The recent media debacle about the rising premiums of health insurance and takaful (collectively called assurers) reflects ignorance from the public and regulators – Bank Negara Malaysia (BNM) and the Ministry of Health (MOH) – about the underlying issue.
This leads to their failure to identify an appropriate solution and to pass the buck from one party to another.
From a technical perspective, health assurance products are not classical assurance products, but medical consumption products due to the high certainty of claims.
In typical assurance products, assurance companies hedge their assurance fund against the policy owners’ claims. Typically, the probability and quantum of a claim are unpredictable, and companies are exposed to the risk of losing money.
The predictability of medical claims trends makes this business a finance administration business. It has some elements of a Ponzi scheme, where the assurance fund sufficiency depends on new enrollees.
The scheme enriches private hospitals and assurers make their predetermined administrator fees. They are not exposed to the assurance risk of losing money. Products are priced based on an average cost-plus basis.
Neither private hospitals nor insurers are concerned about rising premiums. Raising premiums mean insurers will maintain their revenue of 5 per cent to 10 per cent of the total premium collected, while hospitals can charge more.
According to Prudential’s Malaysia Claims Payout Data Report, they paid RM1.46 billion in medical claims in 2022, a 33.9 per cent increase from 2021. For January to June 2023, Prudential paid RM826 million, representing a 30.4 per cent increase over the same period in 2022. Assuming the total industry experience is 10 times more, this represents RM19.04 billion in claims that assurers pay private hospitals.
Hospitals and assurers maintain a symbiotic relationship. Rising premiums benefit both of them. There is no reason for either party to back down, as they must justify returns to their shareholders.
This relationship can be seen in a media statement by Dr Kuljit Singh, the president of the Association of Private Hospitals Malaysia (APHM), who defended insurance companies by saying that their decisions are justified.
The medical insurance business is like a potent drug. Everyone wants it. The number of permanent dropouts from the premium increase is expected to be small.
However, the number of new enrollees is expected to grow substantially as the population fears the burden of the high cost of hospital bills. The publicity alone of high hospital charges will encourage them to secure an assurance policy.
The often used phrase “medical inflation” is a misnomer. The rising cost is not due to inflation per se, but to controlled profiteering. How often do private hospitals invest in new hardware? Most drugs are not that expensive. Branded and established generics are plentiful.
Actual drug cost is the least concern in total hospital bills. Hospitals profit by inflating unregulated drug prices, besides encouraging and incentivising the utilisation of their diagnostic services.
They impose different rates for cash-paying patients, credit card users, and medical card users. The differences are substantial, as private hospitals see assurers as a goldmine. There is no basis to impose this differential pricing. Why isn’t the Ministry of Domestic Trade and Cost of Living (KPDN) investigating this?
The public is not blind. They can see the differences in the lifestyles of private and government doctors. KPJ Healthcare Berhad hit an historic RM1 billion quarterly revenue milestone for the third quarter this year. In 2024, its after-tax profit rose by 12 per cent compared to 2023. (RM242.62 million in 2024 vs RM217.44 million in 2023).
If the government chooses not to get its act together and fails to do a strategic intervention, Malaysia will become like the United States, where medical and insurance costs are super exorbitant and beyond the reach of the people.
The burden of the public health care system will increase multiple times. Our population size and country revenue are small compared to the US, so the impact on Malaysians is much worse. Our people will end up paying a higher insurance unit cost.
The solution lies in regulation and competition; only the government can create and maintain meaningful competition in the health care system. Drug prices need to be controlled. It doesn’t make sense to charge drug prices excessively. Why are generic drugs like paracetamol, which costs 1 sen/tablet, being priced at RM1.00 per tablet? Hospital diagnostic charges need to be controlled.
Government hospitals must be corporatised and be as efficient as private hospitals. They must break the profiteering cycle between insurers and hospitals by offering more reasonable prices. A corporatised hospital has the bargaining power to break the monopolistic relationship between insurers and APHM members.
Corporatisation and monetisation of hospital services are part of the National Healthcare Financing (NHF) agenda. It can start first before the government imposes a nationwide health contribution scheme.
The NHF is moving at a snail’s pace as policymakers grapple with multiple unnecessary studies. The government, specifically the Health Ministry, doesn’t seem to understand how to operationalise NHF.
NHF should not be an MOH project. It should be under the Ministry of Finance (MOF) or Khazanah.
The issue of rising insurance premiums is not an MOH or BNM problem. It’s a government problem. A parliamentary-level task force involving multiple agencies (BNM, MOH, KPDN, and the Inland Revenue Board) is needed to address the issue.
The government needs to start moving from these periodical theatrics. Data is plentiful within the many government agencies for them to evaluate the problem and offer a simple solution.
In conclusion, the way forward is for the government to corporatise government hospitals and compete with existing APHM member hospitals. The government must regulate drug and diagnostic services charges and make incentivising practices between doctors and hospitals illegal.
Dr Mohamed Rafick is a trained physician, has over 22 years of experience in the assurance industry, and retired as the CEO of a multinational reinsurance company in 2019. Currently, he remains active as an international industry consultant.
- This is the personal opinion of the writer or publication and does not necessarily represent the views of CodeBlue.
