Recent policy discussions surrounding Malaysia’s Base Medical and Health Insurance/Takaful (BMHIT) framework have focused heavily on the roles of copayments and deductibles (CPD) and the hospital tiering mechanism, as outlined in Bank Negara Malaysia’s White Paper on the medical and health insurance ecosystem.
These mechanisms aim to moderate health care overutilisation and improve affordability. However, less attention has been paid to how the proposed system will function operationally—particularly with respect to sales strategy, risk pooling, and claims management.
A report in The Edge (January 29, 2026) noted that only insurers that met specified eligibility criteria would be permitted to distribute the CPD product. The article highlighted that CPD product premiums are standardised and that risks may be centrally pooled across participating insurers. If implemented, such a design would significantly reduce insurers’ roles in managing CPD products, to sales, underwriting, and claims servicing functions.
While the proposal appears administratively efficient, its commercial and actuarial implications warrant careful evaluation. Without addressing structural cost drivers (primarily hospital charges), the framework may struggle to achieve its objectives.
Sales Realities And Market Incentives
The framework assumes that CPD products are readily marketable and that insurers are willing participants. In practice, this assumption may be optimistic.
For assurers that do not currently offer health products, entering this segment requires substantial upfront investment. New IT systems, claims capabilities, trained staff, and third-party administrators are necessary to support CPD administration.
When combined with unclear qualification requirements and regulatory approval processes, the expected return on investment may not justify entry. Many companies may therefore choose to remain outside the scheme.
Existing health assurers face a different challenge. They are expected to offer (BMHIT) CPD products alongside their current medical portfolios. Yet traditional medical plans, often bundled with investment-linked policies, remain easier to sell and typically generate higher commissions for distributors.
Agents and intermediaries, who ultimately control customer access, naturally prioritise products that deliver higher income and simpler sales narratives.
By comparison, CPD products introduce higher out-of-pocket costs, more complex explanations, and perceived barriers to entry. This makes them less attractive in competitive retail settings. As a result, healthier or younger individuals may gravitate toward conventional plans, while older or medically impaired customers are more likely to select CPD coverage.
Such behaviour creates adverse selection. The risk pool becomes concentrated among substandard and elderly lives and faces higher claims, undermining the very affordability and sustainability the policy seeks to promote.
Centralised Pooling: Concept Vs Practice
Centralised risk pooling is often presented as a stabilising mechanism. In theory, a broader pool reduces volatility and spreads risk more evenly across participants. This approach has been used previously in Malaysia, notably through the Malaysia Motor Insurance Pool (MMIP), which provides coverage for high-risk vehicles that insurers might otherwise decline to insure.
However, the success of pooling depends critically on the diversity of risks entering the pool. Motor pool risk behaviour differs markedly from health care risk behaviour. The motor pool is in demand because national laws require all cars to have assurance, whereas CPD products are optional.
If CPD products experience low sales volumes and attract primarily higher-risk individuals, the centralised pool effectively becomes a repository for undesirable risks rather than a balanced portfolio. Insurers may have incentives to transfer disproportionate risk into the pool while retaining healthier segments within their own books.
The pool then functions less as a stabiliser and more as a residual safety net for companies.
Furthermore, standardised pricing removes flexibility. Without the ability to price according to risk experience, the pool cannot adequately respond to deteriorating claims. Contributions may be misaligned with actual costs, thereby threatening solvency or necessitating frequent premium adjustments and higher Capital Requirements.
These concerns are compounded by persistent health care inflation. Hospital charges have risen steadily, and meaningful cost containment remains elusive. When treatment costs escalate while premiums remain fixed or standardised, financial sustainability becomes increasingly difficult.
Under such conditions, centralised pooling alone cannot solve structural imbalances. It may simply redistribute losses rather than eliminate them.
Claims Management And Cost Drivers
No financing model can succeed if the underlying cost environment remains unchecked. CPD features may moderate minor claims and encourage responsible utilization, but they cannot offset systemic price inflation in hospital services.
If providers continue to increase charges without effective oversight, both policyholders and insurers will bear higher costs. Patients face larger copayments, while insurers experience higher claim outflows. The intended affordability gains from CPD structures are then eroded.
Cost containment must therefore accompany product redesign. Otherwise, reforms risk treating symptoms rather than causes. Given the government’s influence within the health care ecosystem—including ownership stakes in private hospital groups—there is both responsibility and capacity to promote fair pricing practices. Greater transparency, standardised billing, and stronger regulatory oversight are necessary complements to insurance reform.
Strategic Alternatives
To enhance the sustainability of BMHIT, several strategic adjustments may be considered.
First, strengthen hospital cost controls. Effective regulation of charges is fundamental. Without managing health care inflation, any insurance solution will struggle to remain affordable. Transparent pricing benchmarks and board-level governance in hospital networks could help curb excessive profit-taking.
Second, reconsider centralised pooling. Rather than a single national pool, insurers could manage CPD risks within their own portfolios while using reinsurance to smooth volatility. This preserves underwriting discipline, aligns incentives, and allows pricing flexibility while still protecting against catastrophic losses.
Third, align sales obligations with policy goals. If insurers wish to sell health products, regulators could require a minimum proportion of CPD offerings relative to standard plans. Such quotas ensure participation and prevent selective avoidance of socially important segments. Regular reporting to the regulator would enhance accountability and reveal genuine demand patterns.
Fourth, adopt a longer-term perspective. CPD products may provide short-term relief but are not a comprehensive solution. Sustainable health care financing requires nationwide reforms, including structural reforms such as provider payment models, incentives for preventive care, and digital claims governance. Piecemeal measures risk becoming temporary fixes rather than durable improvements.
Conclusion
The BMHIT initiative reflects a commendable effort to expand access to affordable health care and promote responsible health care utilisation. Copayments, deductibles, and broader risk-sharing are sensible tools but may not be practical. Product design must also account for market behaviour and economic incentives.
In practice, agents will favour higher-commission products, insurers will avoid unprofitable risks, and centralised pools may attract a disproportionate share of high-cost members. When combined with rising hospital expenses and standardised pricing, these dynamics threaten financial sustainability.
Reform must therefore extend beyond product structure. Effective cost containment, aligned incentives, decentralised risk management supported by reinsurance, and clear participation requirements are essential. Without these measures, the framework may unintentionally create instability rather than resilience.
Ultimately, sustainable health care coverage depends not only on how risk is pooled but also on how costs are controlled, and responsibilities are shared among insurers, providers, regulators, and consumers.
Only through coordinated, systemic change can Malaysia achieve equitable and lasting protection for its population.
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.
