SINGAPORE (Feb 16): In 2014, Patrick Tan underwent several surgical procedures as a result of two accidents suffered, while playing football. Eighteen months later, his medical bill was an astronomical S$400,000. At the time, he and his wife, Audrey, were expecting their first child. Moreover, the young couple was saddled with housing and car loans. It was then that Tan felt thankful for his wife’s dogged persistence. Just months before the first accident, at her repeated insistence, he had purchased a private insurance policy. The insurance company has since paid the entire bill.

Tan’s story is not uncommon. Given the rising cost of healthcare, Singaporeans are spending more money on insurance cover. According to statistics from the Monetary Authority of Singapore, gross premiums for health insurance have nearly doubled from S$214.7 million in 2011 to S$410.2 million in 2015. In comparison, gross premiums for the entire general insurance industry increased just 16.8% over the same period.

So, when a report by the Health Insurance Task Force (HITF) was issued last October advocating changes that would force patients to bear some of their healthcare costs, there was considerable pushback. One financial services manager with six years’ experience in the industry, who spoke to The Edge Singapore on condition of anonymity, says many patients just do not have the cash to do so.

“Take the case of Patrick. If he had not purchased a rider, he would have had to pay nearly S$40,000 as part of his co-payment obligation,” says the financial services manager. “Not everyone has that kind of money lying around in their banks.” Most health insurance policies have deductible and co-payment components. The deductible is an initial amount that patients pay before insurance claims can be made. The co-payment, typically 10% of the outstanding bill, is the portion of the bill that the patient is also liable for.

Yet, riders and the Integrated Shield Plans (IPs) that they are sold with have also been blamed for pushing healthcare costs up. Observers argue that when patients pay nothing, they also pay little attention to the real cost of their medical services — the so-called “buffet syndrome”. Hospitals and medical practitioners are likewise less concerned with keeping a patient’s bill down, and may overcharge or overservice them.

“Given the responsibility of paying a portion of their own medical bills, individuals will be more conscious of their healthcare choices. It may also discourage medical providers from overtreating patients when costs are not fully borne by insurers,” says Pauline Lim, executive director of the Life Insurance Association, Singapore (LIA).

Integrated plans under scrutiny

Concerns about the affordability of healthcare are valid. From 2005 to 2016, healthcare costs rose 29.1% — more than the 20% increase in core inflation. Singapore’s healthcare costs are also climbing faster than those of other countries. In 2015, Singapore’s medical inflation rate stood at 15%, whereas the global average inflation rate was 10%.

Could the prevalence of IPs and riders be a reason for the persistently high cost of healthcare? The report by HITF, an industry-led taskforce established in February last year to examine the cost of healthcare insurance, found that two-thirds of Singapore residents have IPs, which combine public and private insurance plans to provide coverage for patients who want a higher standard of care. Sixty per cent of residents with IPs have policies covering private hospital stays. The rest have plans that cover class A and class B1 wards — which have fewer beds per ward — in public hospitals.

Meanwhile, about half of all IP policyholders have bought riders that cover both the deductible and the co-payment. Policyholders with riders have been running up bills that are 20% to 25% higher than those who co-pay for their treatment, the HITF report disclosed.

HITF warns that premiums for IPs and IP riders will need to rise because the business of providing these policies is not sustainable. Between 2011 and 2015, the five local IP insurers saw their collective claims ratio increase to 82%, from 57%. The sixth insurer — AXA Singapore — was excluded from the study, as it had begun offering products only last May.

The claims ratio is the percentage of premium income paid out as claims. The claims incidence rate for IPs, which includes outpatient treatment in addition to hospital admission, increased from 9.1% in 2011 to 11.8% in 2014. The five insurers have also seen a sharp drop in their underwriting profit margin. In 2011, the insurers reported a 14% profit margin, but that had turned into -5% by 2015.

Already, several insurers have announced hikes in the premiums of their IPs. AIA has raised the premiums of its IPs by between 2% and 23%. Aviva raised its IP premiums by between 10% and 25%, while Prudential hiked its premiums by 8.8% to 36.6%. The hikes apply only to IPs that cover private hospital care.

Riders the bad boy of insurance

Andrew Lee, a 72-year-old retiree, is concerned that insurers may raise premiums for riders next. Lee currently pays S$2,800 a year for his IP and almost $2,200 for his rider. “Any increase in premiums for riders will mean a significant increase in cash outlay. For a retiree like me, it’s a huge strain in terms of my out-of-pocket expenses,” he says.

His son Jason plans to purchase a rider soon, as he is worried that insurers may remove riders altogether. “A friend of mine got into a major accident last year and incurred hospitalisation expenses of close to S$300,000. If he had not purchased a rider, he would have been liable for the 10% co-payment of S$30,000, which he would not have been able to afford,” says Jason.

Indeed, HITF has recommended that IP providers tweak their products so that patients pay a portion of the bill. This suggestion has gained the support of both LIA and the Ministry of Health. “For MediShield Life and IPs, co-payment is a key tenet in our healthcare financing framework and reflects the importance of personal responsibility for one’s health and healthcare,” says MOH. MediShield Life is the national health insurance scheme.

As it is, MOH allows policyholders to pay their IP premiums by drawing on their Medi save accounts, subject to withdrawal limits of between S$300 and S$900, depending on the age group of the insured. This is a national savings scheme for medical expenses. Premiums for riders, however, have to be paid for in cash.

Private hospitals increasingly popular

The HITF report also points out that cost inflation in private hospitals outpaces that in public hospitals. Between 2012 and 2014, overall bill sizes increased 8.7% annually for private hospitals versus 0.6% for public hospitals. Moreover, patients with insurance tend to seek treatment in private hospitals.

According to data from MOH, private practitioners provide 80% of primary healthcare services in Singapore. Government polyclinics provide the rest.

Do the higher costs at private hospitals mean better care? What is behind the marked preference for treatment there? Thomas Ong says a prior experience at a government hospital convinced him about the importance of taking up an IP with private healthcare coverage. “Several years ago, I sent my mother, who was then in her late 70s, into a government hospital’s accident and emergency department, after she complained of chest pains. After an examination by the doctor, she was admitted for further observation. But the hospital took nearly three hours to assign her a room,” says Ong, 62. Now, he is happy to pay a 49% premium for his IP. He currently pays S$1,667 annually. An equivalent plan covering a public hospital stay would cost just S$1,119.

Compare his case with that of Andrea Lim, 27, who was admitted into hospital, after a particularly bad bout of urinary tract infection left her with a high fever and extreme pain in her livers and kidneys. Armed with an IP that would cover her stay in a private hospital, she headed straight to Gleneagles Hospital. She was seen by a doctor and assigned a room — all in the space of an hour.

“When you’re feeling sick, the only thing on your mind is to go to the best hospital and get the best care. You don’t want to have to deal with long waiting times and other inconveniences,” says the financial services manager. “At the end of the day, public hospitals are understaffed and overworked. They just cannot handle the demand for healthcare services. So, consumers will still flock to private hospitals if they have the means to. It’s a simple case of demand and supply.”

Reviews still ongoing

Clearly, tweaking the IP system will not be easy. For many policyholders, IPs and their riders would still make sense if premiums rise. Meanwhile, healthcare providers have little incentive to keep healthcare costs down. The biggest losers, just now, are the insurers.

For now, insurance companies are still reviewing the recommendations put forth by HITF. No changes have been announced. Fears that IP riders will be removed altogether may be misplaced. “The HITF report highlighted that some form of risk-sharing by policyholders is important in ensuring the sustainability of healthcare costs. In principle, this practice makes sense. However, the ideal outcome would be to adopt this approach while retaining many of the benefits provided by IP riders,” says Ho Lee Yen, chief marketing officer at AIA Singapore.

While the HITF report centres on the issue of healthcare insurance, it also provides a starting point for more comprehensive discussions about the healthcare framework. What roles, for instance, should private and public healthcare providers play? Does the balance between cost and quality need to be recalibrated to account for changing requirements? How accountable are the various parties — insured, insurer and healthcare provider — for the cost of care?

HITF, LIA and MOH have alluded to the importance of collaboration among stakeholders. “Other stakeholders such as insurers, healthcare service providers, policyholders and patients also have an important role to play and we must work together to ensure the longer-term sustainability of Singapore’s healthcare system,” said MOH in its response to the HITF report.

Indeed, as Singapore tackles its rising healthcare costs, a more concerted approach is required if there is to be any chance of success.

This article first appeared in Issue 766 (Feb 13) of The Edge Singapore