Over the past few days, a few insurers have started informing their policyholders that their riders will start to include a co-payment feature when they renew their Integrated Shield Plans (IP). According to a recent Straits Times article, it looks like at least 3 private insurers will be transitioning most, if not all of their IP policyholders to a co-payment model.
The driving force behind the scene that's making this happen
When one private insurer tries to do something different from the rest, we would label it a trend-setter, a trailblazer or an innovator.
But when more than one private insurer announce that they are implementing something different at the same time, we know there has to be a driving force working its magic behind the scene.
That driving force seems to be Health Insurance Task Force who encouraged insurers to include co-insurance and/or deductible features in product design in order to ensure consumers’ interests are aligned with managing healthcare costs. The goal is also aimed at addressing the risks of overconsumption of insurance due to poor product features.
Given that most private insurers are still losing money on their IP portfolio, my take is that they are working hard to turn this around by tweaking several levers they have control of.
- Getting more policyholders to co-pay part of their hospital bills
- Using panels of preferred healthcare providers to manage medical costs
- Implementing claims-based pricing to adjust IP premiums based on claims made
Let's dive into more details.
Getting more policyholders to co-pay part of their hospital bills
Having policyholders co-pay part of their hospital bill is the easiest way to force policyholders to have some skin in the game and not incur unnecessary costs in their hospital bills without thinking twice.
The Ministry of Health (MOH) has directed insurers in March 2018 to stop offering IP riders that cover hospitalisation bills in full and private insurers had to come up with new IP riders by 1 April 2018, that will require policyholders to pay at least 5 percent of their hospital bills. Those who bought such plans during the transition period from 8 March 2018 to March 2019 will have to switch to the new scheme from 1 April 2021.
I imagine that co-payment riders must have shown positive results since private insurers transitioning more policyholders to co-payment riders.
As a working adult, I don't find the requirement to co-pay 5 percent of the hospital bill to be a major issue for, especially with the cap of $3,000 in place. That's because I can simply set aside $3,000 (make that $6,000 to cover my mum's co-payment requirement as well). I can simply put that $6,000 in a capital guaranteed, interest-yielding account that would slowly accumulate on the years that we do not incur any hospital bills.
My biggest worry is how increasing healthcare expenses (which will definitely still continue to go up), will impact the co-payment percentage and cap in these IP riders.
Using panels of preferred healthcare providers to manage medical costs
Insurers don't hire doctors and own hospitals (okay, except Raffles Health Insurance) so naturally, doctors and hospitals have little obligation to keep their charges low and help insurers save money on claims.
But since restructured hospitals are essentially public hospitals and specialist centres that have been restructured by the government to be run as private companies but wholly owned by the government, they would have a high level incentive to help the government provide affordable healthcare services while ensuring their business remain financially sustainable.
On the other hand, I'd think that private hospitals and doctors have more motivation to increase their prices each year, in order to meet the profit-driven demands of their shareholders.
MOH has tried its best by publishing annual fee benchmarks for dental procedures and doctors’ professional fees in the private sector and. However, while these are MOH’s recommended charges, private doctors and hospitals are not required to follow these fees benchmarks at all.
The workaround adopted by private insurers is to create their own panel of healthcare professionals and partners. To be in the private insurer's panel, these healthcare professionals and partners will have to agree to fee schedules and contract fees set by the private insurers, using MOH's fee benchmarks as a reference.
This allows private insurers to have a say in how much healthcare professionals and partners in their panel can charge. In exchange, private insurers will offer better benefits to policyholders if they were to seek treatment from their panel of healthcare professionals and partners.
This ideally creates a win-win situation for everyone, if it all goes according to plan.
Implementing claims-based pricing to adjust IP premiums based on claims made
"If you make more claims, you should pay more premiums."
Has this thought ever crossed your mind? For me, the answer is yes.
Because why should I pay more premiums for my IP when I did not make any hospitalisation claims for the past few years?
Some private insurers are also introducing a claims-based pricing structure where policyholders who do not make a claim in the policy year will receive a discount on their premiums in the following year, while policyholders with a claim will see an increase in their premiums in the following year.
Does this sound familiar to you?
For drivers, this claims-based pricing is similar to the No-Claims Discount (NCD) that drivers receive from their insurers for staying claim-free for at least a year. The only difference is that you do not get more discount for your IP premiums for staying claim-free for multiple years.
I purchased a PruExtra Plus rider on top of my PruShield plan with Prudential many years ago and it falls under the new claims-based pricing structure introduced by Prudential. With the claims-based pricing structure, the coverage my PRUExtra Plus rider will remain the same (i.e. full coverage, with no co-payment).
Under the claims-based pricing structure, policyholders who exceed the claim amount will see their premiums increase the following year. The claim amount differs based on the source of claim so refer to Prudential's claims-based pricing page to learn more. For policyholders who do not exceed the claim amount, they will receive a PRUWell Reward (discount on Standard Level premiums) in the following year.
Here's what the claims-based pricing structure looks like for my PRUExtra Plus rider.
For PRUExtra Premier, PRUExtra Premier CoPay and PRUExtra Preferred CoPay this is the claims-based pricing structure.
Private insurers have a few levers to toggle to manage their costs and I believe there would be more to come since it's inevitable that healthcare costs are likely to increase.
But healthcare professionals have to play their part too! I can only hope that MOH is able to find a way to rein in healthcare professionals to ensure that fees remain affordable. That's what I feel is missing in the entire equation today.
As consumers, we can only strive to avoid overconsuming healthcare expenses by not requesting for unnecessary treatments and to be more aware of the costs of each treatment using MOH's fees benchmark as a reference. We shouldn't be afraid to ask our doctors about the expected range of fees for the treatment or procedure that we are undertaking.
If the expected fee advised by your doctor is above the fee benchmarks range, we should ask for the reason(s) why the fee is priced this way.
Savvy consumers would also ask follow-up questions to find out if there are any other charges besides those that were mentioned to cover all grounds, and find out the exact breakdown of all the fees.
If the increasing IP premiums do not scare you today, take a look at the cost of your IP premiums that you will need to pay when you are 55 and above. Then imagine what happens if those premium figures continue to increase exponentially.
Truth be told, the rising cost of healthcare remains a fear in the back of my mind in my retirement plan.
What do you think about our current healthcare situation and our Integrated Shield Plans today? Share with me in the comments section below.