When one of my parents went down with some problems last year, some monetary problems happen.
The CPF Medisave was depleted, till the point that the account cannot fund the Medishield Life annual premium.
This becomes a problem to continue treatment as it may jack up some of the hospitalization costs without the health insurance.
That is when I dove in to study more about how we can go about paying the Medishield Life with my CPF and whether I can get some incentives in the process.
In this way, while I eventually pay for the premiums, I gain some tax advantages.
The Problem Here
- Your parent’s CPF Medisave is low. Due to that, they are unable to pay the Medishield Life annual insurance premiums automatically with their CPF Medisave
- You would like to see whether you can enjoy some tax relief while helping out your parents
Both problems can be solved, but it is not so straight forward.
Let’s Dive In.
Why Maintaining the Medishield Life is Important
The Medishield Life is the most basic health insurance that in late 2015, became compulsory for all Singaporeans to be insured.
You pay an insurance premium yearly. The health insurance’s purpose is to reduce the impact of large inpatient and outpatient medical bills.
What this means is that if your hospital bill, after government subsidies, come up to $100,000, you hope the health insurance enables you to pay only a small % of the bill. If your hospital bill comes up to $3,000, you pay a large % if not all of it.
Thus, if the health insurance works well, it reduces the monetary anxiety brought about by large hospital bills, while getting you to pay the smaller hospital bills.
Without a health insurance, you will end up having to foot the hospital bill after subsidies.
Medishield Life will offset your medical bills, in excess of the deductible and 10% co-payment. For example, if you have 3 consecutive treatment where the net cost after subsidies is $900, $800, $700, while each of these sum is less than the deductible of $2000, part of your last bill will see the effects of Medishield Life, as the board will aggregate your bills to derive how much you can claim. This is good because if they do not aggregate, many small hospitalization or outpatient treatment would have rendered the Medishield Life rather ineffective.
When your parents approaches retirement, or are more than 65 years old, the incidence where they will need inpatient and outpatient treatment increases.
Without the insurance, you may end up paying recurring large hospital bills.
Your Medishield Life, or a private shield plan can be funded by your CPF Medisave account, up to a certain point.
I will not go deep into what I meant by “up to a certain point”.
As a summary, your private shield plan such as Prushield, MyShield, Income Shield provides additional coverage on top of Medishield Life. Think of them as an enhancement to a basic plan. CPF however, limits how much premiums you can service the premiums of these private component of the integrated health plan. This limit is called AWL. You will need to use cash to pay for the premiums if you exceed the AWL.
The important thing to note is that, your CPF Medisave is a forced saving account to facilitate you to pay for your health insurance premiums, and medical costs.
$0 CPF Medisave –> cannot pay Medishield Life
If your parent’s CPF Medisave gets depleted, the payment will have to come from somewhere:
- their cash
- your cash
- use your CPF Medisave to pay their Medishield Life
#3 is what we would like to explore here.
Step 1: How you can help your Parents Pay their Medishield Life Premiums
From the previous section, to pay for their Medishield Life, they will have to top up their CPF Medisave.
According to CPF, your parents have the following methods to top up their CPF Medisave:
- Services at www.cpf.gov.sg -> Enquiry & Payment Services -> e-Cashier, with an internet banking account using your NRIC
- NETS at any SingPost branch with the MediShield Life top-up form , or at any SAM.
- AXS Station with ATM cards from major participating banks
- Cash or CashCard at any SingPost branch with a MediShield Life top-up form
- Cheque made payable to: ‘CPF Board
All these methods are a cash top up by your parents.
However, there is an alternative…..
Which is to request one of your parent’s immediate family members (e.g. spouse, parent, child or grandchild) to use his/her CPF Medisave savings to help pay for the Medishield Life premium.
What this means is that you, the child can help them pay for their Medishield Life premium with your CPF Medisave.
To do so, your family member can submit an application through my cpf Online Services – My Requests using SingPass or fill up the Change of Payer for MediShield Life Form and mail it to the CPF Board. Once the application is processed, the new payer will take over paying the premium payment from the next policy year.
The link may go away but currently the link is valid. (it is damn hard to find the form)
Step 2: Make a Voluntary Contribution to Your CPF Medisave Account for Tax Relief
So you can set up to pay your parent’s Medishield Life, using your CPF Medisave, and then have the chance to top up your CPF Medisave.
One big upside is that you can enjoy tax reliefs.
What is Tax Relief?
We all need to pay income tax for the income earned last year. You can refer to this page for more information.
Depending on your privileges, circumstances, your taxable income can be reduced by your tax reliefs so that the eventual tax expense for you is less.
It is a bigger advantage if you manage to step down from one tax bracket (e.g. 11.5%) to a lower one (e.g. 7%).
For example, if you earn $80,000 and you have zero tax relief, the annual tax you pay is $3,350.
However, if have a $7,000 tax relief, your taxable income is $73,000.
The annual tax you pay is $2,860 or $490 less.
Enjoying Tax Relief by Topping up your CPF Medisave
Many of us know that we can enjoy tax relief by:
- Topping up to $7,000/yr into your own CPF SA account
- Topping up to $7,000/yr into your parent’s CPF Retirement account
You are eligible for tax reliefs when you make a voluntary contribution to your Medisave Account on top of the compulsory CPF savings. You may claim a relief for any income earned in the year in which your voluntary Medisave contributions were made.
There is a maximum limit of $80,000 in total tax relief that an individual can claim annually.
The amount of relief allowed for voluntary Medisave contributions is limited to the lowest of either of the following:
- Voluntary cash contributions made specifically to the Medisave Account;
- Annual CPF cap less the mandatory contribution by you and your employer;
- Prevailing Basic Healthcare Sum of $52,000 (the current amount) less the balance in Medisave Account prior to your voluntary contribution.
Let me explain.
#1 means that you can only get relief for the amount you top up. If you top up $2,000, you will only get the relief of that amount.
#2 what is Annual CPF cap less the mandatory contribution by you and your employer? To understand this, there is an Annual CPF Limit that the government limit how much your employers, yourself through your job, and you voluntarily can put into CPF.
#2 means that suppose you earned $80,000/yr, so that means you contribute $29,600 (because $80k x 37%) into your CPF. You have not breached the $37,740 limit, which means you can still voluntary put in $8,140 for the year if you want.
Note: this would mean that if you are a high income earner, if you wish to top up your own CPF SA to the limit of $7,000, you may run into a problem.
#3 means that CPF Medisave have a limit as well, which is the Basic Healthcare Sum, and currently it is $52,000 (subject to change). If you currently have $51,200 in your Medisave, then you can only voluntarily contribute $800 more.
I hope that explains.
The Topping Up Process
If you go to Services > e-Cashier , you will be presented with the following options:
One of the options is to Contribute to my Medisave (Tax deductible). This looks the most right option. There is a Top up Medisave to Pay MediShield Life premium. I am not sure if this will allow us to enjoy tax relief (because it is not explicitly stated.
You will be able to specify how much you wish to top up your CPF Medisave with cash. Note that there is a Check Allowable Contribution button, which lets you check how much of a shortfall from the Medisave Contribution Ceiling you can top up.
In my case, I have hit the CPF Medisave Ceiling, it is only because of the ceiling expansion that I could top up.
And I only have a small window, because a 4% interest on my $49,740 is $1,990, which will almost reach the ceiling.
Once you top up, then its done! Its a 2 Step Process.
I realize You cannot Top Up Your Parent’s Medisave Easily
I always thought we could top up our parents, or our spouse’s Medisave.
But when I went through the ordeal myself, I find its real difficult that I thought this option isn’t present at all.
If you go to Services > e-Cashier , you will be presented with the following options:
- Top Up Medisave to Pay Medishield Life premium – this is to increase your Medisave so as you can pay your own MediShield Life
- Top Up my HPS cover – your home have a HPS decreasing term insurance that is to be paid by your CPF Ordinary account. This is to top it up
- Contribute to my three CPF accounts – As the name suggest, this is a non tax relief contribution to any of your account. I suppose you can login to top up your parent’s Medisave, but this would mean this is not tax deductible charged to you
- Contribute to my Medisave – This is what we will explore later. By doing this you will gain tax relief on your income tax. You could give your parent money to top up their CPF if they are not working, but you will not get the tax relief attributable to your name
- Top up my own/recipient’s RA or SA under the Retirement Sum Topping-up Scheme – I realize you can gain up to $14,000 in tax relief if you top up your CPF SA or your kin’s CPF Retirement Account. It is that rigid that the money will flow to these accounts instead of the CPF Medisave
How much Tax Relief can you realistically enjoy from CPF Medisave Top Up?
Premiums of Medishield Life for older citizens are rather Substantial
Even today, with Pioneer generation subsidy, the annual premiums is nearly $500 per person.
Government gave top up but that is not enough.
Due to some hath complications, their Medisave have been wiped cleaned.
The could always pay for Medishield on their own with cash, but when they are in retirement and do not have income, the children can step in and help
The table above is the premium table for Medishield Life.
If we aim to replenish the amount we spent to pay for our parent’s Medishield Life, then it will be the premium amount we pay.
If we take the example of my parents, if I help the 2 of them to top up without government subsidies for Medishield Life, then it could come up to a relief of $1,700.
That does not look like a lot, but its better than nothing. tax relief needs to be considered as an aggregate to see how much it will step down your taxable income.
Flaw of this Method
One very visible flaw is that, if your CPF Medisave reaches the Basic Healthcare Sum (BHS), and that more interest adds to your Medisave, and the ceiling doesn’t get raised, you cannot consistently pay for your parent’s Medishield Life premiums and enjoy tax relief.
This method will only work when the premium payments for your parent’s Medishield Life takes place, then you immediately go and top up.
Tax Relief from CPF Top Ups are Fungible
The saving grace is that getting tax relief from CPF Top up is Fungible.
What this means is that whether you:
- Top up to your CPF SA
- Top up to your Medisave
- Top up to your parent’s CPF Retirement Account
You get the same tax relief, it is just that there are caps to them. If you are not actively topping up, if you failed to gain a tax relief by topping up to your CPF Medisave, you can top up the same amount to your parent’s CPF Retirement account to enjoy the same tax relief.
You could also top up to your own CPF SA the same amount you use to pay your parents’ Medishield Life premium to enjoy the tax relief.
The latter is better compare to the former, because the former you will have 2 cash outflows (one by your CPF Medisave paying their premiums and one from your pocket to their CPF Retirement Account) while the latter will only have 1 cash outflows ( one by your CPF Medisave paying their premiums and you transferring liquid cash to your CPF SA)
If you understand this, it means that you do not need to follow my 2 step process. You could pay the premiums for your parents and top up your own CPF SA.
However, if you are the crazy folks who top up the maximum $7,000 to your CPF SA, and then $7,000 to your parents CPF Retirement Account, to gain additional tax relief, you need to do my 2 step process.
CPF Medisave is Money that goes in One Way
One thing to note is that, CPF Medisave is a forced health savings the government made us carry out. The only use is for health related functions.
It is a known thing that as we grow older, we will need it for our healthcare needs.
However, there is no other way you could extract money out of Medisave currently, other than for compassionate reasons.
CPF Medisave will be a bequest to the people you put on your CPF nomination. This means the other way is for your kins to inherit the money.
Due to that, some of the wealth optimizer out there might want to only replenish what you use to pay for your parent’s Medishield Life systematically instead of generously contributing to it.
Then again, once your contribution into CPF Medisave hits the Basic Healthcare Sum (currently $52,000), the rest of the interest will flow to your CPF SA account, which goes to your retirement.
You have to evaluate if you are fine with that happening.