In his CodeBlue article “Bleak Future For Malaysia’s Health Assurance Industry”, Dr Mohamed Rafick Khan presents a frank assessment of where Malaysia’s health assurance market is heading.
His core argument is that the industry is sliding into a downward spiral because medical premiums cannot be stabilised without first controlling hospital charges.
At the same time, insurers are unable to pool risks or cross-subsidise across products because of regulatory prudence requirements. If these structural problems persist, he warns that insurers may eventually withdraw from medical insurance altogether, leaving policyholders to depend increasingly on their own savings.
On these central points, the analysis is largely correct. Hospital pricing lies at the heart of the problem, and insurers do operate within real regulatory and capital constraints. However, two areas of emphasis in the article deserve closer scrutiny, because they risk obscuring the deeper forces driving the crisis.
First, the article places significant responsibility on policyholders to question hospital charges. In theory, this sounds reasonable. In practice, it is not.
Most patients are not trained negotiators and do not understand complex medical billing. Many seek treatment in emergencies, where price comparison is impossible and delay can be dangerous.
Above all, there is a profound power imbalance between patients and health care providers. Without clear price transparency tools and strong regulatory backing, expecting patients to discipline pricing behaviour is unrealistic and unfair.
Second, while the article refers to Bank Negara Malaysia’s forthcoming measures, it does not fully explain how these initiatives might work. Ideas such as diagnosis-related group pricing, a national health care financing framework, joint pricing committees, or amendments to existing financial laws are often mentioned in policy circles.
But without clarity on implementation, governance, and enforcement, these proposals risk becoming technical fixes that raise compliance costs without addressing the real drivers of medical inflation.
There is also a broader context that deserves more attention. Health assurance cannot be separated from pressures in Malaysia’s public health care system. Rising costs reflect not only private hospital pricing behaviour, but also workforce shortages, infrastructure strain, and demographic change.
As the population ages and demand grows, both public and private systems face the same constraints. Ignoring this reality risks treating symptoms rather than causes.
Finally, Malaysia’s challenges are not unique. Many countries struggle with the same tension between rising medical costs and insurance affordability.
Without reference to international experience, readers may wrongly assume that Malaysia’s problems are exceptional, rather than part of a global pattern in health financing.
These gaps matter because they shape how we understand what comes next. To see where the market is heading, we must look beyond individual stakeholders and examine how competition itself drives the system toward failure.
Health insurance markets do not collapse suddenly. They unravel step by step, through decisions that are rational for each participant but damaging for the system as a whole.
The process often begins with premium increases. Insurers raise prices in response to higher claims, driven by rising hospital charges, specialist fees, advanced diagnostics, and longer hospital stays. From an actuarial standpoint, this makes sense. Loss ratios worsen, capital buffers tighten, and solvency rules leave little room for delay.
But in a competitive market, pricing is also a signal. Each increase tells policyholders that medical insurance is becoming more expensive and less predictable. Over time, this message changes behaviour.
The first group to respond is usually the healthiest segment. Younger policyholders, those who rarely claim, and employers managing tight budgets begin to question value. Some downgrade their coverage. Others switch to cheaper plans. Some leave the market entirely. This is not emotional or irresponsible behaviour. It is rational consumer choice.
Yet these are precisely the lives insurers need most. They are low-claim, price-sensitive, and essential for spreading risk.
As healthier policyholders exit, the remaining pool becomes older and sicker. Claims become more frequent and more severe. The average cost per policy rises. Insurers then face a structural dilemma.
Raising premiums again accelerates the loss of healthy lives. Holding prices steady means absorbing growing losses. This is the classic adverse selection problem, long recognised in insurance economics.
When losses persist, insurers have little room to manoeuvre. Shareholders question whether capital should remain tied up in unprofitable products. Boards reassess strategy. Underwriting tightens. New business slows. Eventually, some insurers withdraw from medical insurance altogether.
This outcome is often described as market failure, but it is better understood as competitive rationality. Insurers are commercial entities. They cannot survive indefinitely in markets where costs are uncontrollable and pricing freedom is constrained.
The consequences do not stop with insurers. Hospitals, too, are affected. Many operate on the assumption that insurers will always provide reliable payment. When insurers retreat, payment certainty disappears. Bad debts rise. More patients pay out of pocket. Collection risk shifts back to providers.
Hospitals then adapt. They may demand higher upfront deposits, insist on payment guarantees, restrict access for uninsured patients, or focus more heavily on affluent or foreign clientele. From a business perspective, this is rational risk management. From a social perspective, it reduces access and deepens inequality.
Other countries have walked this path before. In the United States, weak regulation and strong adverse selection led insurers to exit individual markets, leaving entire regions with few or no coverage options. Only heavy government intervention eventually stabilised the system.
In Australia, community-rated premiums are supported by strong policy controls that indirectly restrain hospital charges. Without them, premiums would have spiralled.
In the United Kingdom, the National Health Service acts as the dominant payer, preventing hospitals from freely pricing into insurance funds. Cost control happens upstream, not through premium pressure.
The lesson is consistent. Competition alone cannot stabilise medical insurance.
Every participant in the system behaves sensibly. Policyholders leave plans they can no longer afford. Insurers withdraw from loss-making products. Hospitals seek to protect revenue. Yet the combined outcome is destructive. Coverage shrinks. Costs rise. Access declines. Inequality grows.
If nothing changes, this process will accelerate. Fewer insurers will remain. Premiums will rise faster. Hospitals will lose payment certainty. More Malaysians will be forced to self-finance care. The market will not self-correct. It will contract into exclusion.
Seen through this lens, one conclusion becomes unavoidable. A structurally broken health insurance market cannot be repaired by asking any single group to behave better. Not insurers. Not hospitals. And certainly not patients.
Real reform must address pricing power, incentives, and system design together. Anything less merely delays the next turn of the spiral.
The author has over 30 years of experience in life insurance underwriting and claims.
- This is the personal opinion of the writer or publication and does not necessarily represent the views of CodeBlue.
