KUALA LUMPUR, August 1 — Health economist Prof Syed Mohamed Aljunid challenged the idea that copayment policies could lower insurance premiums, citing historical trends in private insurance.
Syed Aljunid, who is president of the Malaysian Health Economic Association (MAHEA), said that private insurance premiums have never decreased and that any copayment policy would likely shift costs to individuals, who would have to pay more when accessing services.
“If you look at the historical development of private insurance, never in history has private insurance reduced its premium. In fact, the premium remained the same, but the impact on the population will be more.
“The costs are now shifted to the individuals and to the population because they have to pay a lot more when they want to activate this,” Syed Aljunid told BFM’s Health and Living last July 10.
“At the end of the day, private insurance sells the premium and people purchase it but they don’t use it; they go to public facilities. So, it will not actually reduce the premiums.
“In fact, part of the reason why health care expenditure in countries like the US is actually skyrocketing is because the majority of the population below 65 years of age are under private insurance and this is one of the ills of the health system.
“When we depend on private insurance, the health care cost is going to go up, the health expenditure is going to go up.
“A very good example is to look at the US, which other countries should not even try to mimic – 18 to 19 per cent of GDP is spent on health care and despite that, nearly about 20 to 25 per cent of the population are not covered by private insurance because they are not eligible to be covered because they are not working.
“I think the argument that the premium will reduce with a copay may not be realised in this kind of policy,” Syed Aljunid said.
Since June 1, Bank Negara Malaysia (BNM) mandated licensed insurers/ takaful operators (ITOs) to include a minimum 5 per cent copay feature and/ or RM500 deductible in the design of any new individual medical reimbursement insurance/ takaful products.
A licensed ITO must offer at least one copayment product with the minimum 5 per cent copay level by this September 1 and design a new such product if it does not already have one on the shelf.
Anecdotes on X appear to confirm that insurance premiums never decrease. While switching to a copay policy may offer slightly lower premiums compared to current policies without copay, premiums for both such policies may still be higher than what people used to pay.
Economist Melati Nungsari recently posted on X: “So AIA is raising premiums now? Did anybody else get the premium adjustment letter? And this has nothing to do with recent regulations on copayments, I am sure.”
Comments on the post suggest that many insurance and takaful operators have been increasing their premiums over the past few months, with many attributing this to rising costs and inflation.
Some reported a 20 to 50 per cent increase in premiums, while others noted increases of RM20 to RM40, varying depending on individual risk levels.
In response to CodeBlue’s queries on copay products last month, AIA Malaysia stated: “We support BNM’s efforts to address the rise of medical inflation and believe that the industry needs to work together to ensure that Malaysians will continue to have access to affordable and quality health care in the long term. Our customers remain our top priority and we will always seek the best solutions to meet their protection needs.”
Clarify Copayment Policy, Cap Needed To Protect Patients
Syed Aljunid criticised the lack of clarity in BNM’s copayment policy decision, particularly in differentiating between copayments, coinsurance, and deductibles. He called for clear regulations to prevent private insurers from setting arbitrary charges and potentially exploiting patients.
“This is something that we are very concerned about, because the policy is not very clear. We cannot leave it to private insurers to decide by themselves. I think the policy must be very clear, and the body that is regulating private insurance must be very clear. Is it talking about coinsurance or is it deductibles? These are two different things,” said Syed Aljunid, a professor of health economics, policy and management at IMU University.
“If it is talking about copayment 5 per cent, this means the bigger the bill, the more patients will pay. This actually incentivises hospitals to charge higher fees, especially if the amount being paid by the patient is absorbed or collected by the providers as forefront payment.”
BFM cited an example where a 5 per cent copayment on a RM20,000 to RM40,000 angioplasty procedure would result in a patient paying RM1,000 to RM2,000 out-of-pocket. Syed Aljunid said the government needs to set clear guidelines on copayment limits to avoid market confusion.
Syed Aljunid also criticised the vagueness in the BNM policy decision in defining exemptions from copay, such as emergency services and follow-up care for chronic non-communicable disease (NCD). He warned that the lack of a strong oversight body to resolve disputes between insurers, providers, and patients could lead to further issues and market instability.
“How do you define what emergency emergency services are? This is up to the whims and fancies of people who are going to process the pay, which are the private insurers. The patient might say it’s an emergency, but they (private insurance) would claim that it is not an emergency.
“When there is a dispute on this, in Malaysia, our oversight body is not that strong. We don’t have a proper oversight body that tries to mitigate if there are any issues between the payer and the provider, and also between the consumers and the provider and the payer. We don’t have a strong oversight body and this actually creates a lot of problems in the market,” Syed Aljunid said.
Syed Aljunid warned that the new copayment policy decision could lead more people to seek care at public facilities to avoid costs, worsening overcrowding and increasing waiting times in government hospitals. He urged a policy revision to prevent these negative effects.
Copayment Will Not Solve ‘Buffet Syndrome’
Syed Aljunid argued that copayment will not address the “buffet syndrome” issue, considered a “moral hazard”, but will instead lead to higher out-of-pocket (OOP) payments and increased inequity.
The “buffet syndrome” refers to policyholders with zero copayment coverage or full riders who, when unwell, maximise their insurance benefits by seeking medical treatments and medications. This behaviour increases average claims per insured and ultimately raises insurance premiums.
“Moral hazard” in the context of health insurance is a situation where a party has the incentives to abuse the coverage or benefits under the scheme.
Aljunid said moral hazards can occur among patients, health providers, and insurers.
For patients, insured individuals may engage in riskier health behaviours or seek unnecessary medical services, like frequent clinic visits, knowing that their insurance will cover the costs.
For health care providers, such as private hospitals, which may charge higher rates to insured patients. These hospitals often see insured patients as more lucrative because insurance companies typically cover higher costs than patients would pay out-of-pocket.
As a result, the same services may be billed at significantly higher rates for insured patients compared to uninsured ones. Providers might also perform unnecessary admissions, investigations, or procedures, increasing overall health care costs.
Health insurers themselves can also contribute to moral hazard by delaying payments or rejecting genuine claims.
When insurers delay payments, they benefit financially by earning interest or investment returns on the withheld funds and managing their cash flow more effectively.
This practice can improve their financial position but creates a burden for policyholders and health care providers, who may face financial strain due to delayed reimbursements.
Insurers typically invest the premiums they collect in various financial instruments. The longer they hold onto these funds before making payouts, the more interest or investment returns they can earn.
Rejecting genuine claims can also be considered a form of moral hazard. Insurers might reject claims that are legitimate under the terms of the insurance policy, citing technicalities or requesting excessive documentation.
This practice can deter insured individuals from filing claims, potentially leading to underutilisation of the insurance benefits they have paid for.
Syed Aljunid said, “Copayment will not solve this problem. As I mentioned earlier, copayment only works if insurance operates on a community rating basis instead of risk rating.
“Risk rating will actually perpetuate the situation. You increase the overall health expenditure of the country because people have to pay out-of-pocket (OOP). Currently, our OOP payment is about 35 per cent. This is one of the highest in the region.
“The World Health Organization (WHO) sets a target of a maximum of 20 per cent. High OOP payment will lead to a higher level of inequity and cause a lot more people to shift from private to public health care facilities, and this leads to overcrowding at public facilities.
“Inequity is very important. This means that a lot of people, especially those in the B40 and also some from the M40 groups, will not be able to afford health care services,” Syed Aljunid said.
Risk rating is used to vary the premiums of health insurance based on individual factors such as age, gender, health status, and previous claims. For example, patients with chronic diseases and older patients will pay higher premiums than those who are healthy and young.
“This is the usual practice in private health insurance,” Aljunid said.
Community rating is when the premium of the health insurance is decided on the factors for the whole community, not on individuals. Aljunid explained that people staying in one geographical area will pay the same premium irrespective of their age, gender or health status.
“The health and financial risks are pooled together in community ratings. This is usually practised in social health insurance,” Aljunid said.
