Are You Going to Burn $30,000 on Medical Insurance?

What is your answer to the question I pose to you in the title? It is the one burning question (pun intended) a person should ask him/herself before committing to a Shield policy.

Does this mean I am against hospitalisation Shield policies? If you have been following my blog from my regrettable experience with my dad to the example of our Health Minister’s surgery, it is clear that I am a strong proponent of such medical insurance. So what do I mean by “burning $30,000 on medical insurance”?

There are currently five insurers who provide integrated Medishield “Shield policies”. If a 25-year-old person is going to purchase a Shield policy for private ward coverage until he is 90, he can stand to pay as much as $30,000 more than he should over the years. It is worth noting that most of such policies command this high premium.

What does this premium accord to the insured over the more affordable policy? Mainly, the pricier policies cover 100% of the bill from the first dollar. This is a feature that many agents are trumpeting. It sounds good not having to pay for your hospital bills, but the Mathematics of this is not as attractive.

The more affordable policy does not cover 100% of the hospital bill but limits the insured’s co-payment to a maximum of $3,000 per policy year. In other words, if someone taking the more affordable policy is hospitalised on 10 separate occasions, incurring the maximum bill required for the co-payment to max out at $3,000 each time, he would still not be worse off than someone who has a 100% coverage. What’s more, the co-payment can be partially paid for with one’s Medisave subject to certain limits.

Moreover, the $30,000 figure has not yet taken into account the opportunity cost of paying the extra premium over the years!

Mathematics aside, there are people who claim that prices of the policies are (somehow) correlated to the quality of assurance you get. A quick check at MOH website shows the cost-effective policy I’m talking about at first place in claims experience. One of the insurers which offers expensive policies is nowhere near the top spot.

Furthermore, a 100% coverage leads to a buffet-style over-consumption mentality amongst policyholders, making one feel the need to opt for the best healthcare available even if it’s not necessary. This has certain implications – The insured’s claim might be rejected depending on the circumstances, and he would find himself stuck with a high bill to pay. Also, such eat-all-you-want coverage can result in a worse claims experience for the risk-sharing pool, leading to potential increases in premiums for everyone. A co-payment that is capped at a relatively small sum is a good deterrent for such wastage and yet remains affordable for the insured to pay when the need arises.

The true costs of financial products are rarely seen by the layman, but has frightening financial implications for themselves. My philosophy for my clients and my own insurance portfolio has always been cost-efficiency – it’s not about price; It’s about value.

11/06/11 Post-Scipt: Upon some reflection I suppose “burn” may be too strong a word to use. People taking up any kind of insurance plan need to analyse the costs vs benefits and make an informed decision.

Thumbs up to keep me writing more!

11 responses.

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  • Reply
    Sabrina said 2673 days ago:

    Good article. Do also include the new varieties of shield plans like PruEarly etc? From what I understand, PruEarly is the best of it’s kind currently. Some time earlier there was the case abt the lady who had breast cancer and three insurance policies, but could not claim any of them as she was considered zero stage. Caused a bit of buzz amongst netizens and it really quipped people’s interest abt such policies.

    • Reply
      Seth said 2673 days ago:

      I think you are referring to PruEarly Stage Crisis Cover. That’s an “early payout” critical illness (CI) cover which is a new type of CI policy.

      This post I’m referring to Shield plans which are hospitalisation coverage. I’ve been following her case and blog since the incident happened. Her hospital “Shield” plan paid her bills, just that her “old” CI policy did not pay out.

      I guess I will write a post detailing the different types of insurance to clarify. Thanks for your comment!

  • Reply
    la papillion said 2673 days ago:

    Hi Seth,

    I would think that if a hospital bill of less than 3k is needed, we do not need to worry about it at all. Our emergency cash should be able to tide it over. It’s the super bills that I’m worried about, hence the need for pte shield plans. Why insure yourself for the little things when it’s the big stuff that can wipe you out?

    But I do agree with you, there is something wrong with the present system of pte shield coverage. It can really be a factor in increasing the costs of the medical treatment in Singapore, which will then increase the premium of the shield plan, thus creating a vicious cycle.

    • Reply
      Seth said 2673 days ago:

      Hi la papillion, I’m an avid reader of your blog and I’m glad to see your comment (it got caught as spam!).

      Since the general elections is all the talk now, I think it’s also appropriate for my favourite analogy of consumers voting with their wallets. Only when consumers start purchasing cost-effective products and stop buying expensive policies will the product providers start to provide better value.

      I forgot to put in the article also that my grandparents eventually had to lapse their hospitalisation policies’ riders as the premiums became too exorbitant. Unfortunately, my grandfather was recently hospitalised and had to be warded in a low ward which I feel is just not comfortable for an ill person. Thus I believe in keeping insurance as cost-effective as possible so that we don’t run into the scenario whereby we can’t afford it when we need it the most.

  • Reply
    Derek said 2673 days ago:

    Hi Seth,

    I feel that a shield plan is needed but there is no need for riders to cover co-insurance.

    First is to live within our means. That includes hospitalization. Sales talk will always say you want to best for your parents and yourself so you must stay in a private hospital. For my parents and me, government hospital is perfectly fine.

    I’m painting a Scenario using my AIA HealthShield plan. I will use 100K since agents love this amount.
    B1 ward, $100K hospital bill.
    I will need to pay $2,500 (deductible) + $9,750 (10% co-insurance)= $12,250. Probably half of it can be paid using Medisave so we should probably pay a few thousand in cash. Like what LP said, the emergency fund would be able to tide you over.

    Of course, agents love to paint a gloomy picture. What if you are hospitalized again? Well, my question is what are the chances of facing multiple $100K hospital bills? Yes, it is possible but the probability is very low. The same can be said of Critical Illness, what are the chances of a person who suffer from many types of CI in a single life time?

    I guess if you are young and still building up your emergency fund and Medisave, it is ok to buy a Shield plan with rider to cover all hospital bills. After all, they are very cheap when you are young. Once you have built up your buffer, you can cancel those riders and use them for other purposes.

    Insurance ain’t meant to cover 100% but to defray the cost to a manageable amount.

    • Reply
      Seth said 2673 days ago:

      Hi Derek, appreciate your comment. I generally agree with you that there are risks that are better self-insured. I suppose how much to self-insure is up to one’s risk appetite. There are those like Tan Kin Lian who will opt to stay on only Medishield.

      My take is that if a risk is very unlikely, and/or involves a small amount and/or the premiums are too high to insure it, then one may self-insure. A maximum amount of $3,000 is a small amount, and as I have elaborated in my post, the premiums to insure it is not cost-effective. It is also very unlikely for a person to be hospitalised on 10 different years incurring a maximum bill size.

      In the case of the co-insurance – to me it is a risk that is unlikely but still higher than the previous scenario, the amount can be huge and the premium rate are still acceptable for most age bands. It is a risk I deem to be difficult to self-insure for most people. The example of a young person still building up his reserves is only part of this group.

      Even if unlikely, a single incident of a huge bill can overwhelm the person. Moreover, cost of healthcare is rapidly increasing. One has to factor in this medical inflation. This is because the person may not be eligible to increase his coverage later on.

      As for ward, I do believe that one should opt for lower classes if possible, but still maintain a plan with high ward eligibility simply because we cannot predict the circumstances surrounding one’s unexpected hospital admission.

  • Reply
    la papillion said 2670 days ago:

    Hi Seth n Derek

    Thanks for reading my blog 🙂

    I got the most exp plan by ntuc, with cover of deductible n co insurance usig a rider too. It’s not that i would go for pte hospital, it’s just that i want the option to do so if there’s a need. I’ve heard stories of patients waiting for extended periods of time in punlic hospitals and that frightens me.

    Since my health condition is not tainted, opting for the best now allows me to scale down in the future shld i be in a position where i can’t afford to pay. i plan to use a lower class ward even though i’ve a higher plan so that there’s a cash benefit during my hospitalisation period.

    In the future, i might hve to stop the rider and possibly reduce the plan. I can scale down if i cannot afford it, but i can’t scale up if i need it 🙂

    • Reply
      Seth said 2670 days ago:

      My sentiments exactly.

  • Reply
    Patrick Teo said 2626 days ago:

    I have to disagree with this.

    For a person who lived from age 25 to age 90, what are the chances he/she would not be hospitalize?

    My client’s mum bought NTUC Enhanced IncomeShield 2 years ago. Two week after she was diagnosed with Leukemia and has been undergoing chemotherapy since. You know how much that would have cost the family if she didn’t have the shield plan? 25-40k per treatment, 4 times a year.

    To this day, the client’s daughter still complain why NTUC incomeshield didn’t have the rider to remove the co-insurance. I told her she was darn lucky to have the shield accepted in the first place.

    You complain a good shield plan is expensive and encourage people to go for more costly medical institution. Wait till you have to queue for weeks at a government hospital to get an operation done.

    My point is you can’t measure everything dollars to dollars. Something appearing cheap ultimately could prove costly later.

    If $30,000 can assume my hospital bills, why not?

    • Reply
      Seth said 2625 days ago:

      Hi Patrick, thanks for your input.

      Your question of the chances of someone being hospitalised seems to imply that I believe it is not likely. If you read my blog more carefully, you would realise that I do feel that the chances of someone being hospitalised in his lifetime is high, which is why I am a strong advocate of private Shield plans covering even private hospitals and with (appropriate) riders.

      However, I would like to throw you back a question – What are the chances of a 25-year-old person incurring 10 or more incidences of hospital expenses, each being $30,000 or more and happening in separate years over his lifetime?

  • Reply
    Jimmy said 2620 days ago:

    Currently, health and medical insurance are pre-occupied with reimbursement for “creature comforts” (higher ward class/private hospitals) without adequate emphasis for benefits in terms of access to professional services and items covered, and covered by outcomes monitoring.

    “Skin in the game” is important but it should also be capped to percentage of median income, or there would be inadquate provision of other needs (kids education etc.) People need to feel “safe” with their degree of insurance/health care coverage then they will take on other “risks and liabilities” – kids, business ventures, etc.

    The basic schemes have caps on reimbursement without adequate understanding on the costs of providing treatments (eg., basic medishield and its ridiculous reimbursement for dialysis), and the lack of professional reimbursements on a program fashion (asking for capitation pegged to monitoring of outcomes). That is why you do not have enough people do essential medical care and GPs being glorified beauticians.

    Insurance cannot pay out more than what was paid in. I cannot fanthom why we have private-for-profit insurance companies administering what essentially is pooled risk for a social good. I have INCOMEshield because I believe in mutuals or cooperatives for health insurance.

    So, your last comment on 25-year-olds “burning” money for “expensive” health insurance is the insurance moral hazard story and issue of cherry-picking:

    Let’s suppose you have 2 identical clones, just graduated but started working at $2500/month. One decides that he does not know what life may throw at him and he pays US-style health insurance at 20% of his income faithfully, whereas the other pays for plain vanilla health insurance (takes care of open-style appendectomies if he gets appendicitis but not dialysis if he gets organ failure).

    Both unfortunately gets kidney failure in 30 years. The guy who has full insurance gets enrolled into an end-stage kidney failure program (dialysis at $50-75K per year, true, unsubsidized, marked to free-market care, including physician visits and medications, monitored for evidence-based health outcomes by an accountable care organization).

    The other guy says “Doc, I change my mind…”

    What is the doctor and society to do with him?

    Do you tell him that he made his choice – so curl up in a corner and just die?

    If you are a participant in the 21st century, live in a sophisticated industrial society —> get with the program. You need to spend more on health and human social services including real insurance (of course appropriately designed and monitored – ours currently is a giant Ponzi scheme for some covered benefits – “pay as charged!!”).

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