On Thursday, the Monetary Authority of Singapore (MAS) said it has received feedback on misleading insurance sales practices relating to the fresh changes on critical illness coverage as outlined by the Life Insurance Association (LIA) Singapore.

MAS said that there are some financial advisory representatives, as part of their advisory process, have conveyed to customers that the scope of CI coverage is narrower under the new set of CI definitions.

If you would like to learn more about the changes to the CI definitions, you can read this article by MoneyOwl.(I have also attached some company infographics at the end of this article) LIA emphasize that this change is to provide greater clarity, so that customer does not misunderstand what is covered and not covered.

MAS said that these financial advisers were found to use the change in CI definition as reasons to pressure customers to purchase insurance policies before the August 26 deadline.

MAS wishes to reiterate that FA representatives should provide proper advice to consumers and not use aggressive sales tactics to rush consumers into purchasing insurance policies or other investment products.

When I got to know that there is this revision to the critical illness definition, I thought the most natural posture of advisers is to use this opportunity to pressure existing clients from tightening up their coverage by getting additional coverage.

This can be to sign up for a late-stage critical illness plan under the old CI definition, before the change in definition, and to sign up for a multipay critical illness, or early critical illness plan.

Since the standard CI definition is “more stringent”, then you should err on the safe side by getting a multi-pay critical illness plan to cover your bases in the event that you cannot claim under the standard late-stage critical illness plan.

Financial advisers are banking on your vulnerability to err on the safe side to purchase more coverage from them.

However, are they wrong to ask you to up the coverage?

I managed to catch a webinar where a doctor tries to explain these changes to a group of advisers.

The general feeling that I get is that the change made things less ambiguous. Perhaps they closed previous loopholes. If you are on an existing CI plan, you may be able to abuse these loopholes.

These loopholes would be covered in the new definitions.

In a way, with the current definition, there is room for dispute. In the new definitions, there is less room for dispute.

If you suffer from something that you will definitely be rejected in the new definition, under the current definition, you might be rejected due to the ambiguity.

For those critical illnesses that cannot be covered by a late-stage critical illness plan, financial advisers would strongly advise you to get a standalone multi-pay critical illness plan.

I grew very skeptical about multi-pay critical illness plan when I see almost every adviser shooting YouTube and Facebook video talking about it.

It is either many of us are so under-insured in a high probable area or that the commission is rather lucrative that it is worth the effort to do a video.

Be more vigilant when you discuss it with a FA representative. Do not be misdirected such that you get lured into the mindset that to resolve critical illness, you can only depend on a critical illness plan.

Ensure that you are covered adequately in the right areas before covering a less important area. Here is a good rule-of-thumb to follow:

1. Your hospital and surgical plan, or your shield plan are important to take care of the inpatient and certain outpatient treatment cost.
2. The late-stage critical illness provides you with the cash flow to replace your income, in the event that you have to quit and focus on tackling your health problem
3. Early critical illness is good to have after #1 and #2.

Take care of 1 and then take care of 2. If you still have funds, then maybe devote to 3.

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I break down my resources according to these topics:

1. Building Your Wealth Foundation – If you know and apply these simple financial concepts, your long term wealth should be pretty well managed. Find out what they are
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3. Learning about REITs – My Free “Course” on REIT Investing for Beginners and Seasoned Investors
4. Dividend Stock Tracker – Track all the common 4-10% yielding dividend stocks in SG
5. Free Stock Portfolio Tracking Google Sheets that many love
6. Retirement Planning, Financial Independence and Spending down money – My deep dive into how much you need to achieve these, and the different ways you can be financially free
7. Providend – Where I work doing research. Fee-Only Advisory. No Commissions. Financial Independence Advisers and Retirement Specialists. No charge for the first meeting to understand how it works

In the past 2 years, there have been some significant changes to the health insurance front (Your private Medishield plans).

In the last 5 years, we have also seen some of the fastest growth rates in the premiums on the health insurance and the additional private riders that you could purchase to reduce the out-of-pocket cost that you would pay if you get hospitalized.

I been trying to wrap my head around these changes but never got around it but I didn’t have the bandwidth to get around researching on it.

Last year, we had a brief on the changes to the health insurance plans and the impact.

The team that did the brief did such a great job framing the decision tree we should go through step by step to consider which is the appropriate health insurance.

I thought its better I get my head around thinking about this issue. I believe that health insurance should not be looked upon as the be all end all.

We all should have a rough overall strategy to address our medical needs. This includes the medical savings and the maintenance of our overall wellness.

I think the health insurance premium cost (your shield plans and their accompany riders) are not cheap. We all have to make a choice to choose the right insurer, a grade of medical coverage we are comfortable with that is affordable enough for us in the long run.

But how do we go about making the decision?

This article sought to explain:

1. A brief background of how we got here
2. The out-of-pocket expenses you have to pay if you just pay for the regular private shield plans and if you purchase riders that covers the deductibles and co-insurance
3. Comparing between existing NTUC Incomeshield riders and the replacement
4. The difference in expenses if you decide to go with the panel and non-panel doctors
5. Brief comparison of the out-of-pocket expense on a few health insurance providers
6. The recent premium escalation for existing NTUC Incomeshield riders
7. The health insurance decision making framework

Why Did Health Insurance Get So Expensive?

If you have been paying attention to the bills that passed you by, you would have noticed that the premiums of your private integrated shield plans (IP) have been going up.

This was the direct and indirect failure of our current Singapore healthcare and insurance system. It started with private insurers fighting with each other to convert as many of us to IP.

One of the upside is to provide riders that, if you pay for these riders, if you are hospitalized, you do not need to pay a single cent.

There are a few different grades of hospital and surgical plans provided by each private insurers. The plans are differentiated mainly by the grade of hospital treatment/experience you can get (private hospitals, Class A ward, Class B1 ward, Class B2 and below ward).

Since the premiums are not too unaffordable, and it was not so big of a problem, many of us would choose the highest coverage, which is coverage up to private hospitals.

At first, it was not a problem because every stakeholder did not do anything funny. Then, the profit-driven private hospitals decide to put it in their marketing campaign that you do not have to pay for a single cent for a much better treatment experience.

Since our restructured government hospital experience is not always the best, and the cost of treatment is fully paid by their insurance plans, a lot of people go to the private hospital to seek treatment. This worked so well for the private hospital so it reinforce what they should do.

A lot of us start going there for private hospital treatment, even for minor issues.

And so health insurance payout increases, premiums that remained low starts going up.

This became a big problem. You can read more about it in my old article here.

No More All-You-Can-Eat Buffet Health Insurance Riders

On March 2018, the Ministry of Health announced that from April 2019 onwards:

1. Co-payment: New IP riders must incorporate a co-payment of 5% or more
2. Co-payment Cap:
   1. Pre-approved or panel treatments: Co-payment cap at $3,000 a year or more
   2. Non-panel treatments: No co-payment cap

The reason given is to curb the “buffet syndrome” so that we are prudent in using and charging healthcare services. This is also to ensure healthcare costs and health insurance premiums remain affordable.

Lastly, this will promote treatments through panel of specialist so that medical costs can be monitored and controlled.

So now you would have to pay at least some out-of-pocket expenses for your hospitalization bill instead of not having to pay a single cent if you purchase the comprehensive riders after April 2019.

The change that is new that affects your decision tree in the grade of health insurance selection is that it will be cheaper if you select from a panel of medical professionals pre-approved by your medical insurer.

You would submit a pre-authorization request form before admission.

If you would like to have a wider selection of health professionals, going further than the list of pre-approved medical professionals of your insurer, your out-of-pocket expenses will be higher.

From Zero Out-of-Pocket Expenses Paid to Some Co-payment

The best way to illustrate these changes is through the diagram extracted from MoneyOwl’s slidedeck.

If you do not have any riders, you would need to pay a deductible plus a 10% co-insurance of the total hospital bills incurred.

With the old full rider system, the deductible plus the 10% co-insurance is fully paid by the rider. If you have a rider that only pays for the co-insurance, then you would still need to pay for the deductible.

Under the new system, your deductible is still handled in a similar manner. However, you will need to co-pay the co-insurance.

The amount of co-insurance you pay is subjected to:

1. Whether the 5% of hospital bills is below or above $3,000
2. Whether you choose pre-approved / panel treatments or you would like a wider choice of treatment options.

It may be easier if we go through an example. Since NTUC IncomeShield happens to be one of the more popular plans out there, let us use that as an illustration.

NTUC IncomeShield used to have 2 riders before the announcement:

1. Plus Rider. This covers the deductible and 10% co-insurance for all 3 different grades of their shield plans. You basically pay zero dollars for the grade of your shield plan chosen.
2. Assist Rider. This rider caps the 10% co-insurance to either $3,000, $2,500, $2,000 depend on the grade of your shield plan chosen.

Since Apr 2019, NTUC have introduced 2 riders:

1. Deluxe Care Rider. You would need to at least pay 5% in co-insurance, capped at $3,000 per policy year for panel or pre-approved doctors. There are no cap if you choose the non-panel doctors
2. Classic Care Rider. You would need to at least pay 10% in co-insurance, capped at $3,000 per policy year for panel or pre-approved doctors. There are no cap if you choose the non-panel doctors AND an additional $2,000 a year charge

If you are still on Plus Rider and Assist Rider before 7 March 2018, you are not affected by the changes.

So they say. We will get to this in a minute.

For those after, your options are the Deluxe Care Rider, Classic Care Rider, or don’t have a rider at all.

The table above compares the amount that you will pay if are on the Plus Rider versus the Deluxe Care Rider and also the Assist Rider versus the Classis Care Rider.

MoneyOwl‘s solutions team compared these two grade of riders with 2 different hospital bills, a small $10,000 bill and a larger $80,000 bill.

You would realize 2 things:

1. Now you would at least pay something.
2. How much you would pay depends on whether you choose pre-approved doctors/panel doctors or you do not declare and wishes to have more options.

The major impact that is new to us is how much do we value the freedom to seek the medical help we desired. With this new structure, this becomes a consideration.

Freedom to Choose Non-Panel Doctors is an Additional Medical Cost

MoneyOwl also did a comparison across some of the shield plans they carry:

The information might not be super up to date but honestly I do not think things have changed that much.

What you will notice is that for the same $80,000 hospitalization bill, the out-of-pocket expense for panel doctors are largely the same.

If you wish to have the option to pick and choose from non-panel doctors, then you will need to compare between plans.

Generally, I think that if you go to the top of the top, that is the Deluxe Care @ NTUC, MyHealthPlus C-II @ Aviva, Enhanced Care @ AXA and Key Rider @ RHI, there is not much difference.

The difference tends to be for those riders that do not cover fully the deductible plus co-insurance such as MyHealth Plus A-II and Classic Care.

Existing Health Insurance Rider Premiums Likely to Get More Expensive

If you are currently on the Plus Rider or Assist Rider, you have the option to stay on them. Staying on these riders allows you to pay zero out-of-pocket expenses for the Plus Rider and lesser for the Assist Rider.

Here is the catch.

The premium escalation can be a little crazy.

The table above shows the premium increase for NTUC Incomeshield Plus Rider. If you are on the preferred plan, your premiums went up from 15% to a whopping 65% in some age band.

For example, if you are at the age 65, last year your premium was $2832 a year. This year it became $4673!

I look upon this as either the existing premiums was not priced well, there is some inflation happening in the past year, or that it looks like an attempt to force you to port over to the Deluxe Care Rider.

We are not sure about next year, but it is likely that

1. As you go up in age band, your premiums will rise from where it is now
2. The whole category of rider will rise in premiums as well

So in some years there will be a massive rise.

For example, if you are 65 going to 66, not only will your premiums go up from $2832 to $3670, but it will be inflated upwards to $6056 due to the revision in premiums for the entire Plus rider.

Your premiums went up 100%.

The table above compares the premiums you would pay if you remained covered under Plus rider and if you port over to Deluxe Care rider.

You will achieve a lot of savings in the earlier age bands (before 80 years old).

If you remain on Plus rider, you pay more in premiums versus otherwise, but no out-of-pocket expenses. If you pay for Deluxe Care rider, you pay less in premiums but out of pocket expenses.

Which one increases faster? I have no idea.

The Health Insurance Decision Making Framework

Basically, we have some decision to make.

However, the decision you need to make is never straight-forward. I often tell you that the decision is easier to make if you know what you want.

In this case, it is not what you want, but what kind of medical situation you will be hit with from this point till you passed away, the frequency of occurrence. If you know that, you can choose your plans better.

Unfortunately, we do not have a clue how to determine certain areas that we do not have control over such as inflation rate, certain health ailments, further changes in policy.

So here is my way of thinking about this whole problem.

Note that there are certain areas in the decision tree that I choose not to discuss such as:

1. You have pre-existing medical condition. In this case your decision might be more straight forward. You might not be able to switch and if you do you need to ensure the new insurer covers you.

I think in the brief by MoneyOwl’s team, they also provide some very high level rule of thumb how to think about this (it is much concise than the more detail bullshit you will read about later):

What We Know from Today’s Discussion

Here is a little summary of what I have explained in the previoius section:

1. You will need to pay out-of-pocket expenses
2. Out of pocket cost is greater if you choose a non-panel doctor
3. If you need to have a private hospital option, the premium cost is greater

Constraints that You Need to Work Within

There are many variables to this decision making. Let me group them in a few major categories.

Your Wellness:

1. Not sure when you will passed away
2. Have no idea going forward, how is your constitution, what is the frequency of medical needs, as well as the magnitude of medical needs
3. How would you manage your wellness on a periodic basis

The Quality of Care You can Accept:

1. Panel Doctors or More Freedom of Medical Treatment Choices
2. Up to Private Hospitals, Class A Restructured Hospitals or below?

Growth:

1. Inflation Escalation of Different Insurers
2. Each insurer’s premiums at each age band is different
3. Medical inflation of different ailments

Your Cash Flow Management:

1. Can you accumulate a sinking fund for your medical needs?

Some of these constraints you have a certain degree of control over and can exert your influence. For others, you have no control, you are a slave to life or the system.

What You Have and Do Not Have Control Over

We re-group the constrains in the previous section into what you can control, cannot control, and have partial control over.

What you do not have control:

1. Inflation of medical cost
2. Inflation of premiums
3. Your duration alive
4. Standard of healthcare in hospitals
5. Panel Doctors versus Non-Panel Doctors

What you have some control:

1. Your Overall Wellness

What you have control:

1. Manage your wellness on a periodic basis
2. Accumulation of Sinking Funds
3. Funding of insurance premiums

Those who I have no control over, I think I would have to take a conservative estimation:

1. Inflation cost is going to be 7% a year at least
2. Inflation of premiums needs to moderate down lower
3. 90 to 100 years old
4. Accept Class A Restructured Hospitals
5. Panel Doctors

The way to think about those areas that you have no control is that you got to expect them to change for the better or the worse. That is just the way these things are.

You can argue until cow comes home about how unbalance or wrong the system is but if your family members need help you got to pay for it.

If you want everything to be the best (factoring high inflation, live a long life, private hospitals, freedom of choice of doctors), prepared for a very high premium or a huge medical sinking fund.

For those you have some control, try your best to do something about it. But do not have high expectations that if you do it well, you can completely mitigate the risk.

There are certain areas that you have to depend on fate.

For those areas that you have control, this is where you can strive to do better:

1. Do enough to keep yourself healthy and in good condition.
2. On an annual basis, set aside some of your surplus from work into a medical sinking fund
3. Fund your insurance premiums

What You can Do Today to Help You Make a Better Decision

At this point, there is definitely some things that I am clear about, but also areas that are not clear to me.

Some of this would involved questions such as

1. Are restructured hospital really that unacceptable in the experience?
2. How likely would there be an emergency and I would need to expedite this by going to a private hospital
3. The experience with panel doctors
4. Just how much signficant savings will switching plans give me on a long term basis

All this means that there are some things to think about or research upon:

1. You need to try your best to know the quality of healthcare you can accept
   1. Panel doctors or non-panel doctors
   2. Grade of treatment
2. You need to look into the past (yourself or your family history) to determine the magnitude and frequency of healthcare needs
3. You need to figure out whether you would like to pay higher premiums upfront so that you do not need to pay so much if you need to claim
4. Do what You have Control Over

#1 deals with things you have no control over and you need to figure out a certain level of what you can accept. #2 tries to give you an edge whether betting on a good coverage is more beneficial due to your own personal health situation.

#3 and #4 are areas you have control over.

If you have better clarity on what may work out best for you, then you can better frame what kind of health insurance coverage you need.

You will also know the downside of your medical strategy. This is important because, almost all the strategy will have some downsides.

What will work for me might not work for you.

For example, you might prefer to:

1. Cover for a Private hospital shield plan with a full coverage rider
2. Have a small medical sinking fund
3. Fund your insurance premiums because you have a good, stable job

Someone with less resources would prefer to:

1. Do more to keep themselves active, healthy and in a good condition
2. Have medical coverage up to Class A Restructured Government Hospital
3. Cover the co-payment when it is still relatively affordable, but co-pay 5% , up to $3,000 per policy year
4. Build up a medical sinking fund for the out-of-pocket expenses
5. Do not pay too high of an insurance premium

There is no correct answer.

I would prefer to do something like the latter.

If you want to transfer ALL the medical risks to the insurance company, accept that you need to pay for it.

Let me know based on what you cannot control, have certain control and have control, what you would prefer to do.

Do Like Me on Facebook. I share some tidbits that is not on the blog post there often. You can also choose to subscribe to my content via email below.

I break down my resources according to these topics:

1. Building Your Wealth Foundation – If you know and apply these simple financial concepts, your long term wealth should be pretty well managed. Find out what they are
2. Active Investing – For the active stock investors. My deeper thoughts from my stock investing experience
3. Learning about REITs – My Free “Course” on REIT Investing for Beginners and Seasoned Investors
4. Dividend Stock Tracker – Track all the common 4-10% yielding dividend stocks in SG
5. Free Stock Portfolio Tracking Google Sheets that many love
6. Retirement Planning, Financial Independence and Spending down money – My deep dive into how much you need to achieve these, and the different ways you can be financially free
7. Providend – Where I work doing research. Fee-Only Advisory. No Commissions. Financial Independence Advisers and Retirement Specialists. No charge for the first meeting to understand how it works