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My thoughts on Medishield Life, Private Plans and Worries as a Single

These 2 months, the topic of discussion either center around giving us back our CPF or on the changes to our baseline hospital and surgical scheme, Medishield. I thought I will collect my thoughts here.

I will explain what I understand about the current Medishield system, the propose changes, how it impacts me as a case study and some major worries of mine.

My understanding of Medishield

The most critical insurance that one should be covered is not what the agents sell to you to earn the most commissions, which is Endowment policies, or Whole Life Insurance policies. It is your hospital and surgical (H&S) plans.

The hospital and surgical plans covers a person should they be hospitalized for a duration and need to perform an operation, or certain outpatient treatment.

Out of all the insurance this tends to be the one that you stand the highest probability to claim.

This is why the Singapore Government ensures that the majority of the people covers this as a baseline. This baseline hospital and surgical coverage is called Medishield. Due to its importance, the government allow the citizens to pay it with their Medisave fund, which is an account under CPF that they need to force save into.

The aim of a H&S plan is to offset the large bills. There is a deductible portion and a co-insurance. The deductible is the minimum that you need to pay regardless of the extend of the hospital and surgical stay. It ranges from $1,500 to as high as $3,000. The co-insurance is the percentage of the bill you need to pay on the portion of the bill above the deductible. Co-insurance for inpatient bills is three-tiered, ranging from 20% to 10% as the bill size increases, i.e. the larger your bill, the lower the co-insurance that you need to pay. The co-insurance on a very large medical expense tend to be the heaviest.

A well working H&S plan should assured the person to be able to claim a large proportion of the $200k medical cost, while the person sharing the minor proportion of it. Before the last round of revamp, this wasn’t the case.

At the same time, the government allow the private insurance companies to offer private H&S plans. These plans provide more benefits over the baseline Medishield, such as higher claims for each item, to the point of being As Charged for many of them, not to mention coverage to higher than Class B2 medical wards. These are your Shield Plans. Due to their benefits their premiums are also much higher.

The private insurers tried to be comprehensive, they attempt to offer coverage in the form of riders, to cover either the deductibles, co-insurance or both.

The problem currently

Although I have emphasize the importance of an H&S plan, there are some people that are not covered by it. 1 in 4 pioneer generation are not covered under Medishield They have never been reached by the auto-cover and outreach efforts.

These folks not covered cannot buy a private insurance H&S plan now.

If you are an insurer and its a plan that a single individual have a high probability to claim, you would have a strict checking policy (or underwriting) to ensure you only sign up the most healthy candidates.

These old folks who missed out are likely to have medical problems. Hell even the working adults today have hypertension, high blood pressure, high LDL cholesterol, diabetes. The private insurers and NTUC won’t cover them.

With the escalating cost of health, together with that as you get older you WILL be hit with health care problems things will be extremely problematic.

A lot of these old folks have invested almost all their wealth into their housing and their children, such that they do not have a retirement income left over for their own needs.

Without a H&S plan, a large proportion of their medical costs can’t be taken away. We are talking about a sum of $100k-$300k.

Even with their children’s savings, it could all be wipe out. That is surely not a good way to live.

Medishield Life

The government came up with Medishield Life to attempt to address this. (Note much of the image are extracted from here)

What happens now is that no one will be left with hefty hospitalization bills. Those that cannot be covered by H&S plans will be covered. This means that the insurance company (in this case the government) takes on the risk that the insurance company will need to pay out a larger portion of the customers.

The ones with existing illnesses will have to pay more premiums. Yes its hefty but there is an upside because if you are older you know that your odds of winning this bet is much much higher. (Insurance is a bet between you and the insurance company that you will be unwell more than what the insurance company things you are.)

Why 30% more for first 10 years? Perhaps time value of money. The ones with existing illness pays more into a fund, that, if not paid out are invested at a good rate of return. Putting in 10 years will enable the fund to grow so that it may automatically cover for it.

The government doesn’t feel like taking on this alone, Taking on it alone will mean something like a welfare state. There is likely to be much abuse where people for no reason go to hospital because, hey, its relatively low cost to them. The major downside is that young healthy working adults will share the cost of these unhealthy people’s medical cost.

This is not the only reason, but its one of the consideration for lengthening the official retirement age as well. Longer retirement age, more contribution to it.

There are more benefits and most of them addresses large hospital bills. As health care cost escalates, it is likely you need a higher limit. The way i look at it, the bump up from yearly 70k to 100k looks good, but in extreme cases such as the $200k that we talked about, this will still be bad. In contrast my Aviva private shield plan limits for the 3 plans are 650k,400k, 150k respectively.

Reducing co-insurance is good in that, out of deductibles and co-insurance, in a large bill, the co-insurance is the killer. So if you pay less of the killer its better. We can live with the deductibles.

The co-insurance for private is 10% as a comparison.

The premium schedule will go up. Notice how sly the folks are.We have always known Medishield premium to be presented on an annual basis. This time they present it on a monthly basis.

CNA have an annual basis one.

My goodness. My premiums will be raised from $105 to $310. That’s a 195% growth. It will be tolerable if the premium stops there, but we know that the premiums keep revising up.

But note, it is not proportionate. 60 years and below are the worst hit, since we are the young, healthy worker bees that is taking on more of the costs. As you get older the escalation before subsidies is actually less.

Subsidies for this Transition

Like all change in policies, if the government does not provide subsidies, people will make noise. So there is for this as well. You can have a glimpse, from the two tables above that there will be subsidies for the next 5 years to transition in.

How much subsidies will depend on how rich you are, based on their metrics.

And their metrics is rather based on the annual value of your dwelling, and the annual household income. If you are like my dad, always want a big big house, then you are going to be hit in the pockets.

Average Monthly Income refers to gross monthly income, which includes your CPF contributions, basic income, overtime pay, allowances, cash awards, commissions and bonuses over the last 12 months, and excludes rental income and pocket money

The subsidies focus a higher proportion on the elderly, and even for the upper middle income it is still rather sizable.

Pioneer Generation

There is a focus on a specific group of people, and that is those that helped us get to where we are today. The Pioneer Generation are Living Singapore Citizens who were born in or before 1949, and obtained citizenship in or before 1986.

This probably covers the main bulk of the people 65 and above.

The benefits are a combination of Pioneer Generation subsidies, and Medisave top ups. Note that if you are Pioneer generation you won’t get to enjoy the transitional subsidies.

For those 80 and above, they end up being fully covered. Hurray for my grandma!

The premiums at this moment look rather affordable. And they are certainly less than what I pay individually. So this scheme works to take care of the older folks needs well.

Essentially the way I see it, this whole changes are long term, but primarily for them.

A Case Study: My Family

A calculator was provided that you can make use of to compute the premiums for this 5 years of transition and beyond that.

The link to the calculator is here.

I have 2 aging parents who are not working. They belong to the pioneer generation. I am the sole bread winner and we live in a disappointingly spacious 5 room flat.

In this case the annual value of my home falls to between $13,000 to $21,000.

For annual house hold income, as the sole breadwinner, i realize that there aren’t much difference between $1,500 average to $2,000.

The premiums paid is drastically reduced, due in large to the pioneer package. What I realize is that this does not includes the medisave top up for the pioneers mentioned previously.

But this doesn’t hide the fact that I need to folk out $500 per year more for my parents and $200 per year more for myself ($700 in total) before this scheme is introduce.

We cannot just count the costs but also the benefits that brings, which is that now, my parents that have health problems are finally covered and MAY be able to alleviate drastic large health bills.

Problem: Private H&S Premiums are likely to rise

CNA have some coverage regarding this:

Medishield Life Review committee: how to make IPs work better

The MediShield Life Review Committee has proposed changes to make Integrated Shield Plans or IPs work better.

Among them, allowing private IP insurers to risk load – or charge higher premiums – for those with pre-existing conditions as well as to develop key features for a standard Integrated Shield Plan targeting at Class B1 ward.

From Straits Times

Such plans include NTUC IncomeShield, AIA HealthShield, Great Eastern SupremeHealth, Prudential PruShield and Aviva MyShield.

About 60 per cent of Singaporeans have IPs. The committee noted that some people had “overstretched themselves” buying expensive plans without considering their long-term cost. “This happens more often during the working years when premiums can be paid for wholly or mostly through Medisave,” it noted.

Yet in the end, about seven in 10 of those who have plans targeting A-class wards eventually choose to stay in lower ward classes when hospitalised. The corresponding figure for those with plans targeting private hospital stays is six in 10.

I guess they are talking about me, who have been sold by our advisors that the private shield plans are necessary because they have much better benefits. And they do, which is why we are paying much higher premiums for it.

Private shield plans, like the Myshield I mentioned, provides much more benefits, but the question is whether we have been oversold on them. For myself, I see the benefit of having that flexibility that should a good doctor is only present in a private hospital, we can have that flexibility.

When you see my basic medishield life premium rise 195%, you can’t help but think will the premiums for my private shield plan rise.

I had a misconception that, the private shield plan takes reference of their premium from the Medishield plan. And as such, if the Private shield plans provide much better benefits, there is no reason theoretically for it to rise.

Well, I was wrong. It appears the private shield plans do not take reference. The old model is that the private shield plan is a WRAPPER around the Medishield. What this means is that the premiums paid have to pay partly Medishield premiums first, before paying the private insurer.

What this means is that if my premiums go up by $200 bucks, my private shield plans will have to go up by the same amount.Holy S$#%@.

I talked about this last year that my MyShield premiums jumped 50%. Now we are really feeling the inflation effect hitting us.

Premiums are not guaranteed, since they change the coverage faster than my wardrobe.

On the flip side, theoretically, the premiums for private shield SHOULD NOT increase.

The equation is Medishield Cost + Private Cost = Private Shield Cost.

What you are paying for is:

Medishield Benefit  + Private Benefit = Private Shield Benefit

In this way, the cost should increase if the aggregate benefit increase.

We know the limits have raised, but the private plans benefit stays the same and are higher. The co insurance of Medishield Life went down, but the private plans stay the same. Majority of the benefits still reside at private benefit.

If the Medishield benefit went up and private benefit goes down because they do not factor that in, then the eventual private shield premiums should not go up.

The problem is that private insurers would likely upsell these benefits that you may or may not need, and thus eventually the premiums will still go up.

The problem is that, psychologically, Singaporean’s will not feel it, because the premiums is not paid out of their pocket. Its paid out of CPF. And when you don’t see it, you don’t feel it. I am probably the minority that cares a little bit more.

Problem: Long Term Care and the Sandwich Generation

One area not being emphasize enough is what happens in the really old age, or perhaps you don’t have to reach that stage, the parents cannot take care of themselves.

This is a big issue. Especially to the sandwich generation, with their own children to take care of and they have to stress over this.

If one of them stop working, less income to make ends meet.

Its even worse for me, because if I stop working, who feeds the three of us!

This might entail escalating recurring long term care costs, maid or no maid included.

You can passed away but the recurring problems puts extreme stress on the whole hierarchy.

This might be the next area they should try to address:

  • Provide targeted subsidies for maids in these kind of circumstances.
  • Be flexible with the means testing to include special situations like this

The plan ahead without subsidies

If you observed, the subsidies for the non-pioneer citizens are only for the transition period. After the transition period, there will be no more of it.

I some how felt, that in the end the healthy supports the non-healthy. At the same time, what happens when the next generation of 65 year olds, whom do not fall under the pioneer citizen comes in?

The government have came up with a plan where the majority of the cost seem to be borne by the citizens together.

This is a non-welfare country, and as such, they will only provide more subsidies and top up when you cry father and cry mother.

Summary

I felt that my family emerge better out of this situation. I don’t really like paying more, but I will have to evaluate the private shield situation when things become more concrete.

It is a high probability the premiums will be of use due to aged parents, but I felt that this is not the only thing I have to worry about. What’s on my mind is really the long term health care costs, when not just the 2 of them but I am having health issues as well.

Let me know how you feel about these changes.

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Keehan

Tuesday 1st of July 2014

Singaporeans should be prepared to die if we cannot afford healthcare up to a point. There is no end to the amount that you can spend, because the hospital will always offer some treatment of marginal benefit to prolong your life, at rising cost to us or our insurers. The fairest system is to cap the lifetime benefit at the same fixed amount for everyone. Beyond that, it is up to fate. Those who do not make any claim can bequeath a percentage of their benefit to their children. This will discourage over-consumption of medical treatment.

Kyith

Wednesday 2nd of July 2014

Hi, this is very controversial but from my personal perspective I do agree with you. The thing is, medical cost inflates and you don't want the limit to be too low such that high success treatment are out of reach.

They should really put a close monitoring whether all the >100k cases are really alleviated due to the shield plans

Drew

Monday 30th of June 2014

Hi Kyith,

Thanks for this. Just want to seek your advice on this: Should we use cash to pay for Medishield and leave Medisave intact to earn that 4% interest? By doing this will allow our Medisave to grow bigger with a risk-free 4%.

Kyith

Monday 30th of June 2014

hi Drew, i am not sure if you can use cash to pay. perhaps you can advice me on that. I felt that money is rather fungible if you think that all the money belong to you. if you can invest with your cash at a higher rate, then pay with your CPF. At the end of the day, we are compartmentalize medisave for health. sooner or later we need to spend it.

its all up to your allocation.

My 15 HWW

Sunday 29th of June 2014

Hi Kyith,

Thanks for this comprehensive write-up. I am also concerned over this issue but haven't set aside enough time to analyse it completely. Healthcare cost is the most unpredictable and tends to come in during the last decade of your life (for obvious reasons). So one is unlikely to know how much one needs and that's where the H & S insurance comes in.

I am overall happy that the Government is helping all Singaporeans with this change. But I am intrigued as to who is helping to foot the bill in the long run. Over the short term, with the government coming in with subsidies, it's the taxpayers and indirectly the richer class. But I really hope that in the long run, it's not the healthier people who are doing the subsidizing.

Regards, My 15HWW

Joel Khoo

Monday 30th of June 2014

For an insurance scheme to be viable in the long run, the healthy have to subsidize the unhealthy. The whole point of insurance is to pool the risks together. By enrolling everyone, the government has ensured that this is the lowest cost method in the long run. Can you suggest an alternate way to do this?

The reason why premiums are escalating now is to reflect the actual cost of covering all those people we read in the news (who have their savings wiped out by illness, but whom we chose to forget after a while)

Kyith

Sunday 29th of June 2014

Hi 15 HWW, thanks for the reflection. I felt that i missed out on some points so I might add in later. One of the gripes is that it sems after the subsidies, it will be left to us citizens to carry each other. i think we would gladly carry the pioneer folks. But when it comes to those with pre-existing? its the healthy folks that is carry them. perhaps thats why they pay a 30% more premium first and since younger folks are less subsidized.

H&S won't solve the drastic problem of aged folks that can't move easily

Royston

Sunday 29th of June 2014

Hi,

Actually I don't totally understand this whole medishield life thing, so do we still need to buy private healthshield plans? If so, what's the advantage over the past medishield plan?

Kyith

Sunday 29th of June 2014

Hi Royston,

In the past, you either buy a medishield plan or a private shield plan because it has more benefits.

The details of the private shield plans and how they will adjust is not concrete at this stage. Which makes it fruitless to evaluate it at this sage. Hope that helps.

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