KUALA LUMPUR, July 12 — The Life Insurance Association of Malaysia (LIAM) has defended co-payments for health and medical insurance, deeming full-coverage products as unsustainable amid high claims inflation.
LIAM chief executive officer Mark O’Dell said double-digit claims inflation in medical insurance – what insurers pay out per claim – is becoming increasingly unaffordable for many insurance and takaful operators (ITOs) as medical costs soar, particularly in private hospitals.
“Currently, over 90 per cent of every premium dollar goes towards paying claims, with little control over these costs,” O’Dell told CodeBlue yesterday. “The existing 100 per cent coverage plans and high claims inflation are not sustainable.”
O’Dell said the insurance industry was “not necessarily” moving towards exclusively co-pay medical and health insurance and takaful (MHIT) products, despite Bank Negara Malaysia’s (BNM) mandate, effective last June 1, for ITOs to include co-payment features in the design of any new individual medical reimbursement insurance/ takaful products introduced to the market.
“It depends on the market,” O’Dell said.
Any revision to benefits and limits, including via rider add-ons, of any existing product is considered a “new product”.
The central bank set co-payments – which are payments paid out-of-pocket by policyholders at the time of a claim – at a minimum 5 per cent of claimable expenses (after deductible) and/ or an RM500 deductible, leaving the co-payment cap to insurers. A deductible is a sum of money that the insured person must pay before their insurance policy starts paying for covered expenses.
O’Dell expects there to be a variety of co-payment caps to suit the financial position and capacity of the policyholder, suggesting that a rise in caps is unlikely in the future.
The LIAM CEO, however, stressed the need for private hospitals to prioritise cost containment efforts through efficient resource allocation and process reviews to manage unnecessary expenses.
Association of Private Hospitals Malaysia (APHM) president Dr Kuljit Singh wrote in a recent op-ed that it is incorrect for insurers to brand private hospitals as “inefficient” when they withdraw cashless facilities from such “expensive” hospitals.
Dr Kuljit added that insurers shouldn’t focus simply on price but value, as private hospitals invest considerably in innovative medical equipment, specialised staff, and high-quality treatment.
“The problem is that the premiums for a private medical policy don’t differentiate between expensive and more reasonable private hospital care. There is no public information that correlates expensive hospitals to better treatment outcomes,” O’Dell said in response.
“Many private hospitals invest in innovative medical equipment, specialised staff, and deliver high quality treatment. Yet, the cost can vary by 100 per cent in some cases between hospitals. Does this make sense?”
Re-Pricing Cycle of a Typical Hospitalisation and Surgical Insurance (HSI) Product
A 2020 health care cost containment study commissioned by LIAM, Persatuan Insurans Am Malaysia (PIAM), and Malaysian Takaful Association (MTA) – sighted by CodeBlue – shows that Hospitalisation and Surgical Insurance (HSI) products in Malaysia begin competitively priced, but face challenges as treatment costs and utilisation rise.
Insurers must then periodically hike premiums to ensure sustainability of the insurance pool, prompting healthier insured individuals to exit the pool and seek lower-cost alternatives from other insurance companies for the same or similar level of coverage.
“The pool will then become smaller as the healthier lives exit and no new and younger policyholders enter the pool,” said the study by Actuarial Partners Consulting.
“As a result, the claims experience of the pool will further deteriorate because those who remain in the pool are those who could not get new coverage from other companies due to their claims experience and pre-existing illnesses.”
Claims experience refers to the history of claims filed by an individual or organisation, providing an overview of the number of claims filed, the amount paid out, and the frequency of claims over a specific period, helping insurers to evaluate the risk of insuring a person or an organisation.
“As this cycle continues, the premium will be re-priced each time at a yet higher level to reflect the pool’s deteriorating experience, as well as to build in an additional margin for further future expected inflation in respect of that pool,” said the 2020 insurance industry study.
“This vicious cycle will eventually reach an unsustainable level. The insurance and takaful companies would be forced to close the insurance pool from new business and launch another new product to attract healthy insureds.”
Once this new insurance pool matures and the claims experience develops, the cycle repeats itself until it reaches an unsustainable level.
“Status quo is not a viable option,” O’Dell told CodeBlue.
