More isn’t necessarily better for private health insurance: Health Minister Ong Ye Kung | Deep Dive

Key Concepts

• The "Knot" in Healthcare: A complex entanglement of private health insurers, private hospitals, doctors, and patients, driven by generous insurance riders and a desire for absolute peace of mind, leading to escalating healthcare costs and premiums.
• Generous Riders: Insurance add-ons that offer extensive coverage, often down to the last dollar, for private hospital bills.
• Deductibles: A fixed amount that the policyholder pays first before the insurance coverage kicks in for a medical bill.
• Overservicing/Unnecessary Treatment: The tendency to opt for more tests and treatments when insurance is covering the costs, leading to inflated bills.
• Premium Escalation: The annual increase in insurance premiums, often by significant percentages (e.g., 20%), due to rising claims.
• Safeguards and Panels: Measures implemented by insurers to control costs, such as requiring policyholders to use specific hospitals or doctors, which can irritate healthcare providers.
• Claim-to-Premium Ratio: A metric indicating the value of an insurance policy, calculated by dividing the total claims paid out by the total premiums paid.
• Public vs. Private Healthcare: The distinction between government-subsidized healthcare services (public hospitals) and market-driven healthcare services (private hospitals).
• Medisave, MediShield Life, Medifund: Singapore's national healthcare financing schemes providing subsidies and insurance coverage.
• Benchmarking: The process of setting benchmark fees for medical services (e.g., surgeon fees, hospital charges) to control costs.
• Prevention and Early Detection: The importance of healthy lifestyle choices and regular health screenings to manage healthcare costs and outcomes.

The Healthcare "Knot" and Efforts to Untangle It

This discussion with Singapore's Minister for Health, Ong Ye Kung, delves into the complex issue of escalating healthcare costs in the private sector, particularly driven by the interplay between private health insurers and hospitals. The core problem, termed the "knot," arises from a market dynamic where insurance companies offer increasingly generous riders to attract customers, leading to a loss of cost discipline among doctors and patients.

The Genesis of the "Knot"

Minister Ong explains that the "knot" is a collective entanglement involving various stakeholders: the government, insurance companies, doctors, patients, and insurance agents. It likely originated from insurance companies competing for market share by offering "wonderful riders" that promise "absolute peace of mind" and cover almost all private hospital expenses. This "one-upmanship" led to riders that are "too generous."

Key Points:

• Generous Coverage: Riders cover nearly all costs, removing financial disincentives for patients and doctors to opt for more tests and treatments.
• Natural Human Instinct: When someone else is footing the bill (insurance), individuals are naturally inclined to say "yes" to additional precautions and treatments.
• Data on Rider Usage: Individuals with riders are 1.5 times more likely to claim than those without, and their claims are 1.5 times higher. This results in claims being over two times higher on average for those with riders.
• Insurers' Financial Strain: This leads to insurers making little to no profit on their health portfolios, forcing them to raise premiums.

The Consequences of the "Knot"

The escalating costs have several detrimental effects:

• Premium Hikes: Consumers face significant annual increases in rider premiums, sometimes as high as 20%.
• Insurers' Safeguards: To control costs, insurers implement safeguards like panel systems, requiring policyholders to use specific hospitals or doctors. This can lead to insurers questioning doctors' clinical judgment, causing friction.
• Consumer Dilemma: Individuals seek peace of mind and the ability to access the best doctors and treatments without financial worry. However, the market's response to this desire has created a distortion, leading to unaffordable premiums.
• Market Distortion: The desire for absolute peace of mind, coupled with the market's provision of overly generous riders, results in overservicing, unnecessary treatments, and ultimately, escalating premiums that consumers find unsustainable.
• Consumer Behavior Shift: A significant number of people (e.g., 100,000 in the past year) are dropping or downgrading their riders because they are no longer worth the cost, despite their initial desire for comprehensive coverage.
• Irony for Younger Individuals: Younger people (e.g., in their 30s) find rider premiums affordable and buy them for peace of mind, but they rarely fall sick. As they age, premiums increase significantly (e.g., crossing $10,000 in their 70s and 80s), making the coverage less justifiable when they need it most.

Untangling the Knot: Proposed Solutions and Strategies

The Ministry of Health (MOH) is actively working to "untie the knot." The approach emphasizes shared responsibility and the introduction of more disciplined market mechanisms.

Key Strategies:

1. Encouraging Alternative Products: Insurers are encouraged to develop alternative riders that are less comprehensive but more affordable.

   • Deductible-Based Riders: A key proposal is for riders that do not cover deductibles. This means the policyholder pays a small initial amount (e.g., $3,500) for each private hospital bill, with the insurance covering the rest. This can lead to significantly lower premiums (30-40% less) by weeding out small bills and encouraging more careful claiming.
   • Co-payment: Introducing co-payment mechanisms where patients share a portion of the cost can also instill greater discipline.

2. Consumer Education and Awareness:

   • Understanding Needs: Consumers need to understand their actual healthcare needs and recognize that "absolute peace of mind" comes at a very high price.
   • Financial Advisor Role: Financial advisors and insurance agents have a crucial role in explaining these complexities and guiding consumers towards products that best suit their needs, rather than pushing for maximum coverage.
   • Claim-to-Premium Ratio Analysis: Consumers should consider the claim-to-premium ratio to assess the value of their riders. For example, a rider premium of $9,000 with a payout of $5,000 has a ratio of less than 0.5, indicating it might not be worth the cost.

3. Benchmarking of Hospital Charges:

   • Learning from Surgeon Fees: Benchmarking surgeon fees has proven effective in keeping them within a reasonable range. The MOH intends to extend this to hospital charges.
   • Challenges: This is a labor-intensive process involving extensive consultation and data collection, and costs may shift to other areas if not managed comprehensively.

4. Enforcement and Education:

   • Action Against Overcharging: Enforcement actions are being taken against a small minority of doctors who overcharge.
   • Public Information: More information and explanations are being provided to the public about how insurance works.

5. Strengthening Public Healthcare Capacity:

   • Fallback Option: Expanding public sector capacity ensures that those who find private healthcare unaffordable have a reliable and high-quality public healthcare option.

6. Shared Responsibility:

   • No Blame Game: The minister emphasizes that untying the knot requires everyone to take a step back and contribute. It's not about assigning blame but about collective action.
   • "Go Look for the Guy Who Tied the Bell": This analogy highlights that understanding the origins of the problem (competition leading to generous riders) is key to finding the solution.

The Role of Public vs. Private Healthcare

The discussion also touches upon the balance between public and private healthcare:

• Gradient of Care: Singapore aims for a gradient of care, with affordable public healthcare options and more expensive private options, catering to different affordability levels.
• Private Healthcare's Indirect Impact: While private healthcare issues are largely contained within the private sector, escalating costs there can indirectly affect public healthcare by pushing more patients towards subsidized public services due to unaffordability.
• Subsidies and National Schemes: Singapore's system of subsidies, MediShield Life, Medisave, and Medifund ensures that healthcare remains affordable for most citizens, even without extensive private insurance.
• Younger Generation's Reliance: For younger individuals, relying on MediShield Life and public hospital subsidies is a viable option, with private insurance being an additional choice for those seeking enhanced flexibility.

Addressing Concerns and Future Outlook

• Aging Population: The aging population is a significant factor driving up national healthcare expenditure, necessitating careful planning and resource allocation.
• Individual Responsibility: While the government provides safety nets, individuals have a role to play in staying healthy and making informed insurance decisions.
• Prevention is Key: Maintaining healthy habits and undergoing regular health screenings are the most cost-effective ways to manage long-term healthcare needs.
• Commercial Interests vs. Patient Welfare: While private healthcare providers need to be financially sustainable and deliver returns to shareholders, their primary objective must remain patient welfare, avoiding greed that leads to unsustainable costs.
• Market Dynamics in Healthcare: The minister acknowledges that traditional economic principles don't always apply to healthcare due to its unique complexities and distortions.

Conclusion and Final Advice

The core message is that "absolute peace of mind" in healthcare is becoming prohibitively expensive. The goal is to find a "level of peace of mind which doesn't break the bank." Consumers are advised to:

• Understand their needs: Assess what level of coverage is truly necessary.
• Consult financial advisors: Seek guidance from professionals who can explain options and recommend suitable products.
• Consider deductible-based riders: These offer significant premium savings while still providing protection against major medical expenses.
• Prioritize health: Healthy living and early detection are the most effective ways to manage healthcare costs.
• Leverage government safety nets: MediShield Life and public hospital subsidies provide a strong foundation of care.

The minister expresses a willingness to revisit the topic if there is significant public interest and questions, indicating a commitment to ongoing dialogue and problem-solving.