Health coverage: Are you overinsured?

Published on Jan 05, 2014

Many who buy top plans may face cash crunch as premiums shoot up in later years

By Salma Khalik Senior Health Correspondent

Many Singaporeans complain about paying high premiums for health insurance plans, especially after last year's rather steep rise in premiums, with some premiums more than doubling.

But what most of them don't realise is that they are probably forking out such high premiums because they have over-insured themselves and are paying for a level of insurance they are unlikely to need.

Today, more than two million Singaporeans and permanent residents are paying for higher medical insurance coverage than offered by the basic MediShield. They are on Integrated Shield Plans or IPs, which ride on the basic MediShield, but offer higher payouts based on private hospital rates or the equivalent of being treated as private patients in a public hospital.

This is good since the basic insurance is pegged at subsidised B2 and C class rates and will not offer enough coverage for those opting for a higher ward class, such as B1 or A class in a public hospital.

What is surprising, however, is that more than half of those on IPs, or 34 per cent of all Singaporeans and permanent residents covered by MediShield, have opted for the most expensive plans - those pegged at treatment in private hospitals. This does not reflect the actual usage of hospital care today, with less than 20 per cent of local residents opting for private hospitals and the rest going to a public hospital.

Do one in three Singaporeans require private hospital medical insurance when fewer than one in five are treated at private hospitals?

Why do so many buy insurance plans they are unlikely to use?

They do so partly because it is easier to downgrade a health insurance plan than to upgrade. Four of the five insurers - NTUC Income, Great Eastern, AIA and Aviva - have plans in all three IP categories. Prudential no longer offer IPs for public hospital B1 wards.

Also many buy into the plans when they are young and when the premiums are highly affordable. Up to the age of 49, Medisave can fully cover the premiums charged for these private plans, so policyholders do not feel the pinch of out-of-pocket payments

But from age 50 onwards, policy holders will have to top up their premium payments in cash, as the premiums all exceed the $800-a-year cap for premiums paid with Medisave. Each year, up till the official retirement age of 62, they will need to top up their premium payments with cash amounting to several hundred dollars. But again, as many are still working, the amounts appear affordable.

But beyond the age of 62, premiums rise steeply, averaging $4,000 a year for those aged 75. The highest premium currently charged, at the age of 100, is $8,483 a year.

Today, on average, men can expect to live to the age of 80 and women 84.5 years. A man aged 65 in 2012 can expect to live to the age of 83.5 years and a woman to 86.9 years. And life expectancy is still going up.

Already, there are more than 10,000 people aged 90 years and older and close to 1,000 who have passed the century mark.

Based on current premiums, people on private hospital plans will need to pay between $120,000 and $180,000 in premiums for those 30 years after retirement, depending on which insurer they are with.

Unless they buy riders, which pay for the portion of their hospital bill which they will still need to pay in spite of insurance, they will also need to pay thousands, perhaps even tens of thousands of dollars, for their hospital treatment.

Riders which start at about $30 a year for children, go up to about $2,000 a year for seniors.
The actual amount people will need to put aside is likely to be far higher, as health inflation has always been higher than general inflation, and premiums will rise as cost of medical treatments goes up.

So those who opt for insurance pegged at treatment in private hospitals must ask this basic question: Can they afford the thousands of dollars in premium payments in their post-retirement years?

Different people have different priorities, as well as different levels of savings. After doing my maths recently, I've decided to downgrade my medical insurance plan.

One reader wrote to me to say that she opted for the top plan, and pays extra for a rider, so she will not need to pay any out-of-pocket expenses should she need to be hospitalised. She said: "Even though the premium and rider are costly, I am determined to continue with my plan for as long as I can. In the worst-case scenario, I am willing to cut down on my transport and food to service my plan, including the rider."

She has considered her options and made her choice. But not many people have given as much thought to their IPs.

I prefer to downgrade and spend more on living healthily and getting regular health screening to stay healthy and out of hospital.

And should I fall seriously ill in my old age, I will turn to public hospitals, which have excellent doctors and whose bills I can probably afford on my downgraded health insurance plan.

salma@sph.com.sg
facebook.com/ST.Salma