Introduction
In the previous write-up, the role of co-payments and deductibles (CPD) in medical and health insurance was examined. Under Bank Negara Malaysia’s proposed Base Medical and Health Insurance/Takaful (BMH) framework, CPD is to be implemented alongside a provider tiering mechanism that differentiates health care facilities according to cost and efficiency. The objective is to encourage prudent health care utilisation while preserving the long-term sustainability of the insurance risk pool.
This article evaluates the practical implications of combining CPD arrangements with hospital tiering and proposes refinements to ensure that the system delivers equitable access, cost discipline, and financial sustainability.
Hospital Provider Tiering
Provider tiering is a pragmatic, structured approach to managing escalating medical costs. By categorising hospitals according to pricing behaviour, efficiency, and willingness to collaborate with payors, insurers can better align patient choice with affordability.
Currently, the proposal suggests a two-tier model. However, given the diversity of private hospitals and medical centres distributed across urban and rural Malaysia, a more nuanced structure may be necessary.
To achieve meaningful impact, facilities such as Ministry of Health (KKM) hospitals with private wings and Rakan KKM hospitals should also be incorporated into the tiering system.
A three-tier framework is therefore recommended:
| Tier 1 Hospitals | Tier 2 Hospitals | Tier 3 Hospital | |
| CPD | Deductible RM1,000 Copayment 20% up to RM3000 | Deductible RM300 Copayment 15% up to RM3000 | Deductible RM0.00 Copayment 0% |
| Providers | Hospitals and medical centres with excessive pricing based on data analysis. | Hospitals and medical centres with reasonable pricing based on data analysis. | KKM private wing. Rakan KKM hospitals. Assurance owned hospitals. |
| Criteria | Providers that are unable/won’t reduce price or offer profit-sharing arrangements with participating assurers. | Providers that can reduce prices or offer profit-sharing arrangements with participating assurers. | Providers that operate based on government costing. |
This structure provides clear financial signals to policyholders while encouraging providers to adopt competitive and transparent pricing. Products should be developed based on tiered categories.
Rethinking The Underlying Rationale
The conceptual basis for tiering should focus on addressing cost drivers at their source. The BMH framework appears to emphasise behavioural change among policyholders, suggesting that over-utilisation is the primary driver of rising claims.
However, available industry data more strongly indicates that hospital pricing inflation—often influenced by shareholder expectations, corporate consolidation, and mergers and acquisitions—plays a larger role.
Accordingly, cost-containment strategies should focus on managing provider charges rather than disproportionately shifting the burden to patients.
Tiering must therefore serve as a mechanism for controlling the (burning cost) charges imposed by hospital services, thereby stabilising premiums over time.
Tier Determination And Monitoring
The BMH paper proposes that hospitals be tiered according to their ability to demonstrate efficient resource use, best-practice care, and transparency. While commendable in theory, these criteria are challenging to define and even more difficult to operationalise. The outcome is uncertain.
Terms such as “appropriate use of resources,” “best practices,” and “cost-efficiency” are inherently subjective corporate lingo and may delay implementation and compliance. A more practical and measurable approach would rely on empirical claims data, historical billing trends, and negotiated pricing benchmarks.
Given that private hospitals operate as commercial enterprises, market-based negotiation is both appropriate and necessary. Payors must retain the leverage to negotiate pricing in policyholders’ interests.
Importantly, tiering decisions should not be made independently by individual insurers, as this risks fragmentation and inconsistent standards.
Instead, an independent, industry-wide commercial body should oversee data analysis, benchmarking, and collective negotiation between the assurance industry and providers.
Approaches such as annual billing caps or profit-sharing arrangements (between private hospitals and assurers) may produce more predictable and sustainable outcomes.
Tiering And Assurance Marketing
A well-designed tiering system should be embedded within product design and marketing. With clear communication, tiering empowers policyholders to make informed decisions about where they seek treatment.
It also fosters a shared responsibility between insurers and customers to manage health care costs responsibly.
Products that limit treatment to Tiers 2 and 3 should be assigned a lower premium than products that allow customers access to services to Tier 1. Rather than being perceived as a restriction, tiering should be presented as a value-based choice architecture that rewards cost-effective decisions with lower out-of-pocket expenses while preserving freedom of choice.
This alignment between behaviour, cost, and benefit is essential for long-term sustainability.
Conclusion
The introduction of hospital provider tiering combined with structured co-payments and deductibles marks an important evolution in Malaysia’s medical and health insurance landscape.
Rising medical inflation, rising claim severity, and expanding private hospital charges have placed increasing pressure on premiums, threatening both affordability for policyholders and insurers’ viability. Without reform, the system risks becoming inaccessible to many who most need protection.
A carefully designed tiering framework offers a balanced and constructive solution. By linking patient cost-sharing to provider efficiency and negotiated pricing, the model encourages hospitals to moderate charges while empowering consumers to make economically responsible choices.
Most importantly, tiering should not be framed as a punitive measure but as a collaborative mechanism that aligns the incentives of insurers, health care providers, and policyholders toward a common goal: sustainable, high-quality health care.
For tiering to succeed, implementation must be data-driven, transparent, and standardised across the industry. Independent oversight, collective negotiations, and measurable cost benchmarks are essential to avoid fragmentation and ensure fairness. Inclusion of public-linked and cost-controlled providers further strengthens competition and provides affordable alternatives for consumers.
Ultimately, the sustainability of medical insurance cannot depend solely on altering patient behaviour.
It must address the structural drivers of health care inflation at the provider level. When supported by clear communication and thoughtful product design, tiering and CPD can stabilise premiums, improve cost discipline, and preserve access to care.
In this way, the system evolves from reactive cost-shifting to proactive cost management, creating a more resilient and equitable health care financing ecosystem for the future. The ultimate aim should be towards having a sustainable health care provider and assurance relationship.
Dr Mohamed Rafick Khan is a trained physician with 12 years of experience in military medical services and over 22 years of experience in the assurance industry. He retired as the CEO of a multinational reinsurance company in 2019 and remains active as an independent international assurance industry consultant.
- This is the personal opinion of the writer or publication and does not necessarily represent the views of CodeBlue.
