SINGAPORE: There is one business that may not want your money when you turn 70.
I didn’t quite realise this until I received my annual medical insurance renewal letter last week, announcing that my Integrated Shield Plan premium will go up from S$2,149 to S$2,899, a 35 per cent increase.
This is not unexpected – premiums rise with age because the older you get the more likely you will require medical treatment.
It is a statistical fact you cannot run away from, even though, as an individual, you may be a healthy exception and fitter than anyone.
That’s not my complaint.
What is more concerning is the realisation that my insurance company could be quite happy if I stopped my coverage, rising premiums notwithstanding.
In theory, the company will benefit financially if every one of its 70-year-old or older customers terminated their insurance plan, even though they will be paying higher and higher premiums right up to their final days.
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MAKE MONEY FROM THE YOUNG; KEEP THE OLD NUMBERS IN CHECK
Health insurance companies make the most money from young people who pay low premiums and do not make many claims because most are relatively healthy.
They also prefer them because they are potential customers for other plans such as life, travel and accident insurance.
As they grow older, the equation turns completely on its head as the claim amounts rise steeply with age. For those above 70 years, around one-third will make claims every year.
So, the ideal scenario for an insurer is to have as many young people under its cover and as few old ones as possible.
Make money from the young and keep the old numbers in check.
But if this is a winning formula, what is to stop these companies from trying to achieve it by charging sky-high premiums for old people to drive them away?
In a normal business, there is a limit to how much companies charge for fear of losing customers especially to a more competitive rival.
But since health insurance companies don’t benefit from having old people, this concern isn’t a big deal for them.
As for chasing away business to competitors, it doesn’t work in health insurance.
You can’t switch your plan to another company because, if you do, you are treated as a new customer and all your pre-existing medical problems will not be covered.
Diabetic? High blood pressure? High cholesterol? You are stuck with your existing insurer and its ever-rising premiums.
Try to change your insurer and it will exclude those conditions from your coverage.
There is more bad news. If you happen to be insured by one of the smaller companies, chances are you will be paying higher premiums than those in a large one which has more customers.
These are not, strictly speaking, direct comparisons as there may be variations in coverage but they are indicative of the difference in prices between larger and smaller companies.
In a completely free market, you would have been able to change insurer.
But not so in healthcare, for the reason mentioned above.
This is clearly unsatisfactory.
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PORTABILITY FOR NO-CLAIM INDIVIDUALS
What can be done?
Part of the answer, as always, is government supervision and action.
In fact, the insurance business is regulated and there are rules governing what they can do and to make sure they are financially sustainable.
Recently, the authorities named the four largest insurers here – AIA Singapore, Income Insurance, Prudential Assurance and Great Eastern Life – as companies that are too big to fail and would hence be subjected to more rigorous standards of supervision.
Like large banks, these insurers present a systemic risk to the economy if any of them were to collapse.
This is a good move that should help ensure these companies are sound and financially secure, now that big brother is watching them more closely.
The safeguards are mainly to protect the health of these companies, but who is there to look after the interests of customers?
Caveat emptor or let the buyer beware?
This cannot be applied to health insurance for one important reason: MediSave funds are allowed to be used to pay for premiums of MediShield Life and Integrated Shield Plans.
As these are Government-mandated funds, the authorities have a responsibility to make sure they are used in a way that protects the public interest.
It means closer oversight of the premiums charged and what they cover.
The inability of customers to switch their plans to another company is a major issue. It penalises those stuck in companies that are not efficient or competitive leaving them with no recourse even if they are fit and healthy and have never made any claims.
What would happen if switching is allowed without losing coverage of pre-existing conditions?
This would be a godsend for customers but might be too much of a bitter pill for companies to swallow if they are suddenly deluged with high-risk cases.
It would be unfair to expect these companies to accept them without raising their premiums.
A better solution would be to allow portability for those who have not made any claims for a certain number of years.
This will lessen the risk for companies and encourage more people to stay healthy.
It is a more realistic and workable approach than the suggestion that has often been made to charge lower premiums for people who have not made any claims, as in the case of motor vehicle insurance.
The problem with this idea is that it will result in much higher premiums for those with medical problems.
Someone has to pay for the shortfall if premiums are lowered for the healthy and the burden will fall increasingly on the sick.
It is not right to inflict this penalty on people requiring medical treatment and those who suggest this should be careful what they wish for – you never know when you might require costly treatment.
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INSURANCE MATTERS BECOME MORE PRESSING AMID AGEING SINGAPORE
With portability for no-claim individuals, there might be a gradual migration to more efficient companies charging lower premiums.
Less competitive insurers which are likely to be the smaller ones will suffer the consequence and might be driven out of business.
This is not a bad outcome for Singapore, as long as there are enough of the larger companies to provide a choice for customers and to spur competition.
For a relatively small market like Singapore, three to four health insurers should be enough to make it competitive. There are currently seven with huge differences in size among them.
For example, AIA and Income collected Integrated Shield premiums of S$744 million and S$647 million respectively last year.
In contrast, the numbers for HSBC Life and Raffles Health were S$62 million and S$4 million.
Looking at their financial results last year, the three smallest health insurers (Singlife, HSBC Life and Raffles Health) all suffered underwriting losses for their Integrated Shield plans while the rest made gains. This raises questions about the long-term viability of smaller health portfolios.
With the rapid ageing of the Singapore population, the issues I have highlighted will become more pressing.
In effect the health insurance industry will suffer a double whammy: Medical costs will go up and a larger proportion of their clientele will be aged.
Premiums will rise even more for older people and some may have to opt out of their plans. Their plight will be made worse if they are unable to switch insurer.
Better to bite the bullet and deal with it now before it is too late.
Han Fook Kwang was a veteran newspaper editor and is a senior fellow at the S Rajaratnam School of International Studies, Nanyang Technological University.