Malaysia’s current commercial health assurance business model is unsustainable. Rising medical costs, an ageing population, increasing dependence on private health care, and unregulated hospital pricing have placed growing pressure on assurers and directly burdened consumers. Boardroom demands for higher shareholder dividends must not be excluded.
Frequent premium hikes, tighter underwriting, and shrinking benefits have raised serious concerns about long-term affordability and public trust. The current affordability strategy focuses on reducing premium contributions by having a lower sum insured products, and policyholders must share treatment costs through deductibles and copayments (CPD).
Bank Negara Malaysia (BNM) and policymakers working alongside the Ministry of Health Malaysia (MOH) increasingly recognise that traditional approaches are no longer sufficient.
The future of commercial health insurance in Malaysia depends on developing a new business model—one that balances customer fairness with fund sustainability, transparency, and treats health care protection as a long-term social partnership rather than a short-term financial transaction.
The BNM Base Medical and Health Insurance/Takaful (MHIT) Plan will reduce premium contributions, but it is unlikely to make the whole health assurance industry financially sustainable.
The Growing Tension Between Fairness And Sustainability
Health assurance is built on collective risk-sharing. Premiums from many individuals are pooled to finance the medical needs of those who fall ill. When this balance works well, customers receive reliable protection, and assurers remain financially stable. When it fails, both sides suffer.
For customers, fairness means affordable premiums, transparent policies and margins, reasonable access to coverage, and protection from sudden exclusions. For assurers, sustainability requires sufficient premiums, controlled claims, strong reserves, and stable risk pools.
Historically, financial pressure has been addressed through premium increases and stricter underwriting. While effective in the short term, this approach gradually weakens risk pools, excludes vulnerable groups, and erodes trust. A sustainable system cannot indefinitely shift rising costs to consumers.
Building Trust Through Transparent Products
Customer satisfaction is inseparable from fairness, which stems from transparency, effective communication, education, clarity, and honesty in product design. Customers need to be informed about the relevant legal framework governing pricing.
In this regard, companies rebrand themselves from a profit-making role to an administrative role (wakalah), with their earnings limited to 1 per cent to 3 per cent of the total premium contribution. Anything in excess shall be retained in the contribution fund as a future buffer.
The fund’s financials (contributions received, hospital payouts, operational expenses, and administrative fees) must be made public periodically in a simple, electronic format. This is to allay any public misperception that assurers make billions.
Ambiguity must be removed in totality. Exclusions, medical and legal wording, and renewal terms must be communicated in a simple and clear manner. Plain-language documents, standardised benefit definitions, and clear disclosure of limits and exclusions empower consumers to make informed choices. When customers understand their participation in a scheme, trust improves, and disputes decline.
Accommodative underwriting must be implemented. While risk-based pricing is necessary, permanent exclusions for chronic conditions and age-related risks undermine social equity.
Countries such as the Netherlands, Germany, Switzerland, the United States, Israel, and Japan mandate guaranteed-issue health insurance, prohibiting the denial of coverage for pre-existing conditions through strong legal and regulatory frameworks.
Underwriters typically include waiting periods, limit the coverage, and/or charge a higher premium contribution. The use of electronic simulation to achieve this goal must be enhanced.
Incorporating Disease Prevention In Assurance Coverage
One of the critical shifts in the new approach is moving from treatment-focused financing to prevention-centred protection. Most traditional policies prioritise the cost of hospitalisation and major procedures.
Preventive services, such as periodical screenings, chronic disease management, and mental health support, are never incorporated into product design. As a result, many illnesses are detected late, leading to expensive interventions and higher claims.
A sustainable model integrates financial modelling and early disease detection and prevention (DDP) into the core coverage. Regular health assessments, cancer screenings, diabetes monitoring, and wellness programmes help detect problems early and reduce long-term costs.
A customised DDP program is embedded in an assurance policy and serves as an incentive for a lower premium contribution. The DDP programme can be borne by policyholders or subsidized by the government through assurance companies.
The results shall be seamlessly integrated into the company’s policy renewal calculations. The benefits are twofold: customers enjoy better health outcomes, insurers benefit from more stable claims patterns, and the country has a healthier population. Disease prevention becomes a shared investment rather than an optional extra.
Profit Sharing: Hospitals And Assurers
Another structural weakness in the current system is the lack of regulation in the private health care fee-for-service model. This encourages abuses by hospitals, which are eventually reflected in premiums.
Assurers should be selective in choosing hospital partners and only enter into a contractual relationship with hospitals that are willing to offer a profit refund to assurers based on a mutually agreed trigger. (E.g pretax profit growth exceeding Year-to-Year (Y2Y) profit by 5%).
Any excess is returned to the assurance fund. For insurers, it stabilises claims. For providers, it strengthens professional accountability and has steady growth. It benefits policyholders by offering stable premiums or low premium increases and access to medical services.
Strengthening Risk Pools For Long-Term Stability
Sustainability ultimately depends on the size and diversity of risk pools. Small or fragmented pools are highly vulnerable to claim volatility. Larger and more diversified pools, industry-wideprovide natural stability. Affordable entry-level plans, flexible coverage tiers, and incentives for early enrolment are essential to maintain long-term pool equilibrium.
Hospital profits shared with insurers should be credited to the assurance fund. It is recommended that the Malaysian Takaful Association (MTA) lead the development of the industry-wide pool due to shariah governance (which is acceptable to non-Muslims). MTA shall develop a standard contract with standard underwriting and claim guidelines, manage premium contributions, pay each participating company its 3 per cent margin, and pay all third-party administrator (TPA) approved claims.
Responsible Cost Sharing
Fairness does not imply unlimited coverage without personal responsibility. Moderate cost sharing encourages prudent use of health care without restricting access. Well-designed CPD benefits reduce unnecessary consultations and excessive testing.
Tiered hospital networks allow customers to choose between premium and standard facilities. The key is proportionality: cost-sharing must be low enough not to deter essential treatment. It must be reasonable and match the population’s income distribution. When properly implemented, cost sharing promotes sustainability without undermining equity.
Harnessing Digital And Data Capabilities
Technology plays a central role in balancing fairness and sustainability. Wearable devices and mobile applications enable insurers to monitor a healthy lifestyles, benefiting policyholders by offering better premiums. Data-driven systems allow personalised incentives.
Customers who participate in screenings, maintain healthy lifestyles, or manage chronic conditions effectively can be rewarded through premium discounts and benefits. This shifts the focus from penalising risk to encouraging responsibility.
The system must provide real-time data on claims payouts, operating expenses, and revenue, thereby reducing public pressure on the insurer.
Governance and Capital Discipline
No reform can succeed without strong governance. Assurers must maintain adequate reserves, robust reinsurance arrangements, and transparent financial reporting. Excessive profit extraction weakens fund resilience and undermines long-term confidence.
Independent oversight, strong internal controls, and responsible surplus management ensure that customer interests are not sacrificed for short-term gains. Sustainability requires institutional discipline as much as technical innovation.
Integrating Public And Private Health Care
Long-term efficiency also depends on better coordination between public and private health care systems. Malaysia’s public sector provides affordable basic services, while private insurance offers faster access and specialised care. These systems should complement, not duplicate, each other.
Integrated referral pathways, shared chronic care programmes, and coordinated data systems reduce congestion, lower duplication, and improve national health outcomes. Insurance becomes part of a broader health ecosystem rather than an isolated financing tool for the private hospitals. Consumers will be encouraged to use a dedicated special green lane at public hospitals with much lower CPD cost sharing.
Toward A Shared Responsibility Model
The most promising direction for reform is a shared-responsibility framework, as evidenced by the assurance fund’s sustainability. Customers commit to healthy behaviour and responsible utilisation. Insurers design fair products, invest in prevention, and maintain reserves.
Health care providers focus on ethical treatment and cost discipline through their profit-sharing arrangement. Regulators ensure transparency, enforce standards, and promote financial literacy. Hospitals must contribute to the fund when they receive excessive profits.
When all stakeholders (assurers, policyholders, and hospitals) accept shared responsibility, fairness and sustainability reinforce one another.
Conclusion
In conclusion, Malaysia’s commercial health insurance system can no longer rely on short-term measures, such as frequent premium increases, restrictive underwriting, and reduced benefits to manage rising health care costs. These approaches weaken public confidence and gradually undermine the collective risk-sharing principle on which insurance is built.
A sustainable future requires a fundamental shift toward transparency, prevention, responsible cost management, and shared accountability among all stakeholders.
By integrating disease prevention, promoting fair product design, strengthening risk pools, and encouraging ethical partnerships between hospitals and assurers, the industry can restore balance between customer protection and financial resilience.
Digital tools, transparent reporting, and disciplined governance further enhance trust and operational efficiency. More importantly, a shared-responsibility framework ensures that policyholders, insurers, health care providers, and regulators each play an active role in preserving the integrity of the assurance fund.
Health assurance must evolve from being a reactive payment mechanism into a long-term partnership for wellbeing. When fairness, accountability, and sustainability are embedded into business practices, the system becomes more inclusive, resilient, and socially relevant.
Only through coordinated reform and collective commitment can Malaysia build a health insurance model that remains affordable, credible, and capable of protecting future generations.
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.
