News of the revamped basic health insurance plan (or MediShield) was finally revealed by Health Minister Mr. Khaw Boon Wan in January this year. The Ministry of Health (MOH) soon followed up with details of changes to private health insurance (basically, the Shield plans offered by commercial life insurers).

In July 1994, the CPF Board launched two enhanced plans with higher coverage: the MediShield Plus Plans A and B, offering more options for members who desire more benefits. Shortly after Mr. Khaw’s announcement, MOH announced that the CPF Board would open these plans to private insurers. This involves an open tender to encourage insurers to come out with the best pricing or best premium rates.

Mr. Khaw affirmed the current portfolio of 350,000 policyholders would go to the insurer with the bid that “has the best premium offer for policyholders”. The winning bid is to be announced around September this year.

Longevity Risks, Escalating Medical Costs
Although the stated aim of the revamp and repricing of the basic MediShield plan is to address the burden of policyholders’ portion of payment of large hospital bills, two risks persist: longevity risk and escalating medical costs.

None of the comprehensive H&S plans in the market offers coverage beyond 80 years; significant when we recognise that the current life expectancy is now at a median of 82 years. Health statistics also show that many senior citizens will inevitably incur very high medical costs due to chronic or catastrophic illnesses.

Mr. Khaw has been quoted saying that the over 80s have been excluded from MediShield because this group of people are more likely to make claims. As such, their premiums will have to be high, possibly in thousands of dollars.

Hedging Future Medical Costs
A recent ZaoBao report showed that health care costs have risen the fastest, up 11.1% over the past five years. This is the crux of the matter.

An alarming 440,000 people do not have health insurance. A continued uptrend in medical costs is likely to persist due to the advent of new treatments and more expensive drugs. To depend solely on the basic MediShield and private insurers’ Shield plans is insufficient.

A comprehensive H&S plan has to be considered as a complementary plan to effectively hedge future medical costs, especially in the golden years, when most of these costs are to be incurred.

No one plans to fail, but is it not also true that many will fail to plan?

Patrick Lim is associate director of Promiseland Independent Pte Ltd, an independent financial advisory firm.