4 Ways to Manage Escalating Medical Premiums
Published December 2016
Written by Shawn Yap CFP
With the end of the 12-month premium freeze, some Integrated Shield Plan (IP) insurers are set to raise their premiums for next year amid increasing medical costs and higher claims. Healthcare costs are expected to continue its uptrend for years to come. In fact, the pace of inflation for healthcare is one of the fastest across all items. This is due to demographics and longevity. Singapore ranks within the top five in the world for life expectancy.
Longevity does not mean good health however. Rich men's diseases such as diabetes, high blood pressure and high cholesterol levels are so common that they are touted as the new norm. According to Ministry of Health (MOH) statistics, hospital admission rate increases by more than 30% every five years from 55 years old onwards.
There are currently 6 insurers offering IPs in Singapore. Here are 4 ways to choose and keep your preferred coverage while taming the ever-increasing premiums.
Among the different types of insurance, medical insurance has the strictest health requirements causing it to be the most difficult insurance to purchase. Therefore, it is crucial to buy it as early as possible and make sure it is manageable throughout retirement as medical costs escalate. An IP may be a good enhancement over the basic MediShield Life but premiums can grow uncontrollably. Moreover, there is an annual MediSave withdrawal limit for IPs. As you grow older, an increasing proportion of premiums have to be paid in cash.
Contrary to life insurance premiums where the premiums are mostly constant, the premiums of medical plans are not. Premiums are not based on entry age and will increase according to the relevant age band. The stated premiums are based on today's value. It would be wise to choose the right insurer assuming you are on the plan forever because changing the plan or company gets more uncertain as you age because of health conditions.
Hospital Class and Co-Payment
There are two factors that determine the cost of premiums: Hospital Class & Co-Payment.
Hospital class is usually classified into three categories: Private hospitals, public hospitals A/B1 class wards, and public hospitals B2 and C class wards. Some companies only have two categories: Private and Public. This means that you are paying the same premiums regardless of whether you stay in Ward A, B or C in a public hospital.
Co-payment, usually known as co-insurance, is the percentage of the claimable amount which you have to pay, on top of the deductible. In a Towers Watson survey report, one of the top three significant factors driving medical costs is overuse of care. Generally, patients will exercise more prudence with some co-payment in place. Therefore, the premiums of plans with zero co-payment also known as first-dollar claim is likely to rise faster than those with a higher co-payment. This is evident in recent years.
To manage future premiums, one should choose a flexible structure that can be downgraded by hospital class or co-payment, if not both. Some insurers offer 2 choices while others offer up to 6 choices.
The premiums for medical insurance are similar to car insurance except that it is based on a specified age group rather than for an individual. For car insurance, your premium increases once you are at fault in an accident. For medical insurance, your premium is based on your insurer's claim experience of the age group you belong to. Insurers that include more frills and are more lenient with underwriting requirements may face higher premium increases in the future.
Note that not all medical costs are covered. Some special medication are not approved as an allowable claim and can cost more than a hundred dollars a pop. For a holistic healthcare portfolio, whole life major illnesses cover and long-term care protection are recommended.
If you have any medical conditions, apply with different insurers and pick the best deal with the least exclusions. For example, even if you are faced with any exclusion because of high blood pressure and high cholesterol, you should still be covered for accidents and cancer.
For those who already have an existing plan, do be extra cautious when attempting to change to another insurer. The new insurer would most likely exclude any pre-existing conditions even if your previous insurer covers them. You have to weigh the pros and cons very carefully.
Most employees would be covered under their employer's medical plan. Never rely solely on them as they usually have multiple sub-limits and are not portable. The company owns the plan, not you. If you change company, the new company may not insure you if you have a medical condition. Your medical cover ceases once you retire. Unless you are in perfect health, coverage is questionable.
The best way to manage healthcare costs is to stay in the pink of health. Exercise regularly, eat a healthy diet and go for a medical examination annually. Most importantly, educate yourself on health matters. The greatest form of wealth is good health.
This article is also published at AsiaOne (2nd Dec 2016), AreYouReady.sg by CPF (6th Dec 2016) & ConsultWho (9th Jan 2017).