MY client Ms Tan recently asked me if she should terminate her father's private Integrated Shield Plan (IP) with Aviva, after reading some newspaper reports on MediShield Life which is expected to start at the end of 2015.
Ms Tan's father is insured under Aviva MyShield Plan 3, which covers hospitalisation expenses in Class B1 ward and below in government hospitals. At 76, his annual premium is $2,649.42. As he can only withdraw up to $1,200 a year from his Medisave to pay for the premium, he has to pay the excess of $1,449.42 in cash.
I had in 2011 advised Ms Tan to get the Aviva plan for her father under the "moratorium" underwriting option, which is guaranteed issuance regardless of the applicant's health status, provided that his life and/or health applications have not previously been rejected or deferred. Given his age and multiple health conditions including raised glucose in blood, high blood pressure and nerve compression on spine, Mr Tan would be deemed uninsurable had he gone for the full underwriting option. Aviva "moratorium" underwriting was his only option to get health insurance then.
Not anymore. With the proposed implementation of MediShield Life which aims to cover everyone regardless of health status, pre-existing conditions would no longer be an issue come end-2015.
Private IPs, on the other hand, provide as-charged benefits and cash rider(s) to help minimise the out-of-pocket payments for expenses in higher wards.
So, should Mr Tan (or you?) stop his IP now? Well, it depends if he wants B1 or even non-subsidised Class A facilities (so as not to put up with the long wait time for the heavily subsidised B2 and C wards, as it is now), and if so, whether he can afford the premiums. In addition, given his poor health and hence the broad exclusions imposed on his IP, whether MediShield Life would be good enough.
First, as a national catastrophic medical scheme, MediShield or MediShield Life is intended to cover expenses at Class B2 and C wards in restructured hospitals. It will not be sufficient if you want to be treated in private hospitals or Class A/B1 wards as the payouts will be pro-rated to the equivalent Class B2 or C wards.
In addition, MediShield Life does not provide certain benefits such as the pre-hospitalisation and post-hospitalisation treatments, and certain outpatient expenses.
There's also no optional rider(s) to cover the deductible and co-insurance. Deductible is the amount per policy year you would need to pay for claims made before there is a payout, while co-insurance is the percentage share you need to pay in excess of the deductible.
Private IPs, on the other hand, provide as-charged benefits and cash rider(s) to help minimise the out-of-pocket payments for expenses in higher wards. Private IPs policyholders who can afford it also enjoy shorter wait time and get to pick their own doctors.
The next consideration is the costs. As shown in the premium tables accompanying this article, the premium rates of IPs jump sharply when one crosses 60.
Without factoring in future adjustments for the increase in MediShield Life premiums, one can expect to pay over S$200,000 for the highest plans over his lifetime.
It should be pointed out if you pay the IPs' premiums using Medisave, you will be jointly insured under MediShield and in future MediShield Life which is run by the Central Provident Fund Board (CPF).
For example, a person aged 16 who signs up for NTUC Enhanced Incomeshield Preferred Plan will pay an annual premium of $192. Of this, $50 will go to the CPF Board for the MediShield coverage and $142 to NTUC Income for the IP portion. In the event of a claim, the two parties will split the costs.
Although it is premature to assess the impact of MediShield Life in full, my take is that two groups of private IPs' policyholders are most likely to drop their IPs and downgrade to MediShield Life when the latter kicks in: Those who are currently being excluded from full coverage of IPs because of a pre-existing condition, and those in the older age groups whose IP premiums exceed the respective yearly Medisave withdrawal limits.
While the younger and healthy cohorts will bear the brunt of MediShield Life premium hikes, given their lower IP premium rates, they are likely to continue to be insured with the private insurers to enjoy the enhanced coverage for higher ward classes during their active working years.
This may not be a desired outcome for MediSheild Life scheme, if more and more unhealthy and elderly IP policyholders choose to downgrade to the compulsory universal health insurance. You may recall that MediShield was in operational deficit for several years before the reform in July 2005, as its premium collections could not cover the payouts. The reform resulted in the integration of MediShield and the private IPs.
For Ms Tan, my advice is to wait until the full implementation of MediShield Life at end-2015 before deciding whether to stop the Aviva plan. I would fully respect her decision.
The writer is a certified financial planner