This article first appeared in Wealth, The Edge Malaysia Weekly on October 28, 2024 - November 3, 2024

The co-payment feature in medical and health insurance/takaful (MHIT) policies has sparked debates in recent months on whether it is the best way to mitigate fast-rising insurance premiums. A bone of contention is, if policyholders are already paying the premiums, why would they still need to fork out cash for medical fees?

Some financial experts say such negative sentiment exists in Malaysia because the people here are used to making full medical claims without having to fork out cash at the hospital. But co-payment for MHIT products isn’t uncommon globally and has proved to keep medical cost inflation down in some countries.

As co-payment MHIT policies are offered as an option to consumers, on top of their existing plans, the onus is on the people to analyse the pros and cons of the different policies and make the best decision for themselves. However, this isn’t as simple as it seems.

According to financial experts, there are two types of co-payment features in MHIT policies, namely deductible and co-insurance/co-takaful. The deductible feature requires policyholders to pay a fixed amount of cash before the rest of the medical bill is paid by the insurer, while co-insurance requires policyholders to pay a fixed percentage of a medical treatment bill before the rest is covered.

According to industry experts, there are two types of co-payment MHIT plans in general, one including deductible and the other including both deductible and coinsurance.

Let’s assume that the claimable medical expense is RM10,000, and the MHIT plan has a RM500 deductible. The policyholder will need to fork out RM500 for the deductible, and the insurer will then cover the remaining RM9,500.

In the case of co-insurance, if the policyholder has a deductible amount of RM500 and a 5% co-insurance, they will have to pay RM975. This is because the percentage only applies to the total medical bill minus deductible. The amount after paying the deductible is RM9,500, and 5% of RM9,500 is RM475. The insurer will cover the remaining RM9,025.Essentially, the benefit of co-payment is that policyholders pay lower premiums. 

Bryan Zeng, CEO of FA Advisory Sdn Bhd, says MHIT policies with a co-payment feature can come with a much cheaper premium compared to those without, especially since one is willing to fork out a higher amount of cash for medical claims, such as RM10,000 to RM20,000.

“In general, co-payment can be a good option for one to save on insurance premiums, if the policyholders have the necessary emergency funds on standby. In the earlier days, co-payment could save up to 40% [of the cost] for policyholders. But a number of adjustments have been made to these plans nowadays,” he adds.

According to an announcement by Bank Negara Malaysia on July 6, MHIT products with a co-payment feature cost 19% to 68% lower than similar products without such a feature, depending on the amount the policyholders are willing to fork out themselves.

Mark O’Dell, CEO of the Life Insurance Association of Malaysia (LIAM), says the co-payment option works to lower MHIT premiums, mainly by discouraging policyholders from making unnecessary or excessive claims, which helps ensure their policies remain sustainable in the long run. This would also reduce the number of claims made by a small group of policyholders who make claims each year. “Co-payment motivates the insured to be cost-conscious and question unnecessary expenses,” he points out.

Industry players observe that there isn’t a one-size-fits-all solution when it comes to insurance policies, but one can consider some simple facts before opting for a co-payment MHIT plan.

A rule of thumb is for consumers to have a general assessment of the condition of their overall health and the amount of emergency funds they have in their bank account.

Angie Ng, senior financial consultant at FA Advisory, says consumers cannot predict how often they may get admitted to a hospital. But they can look at their lifestyle to gauge if more claims could be made.

Let’s assume a person who opts for a higher out-of-pocket (OOP) amount — say, RM10,000 — is hospitalised and the bill comes to RM50,000. He needs to pay RM10,000 out of his own pocket, while the remaining RM40,000 will be covered by the insurer. But this is not the full story, says Ng.

The person should know that, depending on the insurance policy he buys, he will need to fork out another RM10,000 when the next policy year starts should he be hospitalised again. This means he has to pay the RM10,000 OOP expense all over again for his medical claim in the next policy year, depending on the claim sum.

Hence, it is important that consumers understand the co-payment feature of the policy they intend to buy and whether it fits their health and financial situation, she says.

Kevin Neoh, head of financial planning at VKA Wealth Planners, says consumers covered by MHIT plans provided by their employers can take advantage of the co-payment feature. “If my company provides me with medical insurance, and the likelihood of me touching my own insurance policy is lower, maybe I won’t mind taking the higher co-payment plan to help me save costs,” he explains.

In other words, those whose medical bills are mostly covered by their employer’s insurance policy can take comfort in the fact that the remaining sum they will need to claim from their own insurance plan, if any, won’t be that high and the cash they will need to fork out for a co-payment MHIT plan won’t be that much.

FA Advisory’s Zeng concurs. “Co-payment is useful if the insured person is also covered by his employer. In the event of hospitalisation, the insured should use the medical card provided by the employer first. If the limit isn’t enough, he can then use his personal insurance.”

Neoh and Zeng advise consumers to look for a co-payment MHIT plan that allows them to convert to a non-co-payment plan at a later stage, such as upon retirement.

However, FA Advisory’s Ng says retirees should not rule out the co-payment option entirely as some plans are adjusted to better meet the needs of both pre-retirement and post-retirement life stages. She emphasises the importance of research and due diligence when purchasing MHIT plans. While the co-payment feature may lower the premiums, there is a possibility that the plan could backfire due to the lump sum needed to be paid up front.

Besides co-payment, there are other ways to mitigate the rising cost of MHIT. ­LIAM’s O’Dell suggests diagnostic-related group (DRG) pricing as a means to reduce the cost of medical fees. It reduces the charges from unnecessary tests.

Under DRG pricing, the hospital, insurer, patient and relevant parties agree on the amount to be allocated to treatment and a collective decision is made on the tests and care needed based on the amount.

He says DRG pricing is practised in most countries’ public sector and the Ministry of Health here applies it to procedures in public hospitals. But it is not practised in the private sector.

Consumers should take note that the regulator, Bank Negara, has put in place safeguard measures to protect them. For one, insurers need to inform consumers of the maximum co-payment cap at the point of sale. A co-payment cap refers to the maximum cap set by the insurer, which serves to limit the amount of expenses to be borne by the policyholder.

According to the announcement by Bank Negara, co-payment caps vary among insurers to cater for the different needs of consumers, such as their financial and healthcare needs. The regulator allows flexibility to promote competition and enable more options for consumers.

On top of that, insurance agents and intermediaries, including online distributors, are required to conduct a need-based assessment to make sure consumers get the most suitable products. An enhanced and simplified product disclosure sheet, which includes disclosure of claims experience and comparison of alternative product options, should also be provided to consumers.

Co-payment requirements are excluded for selected treatments, including emergency treatments (in the case of accidents), outpatient treatments for follow-ups arising from critical illness and treatments at government healthcare facilities.

As the saying goes, there is no free lunch in this world. Industry players agree that research and due diligence are needed for consumers to get the best deals for themselves.

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