KUALA LUMPUR, July 15 — Making a co-payment feature compulsory in medical and health insurance design might run against anti-competition laws, according to a 2020 study commissioned by the insurance industry.
Yet, Bank Negara Malaysia (BNM) ended up mandating licensed insurers/ takaful operators (ITOs) to include co-payment features in the design of any new individual medical reimbursement insurance/ takaful products introduced to the market, effective last June 1. Any revision to benefits and limits, including via rider add-ons, of any existing product is considered a “new product”.
For such new products, 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 per policy/ takaful certificate year, leaving the co-payment cap to insurers.
“As a start, the industry should offer co-payment/ deductible options for all medical insurance products at an attractive lower premium,” according to a 2020 study titled “Identifying and Quantifying the Health Care Cost Drivers in the Insured Health Care Ecosystem in Malaysia” by Actuarial Partners Consulting for Life Insurance Association of Malaysia (LIAM), Persatuan Insurans Am Malaysia (PIAM), and Malaysian Takaful Association (MTA)
According to the insurance industry’s 2020 study, as sighted by CodeBlue, some insurance companies have indicated observing better claims ratio experience for products with co-payments or deductibles. A deductible is a sum of money that the insured person must pay before their insurance policy starts paying for covered expenses.
“This would imply that the reduction in the premium (to account for the cost-sharing nature of the claim) is outweighed by the savings in claim i.e. there is benefit beyond the portion of the claim which the claimant has to pay, by way of eliminating unnecessary costs which a claimant may indulge in if he or she did not have to pay a share.”
The insurance industry’s study touted cashless or non-cashless facilities, as well as cost-sharing features like a “high” deductible and co-payment, to control the escalation of the costs of medical treatment.
“These features will also encourage a positive behavioural change in consumers. However, making such a feature compulsory in plan design might run against anti-competition laws,” said the 2020 study.
“As such, BNM should encourage the insurance and takaful companies to provide an alternative option with cost-sharing features (e.g. deductible and co-payment) in the product design of all HSI (Hospital and Surgical Insurance) products where there should be a significant reduction in premium as compared to the same product without such features.
“It is also important to note that the co-payment and deductible threshold must be high enough to curb the ‘buffet syndrome’ to provide a significant impact (i.e. lowering) on the utilisation of medical insurance and consequently a reduction in medical premiums.
“Conventional wisdom would suggest that requiring the insured to bear some of the cost of treatment would reduce utilisation.”
The “buffet 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.
Actuarial Partners said in its 2020 study that data was not yet available to confirm if co-payments and deductibles could reduce usage of health insurance, as the current levels of co-payment and/ or deductibles were too low (for example, 10 per cent, up to RM500) to have a “noticeable impact” on utilisation of health insurance.
The actuarial firm cited practices in other countries that appear to support the effectiveness of introducing compulsory co-payment and deductibles to control both claim frequency and severity.
“For instance, patients in Singapore have had to bear a minimum co-payment of 5 per cent for each year’s claims with a maximum cap of SG$3,000 (RM10,438) since 2018.
“Before the implementation of this co-payment arrangement, most of the companies offered full riders which covered the entire bill. This zero co-payment feature then resulted in over-utilisation of hospital services i.e. a buffet syndrome which in turn resulted in higher premiums.”
The insurance industry’s study claimed that some doctors prescribe additional and unnecessary procedures and/ or “expensive” medication to patients.
“Patients who fully rely on their doctors’ advice for treatment will likely take the doctors’ advice as long as the procedures and/or medication are covered by their insurance plans. This results in over-servicing, over-prescription and over-charging of treatment.”
According to feedback from 53 respondents during a consultation period to BNM’s Exposure Draft on Medical and Health Insurance/ Takaful (MHIT) – which was included in the central bank’s February 29 policy document on Medical and Health Insurance/ Takaful Business for licensed ITOs – respondents generally agreed with the introduction of a minimum co-payment amount.
“Some respondents suggested setting a higher minimum amount to effectively nudge positive consumption behaviour to reduce ‘buffet syndrome’ while others have suggested a lower minimum amount to account for affordability considerations,” said the feedback document.
In eventually settling on a minimum 5 per cent co-payment and/ or RM500 deductible for any new individual medical reimbursement insurance/ takaful product, BNM said its decision took into account the experience of existing co-payment products in the market and Malaysians’ income levels, while balancing against prevailing economic conditions and the intended objective of the co-payment requirement.
“Experiences of other countries’ which have implemented co-payment requirement was also a factor in the Bank’s decision.”
BNM also said a licensed ITO must have and offer at least one co-payment product with the minimum 5 per cent co-payment level by this September 1.
“In the event a licensed ITO does not have any on-shelf individual medical reimbursement insurance/ takaful product with the minimum co-payment amount, the licensed ITO must design a new individual medical reimbursement insurance/ takaful product that meets the minimum amount,” said the central bank.
“Existing on-shelf individual medical reimbursement insurance/ takaful products can continue to be sold until the licensed ITO decides to withdraw them from the market.”
The Competition Act 2010 prohibits anti-competitive agreements and the abuse of dominant position in the market. It is enforced by the Malaysia Competition Commission (MyCC), an independent statutory body.
