Jul 23, 2014

    Limit Medisave use to basic insurance

    ABOUT two in three people here have an Integrated Shield Plan (IP). But when it comes to being hospitalised, more than 60 per cent opt for a lower class ward than what their plans entitle them to.

    What this probably means is the majority pay for benefits that they will never use. Meanwhile, as the years pass, their Medisave accounts are prematurely depleted by the higher premiums they have to pay for these IPs.

    With the launch of MediShield Life at the end of next year, the Ministry of Health (MOH) should review the use of Medisave for paying health insurance premiums. It should not allow Medisave to be used too freely for paying premiums, or people may start buying more insurance than they need or can afford as premiums rise with age.

    Medisave should be allowed for only the payment of the basic MediShield Life insurance plan.

    If people want to buy higher-priced IPs, they should pay the difference in cash.

    The fact of the matter is that many people are not taking full advantage of the benefits of their higher IPs because these come with high cash co-payments.

    The higher the ward class, the larger the amount they have to pay before insurance kicks in. This deductible ranges from $1,500 for C class to $3,500 for A class or private hospital wards.

    They also need to co-pay 10 per cent of the rest of the bill - and bills in a private hospital are definitely much bigger than those of a subsidised ward.

    The exceptions are those who bought a rider - which can only be paid for with cash and not with Medisave - to cover this co-payment. For the rest, the IP insurance does not cover their full bill.

    Faced with the actual amount that they will have to pay, most choose a lower class of ward than they have been insured for, to reduce this cash co-payment.

    Another indication that many people have bought higher insurance coverage than they can afford is the 8 per cent drop-out rate at the point when premiums exceed the amount that can be withdrawn from Medisave.

    It is only when they have to top up premium payments with cash that people realise how much they are really paying for their insurance. Until then, the money had been automatically deducted from their Medisave accounts. It is simply a case of "out of sight, out of mind".

    This rude awakening usually happens to people in their 50s and 60s (depending on the type of IPs they have), when their premiums exceed the $800-a-year cap that can be taken from Medisave to pay for premiums up to the age of 75.

    They then need to decide whether they want to retain that high coverage or downgrade to something with lower premiums.

    Keeping their IPs means paying hundreds, or even thousands, of dollars a year in cash above what can be paid through Medisave.

    Not all can afford to do that. Those who cannot should not be frittering away their Medisave money on expensive insurance plans.

    Choosing an IP should be an option only for those who can afford it. It should not be a default choice simply because you can pay the premium fully with Medisave when you are young.

    Once MediShield Life starts, MOH should stop allowing the use of Medisave for insurance plans that cost more than the basic MediShield Life tier.

    If premiums for IPs need to be topped up with cash, it is likely that people will be more careful and circumspect in their choice.

    If Medisave can be used only for the basic scheme, there will also be no need to keep revising the premium withdrawal cap - which is currently set at $800 to $1,400, depending on age.

    Future caps can be set based on premiums for the government-run basic scheme. IPs that cost more can be topped up in cash. People who find topping up the difference a strain should realise that they have likely bought an IP that is beyond their means.

    For those who can afford it, payment will be no more onerous than having the premiums paid automatically through Giro.

    Such a move will help to ensure that Medisave accounts are not depleted prematurely.

    Medisave was originally meant to pay for up to 11 hospital stays in a person's life. Its use has since been expanded to include a slew of outpatient treatments, as well as medical insurance premium payments.

    With people living an average of three years longer with every passing decade, there has to be adequate funds in their Medisave accounts to pay the compulsory premiums for a good 30 years beyond retirement.

    They will also need the money to pay their share of hospital bills, as well as to help control chronic medical conditions.

    Restricting the use of Medisave to just the basic scheme will help to keep much of these savings intact for more important uses.