Galen: New Health Insurance Co-Payments Expose Households To Financial Catastrophe

Galen Centre says BNM’s new requirement of a co-payment option in health insurance (min 5%, no cap) will cause a jump in household out-of-pocket payments. “Is BNM’s new requirement ultimately going to be of more benefit to insurers and private hospitals?”

KUALA LUMPUR, July 5 — The Galen Centre for Health and Social Policy today warned Bank Negara Malaysia (BNM) that its new requirement of a co-payment option in health insurance could expose households to financial catastrophe.

Deputy Finance Minister Lim Hui Ying told the Dewan Rakyat special chambers last July 1 that BNM would require insurance and takaful operators (ITOs) to begin providing a co-payment option for their medical and health insurance and takaful (MHIT) products by September this year.

Co-payments are additional out-of-pocket payments that insured patients have to pay when they get treatment of covered illnesses – on top of their regular premiums paid before they encounter illness.

According to BNM’s February 29 policy document on MHIT business, as cited by the Galen Centre, ITOs will be required by September 1 to have at least one individual medical product with co-payment features, with a minimum co-payment amount of no less than 5 per cent co-insurance and/ or RM500 deductible per policy or certificate year. This co-payment feature also applies to renewal of existing MHIT policies or certificates.

So, for example, if an insured patient receives an RM50,000 hospital bill, a 5 per cent co-payment means that the patient has to pay RM2,500 in cash out of pocket – even though they have been regularly paying monthly or annual premiums. What is noteworthy in BNM’s new policy is the absence of a cap on co-payments.

Beginning next year, ITOs are no longer permitted to design new medical reimbursement insurance or takaful products without the minimum co-payment feature.

“By introducing a co-payment feature which will eventually replace existing products, insured patients could face large out-of-pocket payments beyond their means in the case of a major illness. Ironically, it could create the very situation which individuals expect to be protected from by having health insurance,” Galen Centre chief executive Azrul Mohd Khalib said in a statement today.

“Household out-of-pocket payments on health expenditures currently approaching 35 per cent, would and will jump.”

Neither BNM nor the Ministry of Finance (MOF) appear to have made public announcements on this major co-payment policy that will likely hit the middle class – set to be implemented in just two months – before Lim made the statement in a session at the July 1 Dewan Rakyat special chambers called by Kota Melaka MP Khoo Poay Tiong on the rise of medical insurance premiums.

According to BNM’s policy document, as cited by Azrul, co-payments will not apply for emergency treatment (including in accident cases), outpatient treatment for follow-up treatments arising from critical illnesses such as for cancer or kidney dialysis, or treatment sought at a government health care facility.

In Parliament, Lim justified the new co-payment policy as aimed at incentivising “more responsible usage of health care services” to reduce costs on insurance providers, citing medical inflation and the “buffet table syndrome” as the main drivers of a rise in health insurance premiums.

“This action will also be able to reduce false claims and subsequently reduce overall costs, besides increasing the long-term sustainability of MHIT products. Based on the experience of several countries, MHIT products with co-payments have lower insurance premiums or takaful contributions compared to products without co-payment features,” said the DAP lawmaker.

The “buffet table syndrome” describes policyholders with zero co-payment coverage or full riders, who are unwell and sick availing themselves of medical treatments and medication in the belief that they should maximise their insurance policy coverage. This increases the average claims per insured and subsequently leads to higher insurance premiums.

“No one wants to get a chronic illness such as kidney failure, cardiovascular disease or cancer just to utilise their insurance coverage. No one chooses to get unwell, seriously ill or incapacitated due to a catastrophic condition. Not all doctors prescribe expensive treatments and not all full rider policyholders submit large claims,” Azrul emphasised.

“There are definitely patients who abuse their insurance plans, but does it make sense to take a blanket approach to integrate co-payment to curb the ‘buffet table syndrome’?”

Azrul questioned what was the real cause of Malaysia’s 12 per cent health care inflation rate that is approximately five to six times higher than the general inflation rate and is among the highest in the Asia-Pacific region.

“Malaysia, like many upper middle income countries, is experiencing an increase in the demand for health care due to an increasing proportion of the population who are above the age of 60, more people living with three or more chronic illnesses, and a need for better and improved quality of care. More people are needing inpatient care.”

The Galen Centre also pointed out that medical bills imposed by private hospitals continue to be unregulated.

“As the Member of Parliament for Kota Melaka rightly pointed out, the difference in fees imposed by private hospitals for patients paying out-of-pocket and those utilising an insurance policy, can be 100 per cent more expensive for those with a medical card. Insurers are forced to pay what has been charged. How does this make sense or even tolerated?” Azrul said.

“The vast difference in bills are likely contributing to higher insurance premiums and costs, more than the ‘buffet table syndrome’. Over-consumption can definitely be cause for blame, but so can over-charging, resulting in patients and policyholders paying rapidly escalating fees and premiums over time.

“Will co-payment address the problem of overcharging such as for the use of a wheelchair, a pillowcase, or three-ply masks? What are we doing about regulating these charges imposed by private medical facilities?”

The Galen Centre expects people to cancel their health insurance policies with the introduction of co-payments and go to the public health care system instead, thus increasing demand on already overloaded government hospitals and health care clinics.

“This would be a tragedy and reverse the gains made over the past decade in insurance coverage. For the moment, this policy is not retrospectively applicable to those who have existing policies, but this could change,” Azrul said.

“There is also the issue of quantum. Will these co-payments be capped? Will there be a maximum annual co-payment amount for policyholders? Bank Negara’s February 2024 policy document leaves that critical decision to insurers.

“Will patients be forced to tap into their Employees Provident Fund savings to pay their co-payments if they lack the money? What if they cannot pay? What happens then?”

Azrul also asked if full riders were the main reason for the increase in health insurance premiums over the past five years, patients taking a “buffet table syndrome” approach, hospitals or doctors increasing their fees significantly, or a combination of all these factors.

Riders are optional provisions added to an existing insurance policy to enhance its coverage, such as critical illness, maternity, or accidental disability riders, among others.

“Is Bank Negara’s new policy requirement ultimately going to be of more benefit to insurers and private hospitals, rather than patients and their families?” Azrul questioned.

BNM, in a statement last Wednesday issued as a response to “misinformation” by insurance agents, clarified that existing medical reimbursement products without a co-payment feature, including those with deductible below RM500, are still allowed to be offered by ITOs.

“An MHIT product with co-payment features typically offers lower premium/ takaful contribution rate as compared to a similar product without co-payment. Co-payment is only required when claims are made by a policy owner/ takaful participant,” said BNM.

“It also encourages consumers to take a more active role in their consumption of health care services. This, in turn, will help to reduce fraudulent medical claims and contain medical cost inflation that has risen by 36.3 per cent cumulatively from 2020 to 2022. In the longer term, it aims to ensure that the cost of medical insurance and takaful remains affordable.”

Editor’s note: This story was updated with BNM’s previous July 3 statement. Paragraph 4 was also updated.

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