MediShield Life And Its Likely Impact On Us – Part 1

I guess I am pretty late on the scene with this evaluation but as I have mentioned in my previous post, I lost quite a bit of discipline and willpower to blog over the past couple of weeks. =p

Nonetheless, good news! I finally got out of my funk and chucked away the PS3 controller to spend slightly more than an hour to go though the MediShield Life Committee’s 61-page report this afternoon. 61 pages sound intimidating but trust me, it’s not difficult since quite a bit of content was repeated throughout the report.

So if you’re not satisfied with my “summary” below, do spend some time to read it in its entirety. After all, this is something that will likely impact us for the rest of our lives. And if you need a basic primer on insurance, do check out this earlier post which I had painstakingly prepared and recently re-read with some pride. =)

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MediShield Life’s main benefits

First, let’s talk about the incumbent.

MediShield is considered a type of Hospitalisation & Surgical (H & S) Insurance and its main purpose is to protect against large medical bills.

“While each of us has a small chance of having to pay for a very large bill, the cost is very high for the few among us unfortunate enough to fall seriously ill. By paying a small premium each, we can be protected and not have to worry about a large bill”.

In my humble opinion, this type of insurance is something one should always try to have and definitely of higher priority compared to term life insurances, critical illness plans, endowment funds and blablabla.

MediShield is a scheme designed to cater for large bills incurred in the Class B2/C wards and I find it reassuring that the Government has stepped in to improve this scheme. MediShield Life will be in force from end-2015 and some of the most notable improvements are stated below:

1.  Every Singaporean will be covered for life

Previously under MediShield, one will only be covered up to the age of 92. If you are blessed with longevity, you’re on your own for medical bills in your tenth decade. You will also lose your cover if you fall onto hard times and lapsed on your premiums. And more importantly, you could be excluded from coverage if you have certain pre-existing conditions.

These three groups above make up the 7% of the Singaporean population that is not covered by MediShield and the implementation of MediShield Life will ensure that they are not marginalised.

2. Removal of lifetime benefit of $300,000 and reduced co-insurance rates

Previously, MediShield would lose its purpose for you if you had already claimed $300,000 from the scheme. But with this change, it would remain relevant even in old age.

Furthermore, if you incur a $10,000 bill, co-insurance might be reduced from 20% to 10% under the new scheme. Instead of paying $2000 from your Medisave Account, only $1,000 will be needed under MediShield Life.

Measures to keep premiums manageable

With the above enhancements, it’s inevitable that the cost of administering MediShield would rise and policy holders would have to pay higher premiums for the insurance. Besides the permanent government subsides for the lower income and temporary subsidies for the transition years, these measures were taken:

1. Deductibles will not be reduced

The deductible that comes from your own pocket is the most important lever against moral hazard. You will always have to pay the first $1,500¹ of your bill under MediShield Life and this would be some form of incentive for you to stay healthy and fit.

“The deductibles were raised in the latest round of MediShield enhancements in 2013, and are currently set such that MediShield will pay out for the top 1/3 of Class B2/C bills”

2. Maternity and fertility expenses are excluded 

Although there was clamour for these expenses to be included and this could potentially benefit yours truly =p, I have to agree that this was the right move to keep premiums low. Otherwise, singles and couples who don’t intend to have children will be subsidising the others.

Other noteworthy details

1. Paying higher premiums when young, so that premiums rise by less in old age

You will still be paying higher premiums when you grow older, since the risk of hospitalisation is much higher with age. But what this means is that based on the risk at your current age of 31, you could be paying $220 in annual premiums instead of the fair actuarial rate of $200 to reduce the burden on your “older self”.

But what if the “older-self” never materialises? What happens is that if I pass away early, I will be subsiding a per who lives to a ripe old age. This phenomenon is also present in CPF Life and understandably so since the government doesn’t really care as much about a dead person compared to a living one.

So the least you should do is to take care of yourself in order to benefit more. =p

2. Part of your premiums will directly help others

If you’re healthy, a small portion of your premiums would be used to help bring in those with pre-existing conditions. Although there’s still a large emphasis on self-reliance (30% higher premiums for this group), the government is openly asking Singaporeans to contribute directly to create a more inclusive society.

I have no qualms with this and am glad to help. =)

¹$1,500 per year for Class C and $2,000 per year for Class B2 for policyholders aged 80 and below, and $2,000 for Class C and $3,000 for Class B2 for policyholders aged above 80.

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Although this is already a comprehensive review of the new Medishield Life, it’s only Part 1 since private insurers have yet to officially respond with the changes to their Integrated Shield Plans (IPs).

60% of Singaporeans (including me) have an additional layer of H & S insurance with the Integrated Shield Plans to help mitigate some of the inadequacies of the previous MediShield. But since some of them have been addressed with the new Medishield Life, I am hoping that the increase in premiums for IPs would not be hefty.

I will be staying tune and will update you on my views and strategies when the actuaries residing in those private insurers are done with their work.

 

 

 

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