This article first appeared in Forum, The Edge Malaysia Weekly on January 20, 2025 - January 26, 2025

The announcement last year of potential health insurance premium hikes ranging from 40% to 70% has understandably alarmed policyholders. For a society already bracing for the rationalisation of petrol and education subsidies in 2025, this represents another financial strain that challenges household budgets.

Deputy Finance Minister Lim Hui Ying recently announced a directive from Bank Negara Malaysia requiring insurers to cap annual premium increases for medical insurance at 10%, with the cumulative increase by the end of 2026 not exceeding 30%. While this is a commendable measure, we strongly urge the implementation of a moratorium of at least six months for policyholders, particularly those who have experienced premium hikes in the past five years, to ease their financial burden.

Insurers attribute these increases to medical inflation, citing the rising costs of private hospital care as the primary driver. However, a closer look at the data reveals a more complex narrative.

Recent financial reports show that private healthcare providers are thriving. IHH Healthcare Bhd (KL:IHH), for example, posted a robust net profit of RM534 million in its latest quarter for 2024, while KPJ Healthcare Bhd (KL:KPJ) reached an historic RM1 billion quarterly revenue milestone in the third quarter last year. These figures raise a critical question: are the premium hikes solely a response to inflation, or is there more at play?

A significant factor lies within the claims process. This is the mechanism that determines how insurers reimburse policyholders. While crucial to the industry’s sustainability, this process has been strained by Malaysia’s ageing population and increasing healthcare needs. Questionable claims have risen, inflating insurers’ costs and driving premium increases. Addressing inefficiencies in the claims system is now essential to sustaining the health insurance ecosystem.

One key challenge is information asymmetry, which is the gap in knowledge between policyholders and insurers. Many policyholders are unsure about claims criteria, and they may opt for unnecessary hospitalisations to ensure claims approval. This behaviour was often linked to the design of medical card systems that tie reimbursements to hospitalisation, which has far-reaching effects, including strained medical resources, inflated claims and higher premiums for everyone.

To address this, insurers must collaborate with healthcare providers to implement medical necessity reviews. These reviews would ensure that claims align with established medical guidelines. Data-driven post-claims analysis could also identify anomalies and high-risk cases, improving oversight and reducing inefficiencies.

Another reform could involve tiered claims management, categorising medical services into risk-based tiers with varying levels of review. Routine treatments could be approved quickly, while complex procedures undergo thorough evaluation. Additionally, standardised care pathways can guide treatment plans, reducing unnecessary hospitalisations and controlling costs while maintaining quality care.

Malaysia’s health system must also transit towards value-based healthcare, which prioritises measurable outcomes over service volumes. Currently, patients in public hospitals pay minimal fees between RM1 and RM5 while receiving services worth thousands. While this ensures accessibility, it is not fiscally sustainable.

The Ministry of Health’s (MoH) exploration of diagnosis-related group (DRG) payment systems is a promising step. DRGs align treatment costs with medical needs, curbing unnecessary expenses and optimising resource use. Standardised charges for minor, non-urgent conditions and higher reimbursements for severe cases could create a fairer and more efficient system.

Regulators like Bank Negara play a pivotal role in ensuring the health insurance industry’s sustainability. Greater transparency in claims processes is crucial. Insurers must clearly outline claims criteria, decision-making frameworks and the rationale behind premium adjustments. Additionally, public disclosure of anonymised claims data can help monitor industry practices and identify systemic issues. Such transparency fosters trust and ensures that premium hikes are justified by robust data rather than vague references to “medical inflation”.

To address these challenges effectively, Bank Negara must collaborate closely with MoH. The responsibility for managing rising healthcare costs and ensuring affordable private healthcare cannot be passed back and forth between these two institutions. Together, they hold the reins to creating a healthcare ecosystem that balances affordability, sustainability and access for all Malaysians.

Improving healthcare literacy among policyholders is equally important. Many policyholders struggle to understand claims processes, eligibility criteria and the responsible use of insurance benefits. Insurers, MoH and other stakeholders should launch awareness campaigns to educate the public on these topics.

Insurance agents can also bridge the knowledge gap by providing clear explanations of policy terms and claims criteria. Regular training for agents can ensure they are equipped to communicate effectively with policyholders. Similarly, healthcare providers should engage patients in meaningful discussions about treatment options, costs and insurance implications to guide informed decision-making.

The sharp rise in health insurance premiums demands government intervention to safeguard affordability and access to healthcare for all Malaysians. At the same time, stakeholders must collaborate to refine claims mechanisms, embrace value-based healthcare and ensure transparency. Only through these measures can we balance the interests of insurers, policyholders and healthcare providers, ensuring that premium hikes are not merely the cost of inefficiency.

David Chang is a research officer at BranX-ON Marketing. Sean Thum is a policy officer at the Ministry of Communications and Multimedia.

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