Is Bank Negara aware that Medical Insurance catalyzes the increase in Private Health care cost ? By VM Chandran

Insurance is an "arrangement by which a company or the state undertakes to provide a guarantee of compensation for specified loss, damage, illness, or death in return for payment of a specified premium".

In very simple language, for a small sum of money a person is protected financially on the occurrence of an event that is of significantly higher value. The premium varies with the age and other key health status factors of the insuree.

The key aspect is a small payment for a significant protection cover that is guaranteed. This is what creates the attractive proposition. A great marketing tool which has resulted in the proliferation of such insurance. Today 8 out of 10 patients are covered by Medical Insurance. It is not an unlimited coverage but huge enough, unless the illness is long drawn out where the limits may be busted.

Indeed Medical Insurance is now a necessity and in all progressive and developed countries it has become an imminent requirement. It provides the patients with an easy pathway to private Hospitals in the hope of convenience, choice of Doctors, including expeditious accessibility with qualitative care and privacy. Free market philisophy has crawled into the social needs of mankind and brings its benefits.

Medical Insurance has been instrumental in the extensive development of private Hospitals. This has helped in the migration of the public from public health facilities to private ones. It has helped to ease the queues in public health facilities, which is now more focused to serving the poorer and rural folk.

This was the original intent of private health care ie a close sensible working fusion between private paying patients and private Hospitals. Qualitative care was provided at affordable prices which covered most parameters of medical services.

As the demand for private health grew with the nation's economic growth, the inflationary aspect of medical cost and correspondingly the insurance premiums spiralled its way up. The annual rates range between 13 to 15%, which is roughly about 6 times the national inflation rate. On an overall basis Malaysia's medical inflation rate is about 2 times that of the current prevailing worldwide figure. 

Strangely  Bank Negara Malaysia (BNM) is not perturbed by such inflationary figures in medical costs. It is now confirmed that a large Insurer would be putting up their  medical insurance by 12 to 15% on 1st June whilst another by 15 to 30% on 1st September. This is supposed to be the annual rise but there is also another based on age brackets.

I believe Bank Negara Malaysia must have approved such an increase. I honestly wonder whether BNM has studied the broader implications of such an increase. These increases would create a greater spin-off in price rise in other areas that would have a consequential impact on the cost of living. 

On the one hand BNM uses interest rates ie overnight policy rates (OPR) as a monetary tool to control inflationary rises yet on the other hand Insurance companies are given approval for such steep increases in premiums. An enigmatic decision???

The Insurance companies argue that claims have risen significantly over the years and business survival requires such increases. They use statistics to substantial their case. Claims ratio has leaped from 50.4% in 2015 to 71.1 % in 2017.

Strangely these increases in claims coincide with BNM's target requirement of wanting an  insurance penetration from around 40 to 50 % in 2015 to 75 % by 2020. 

So how do Insurance companies fulfill the Regulator's targets? They have introduced numerous schemes like having medical cover till 100 years of age, special sums for critical illnesses snd so forth. All those are attractive but the "cream ala cream" is the facilitation of medical claims. What i mean is that if the claim is within limits  there is no issue and pre-clearance is given. This approach has created the following:

1. Minimise inconvenience to patients

2. Fulfills the BNM insurance penetration target.

On the other hand, by doing this the Insurance companies seemly lose their responsibility of "duty of care" for their clients ie the patients. They failed in ensuring that there is "money worth" in  what they pay out for their clients. It must be recognise that Insurance companies as an aggregate is the single largest "Paymaster" on behalf of its clients to the Private Hospitals.

It has the "bargaining power" to ensure private healthcare is kept at affordable rates. They should question why the charges for drugs, medical supplies,  usage of medical equipments, nursing care and room rates are exceptionally high. One does not need to be a "rocket scientist" to know it is the margins levied of between 75 to 1000 % that has put the "pressure" on the charges.

If anything, the Insurance companies must know the double-style billing that takes place in Private Hospitals. There is a believe that patients with insurance coverage are billed to the "maximum". Why not? Afterall the Insurance companies are happy to pay without much of a fuss. This is done  so that the Insurance companies can get their share of market penetration "without upsetting the cart".

For the Insurance companies, there is a simple equation, the more they pay out in claims, the higher the premiums become. End of the day they can easily balance their books. The Private Hospitals also become a satisfied business as they maximise  their profits. This is the success story of free markets in a social sector.

Yet!!!! We cannot look at one side of the "coin". While Insurance companies and Private Hospitals walk joyfully to the Bank, "Newton's 3rd Law" of equal and opposite reaction, forces us to look at the plight of the Public and the Government. 

The public, working on the principle of paying a small sum for larger protection, has not much of a choice. They have to continue paying the premiums, which becomes a "fuel" for inflationary rise. It is peculiar as it sounds like  " gangster operation", paying monies for protection.

The Government is caught in a dilemma. One of its independent agencies, BNM, which plays a major role in the nation's monetary policy  grants approval to significant premium increases, yet the control of inflation comes within its purview. Thereupon the Government becomes a victim of its own policy facing the wrath of the public in escalating medical cost and cost of living.

The time has come that  the  Insurance companies must play their role and ensure Private Hospitals provide a comprehensive listing of their charges such that patients are aware of it from the onset. The Insurance companies need to ensure such charges are "money's worth" and not excessive. Such a "check and balance" must be put into the private healthcare system.

Failing to self-regulate, the Government must intervene with the formation of an independent self-financing Directorate or Commission to monitor and audit Private Hospitals with the intention of ensuring medical costs remains affordable. This itself becomes a deterrent measure. 

This must also come with a Tribunal for aggrieved patients to channel their grievances to facilitate proper settlement without having to be intimidated by big businesses.

We cannot wait and allow matters to precipitate until the point of no return. We then would be stuck in that scenario out of our own inaction. The Government, especially the Minister of Health, would do a great service to the public if such measures are put into place. A measurement of people at the Govetnment's heart.

V M Chandran.

26th. May,  2019