Heartland Boy had a rude shock when he received the electronic invoice for his daughter’s private hospitalisation insurance. He noticed that premiums had gone up once again, making it a cumulative 37% increase since inception. What makes it worse is that this is before the projected rise in premiums for MediShield Life that may take place as early as next year. Therefore, he can expect the Hospitalisation & Surgery insurance bill to rise again next year. Unfortunately, having a private healthcare insurance plan is imperative so this is an expense that he will not do without.
Understanding The Integrated Shield Plan (‘ISP’) Structure
Firstly, it is important to note that MediShield Life is compulsory and managed by Central Provident Fund (‘CPF’). If one purchases an integrated shield plan from a private insurance company, it will automatically include the MediShield Life component as shown in Diagram 1. That is because ISP provides additional coverage on top of MediShield Life.
Finally, IP riders are optional add-ons that can be purchased to enhance your own integrated shield plan further. Generally, they allow deductibles to be waived or cap the co-insurance for the policyholder or a combination of both. It is important to understand the ISP structure because Heartland Boy is going to provide the premium breakdown for his child’s ISP in Diagram 2.
37% Increase In Child Integrated Shield Plan In 2 Years
The entry age at inception for the integrated shield plan was less than a year old. His child has no pre-existing conditions. As shown in Diagram 2, while the premiums for MediShield Life had stayed the same since 2018, the same cannot be said for the component managed by the private insurer. The ISP itself had increased from $170 in 2018 to $191 in 2020. What is more shocking was how rapidly the rider had increased – from $277 in 2018 to $469 in 2020. In total, the absolute increase in total premium was 37% over 2 years, representing a 17% CAGR. Heartland Boy did not expect the increase to be this steep and this fast, especially for an age band he feels is less risky for the underwriter. Another worrying insight is that it also shows that medical costs are rising at a rate significantly higher than Singapore’s inflation rate!
As aforementioned, Heartland Boy sees a private healthcare insurance plan as one of the critical insurance policies to get for his baby. Olympia had 2 hospitalisation episodes so Heartland Boy knows very well the value of a solid integrated shield plan. This is how he mitigates the rise in insurance premium for his daughter’s integrated shield plan.
How Heartland Boy Finances Her Insurance Premium
As shown in Diagram 2, 2 (MediShield Life and the ISP itself) out of the 3 components can be paid via MediSave. Therefore, Heartland Boy has been leveraging on the interest rate generated from her MediSave Account (or her loved one’s) to finance these parts of the premium payable. Funds in MA generate 4% interest rate. In addition, the first $60,000* in your CPF balances earn an additional 1% interest rate. Since a child is just starting out, it is likely that all her funds in her MA falls within the limit to earn 5% (4% +1%) interest in total.
Note that all Singapore Citizen newborns qualify for MediSave Grant of $4,000. This grant is credited automatically into the child’s MediSave account. This is a head start that Heartland Boy appreciates. To further fuel the accumulation of MA funds, Heartland deposited her angbaos collected over Chinese New Year and birthdays. All her funds in her MA earn 5% interest rate and is currently sufficient to service the premium components that can be financed by MediSave.
*Only a maximum of $20,000 in your OA can benefit from this additional 1% interest
As for the cash component, Heartland Boy is faced with no choice but to work harder (for now) to pay for this bill. In the long run, Heartland Boy can only hope that the population can be more responsible in consuming private healthcare since this is a merit good afterall. With national health policies now better designed so that doctors prescribe and charge appropriately, patients make more informed choices, there is a chance to eradicate the problem of over-charging and over-consumption. Only this can the cost of private healthcare services stabilise in the long run and therefore allow insurers to design a more sustainable (affordable) healthcare insurance framework.