 cents were paid out in claims.

As he did in May, Mr Giam compared this to the United States' Affordable Care Act or Obamacare, where insurance companies must issue premium rebates to policyholders if their loss ratio falls below 80 to 85 per cent.

He also called for more actuarial data on MediShield Life, such as the Government's targets for the medical loss ratio, capital adequacy ratio and reserves.

But Dr Puthucheary later repeated his charge that Mr Giam had made a mistake in citing the US example.

The ratio Mr Giam cited for MediShield was "a simple ratio between the premiums that are brought in and the claims that are paid out every year".

The Obamacare minimum loss ratio of 80 to 85 per cent includes not just direct claims but also the money put aside for unpaid claim reserves and contingent benefits, among other things, he said.

A more appropriate comparison in Singapore is the incurred loss ratio, which compares the premiums people pay with the claims that are paid out as well as what the MediShield fund will need to meet its future liabilities, he said.

MediShield's incurred loss ratio last year was 91 per cent, he said. The average over the last five years was 96 per cent.

This article was first published on July 9, 2014.
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