What Does the Medishield 5 per cent Co-pay Really Fix?

The mandatory co-pay for Integrated Shield policies (IPs) is meant to rein in medical costs before it's too late, but will 5% make a big enough difference?

There has been a change to the rules regarding Integrated Shield Policies (IPs). These insurance policies will now have a minimum co-pay of five per cent, capped at S$3,000. This has been instituted to prevent overuse of medical services. And yet, will such a move suffice to curb rising medical costs?

The Purpose of Co-payment in Medical Insurance

Without a rider, IPs in Singapore require a co-pay of 20 per cent. That is, the insured person needs to pay 20 per cent of the bill first, and the insurer will cover the remainder. For example, for S$700 worth of treatment, you would need to pay at least S$140.

However, medical insurers previously offered a rider that could totally remove co-payment. This rider cost between S$200 to S$300 per year, and had to be paid in cash; but it was possible to run up a medical bill of, say, S$15,000, and still pay nothing.

This is problematic, because co-payment serves a vital function: it prevents the overuse of healthcare services.

For example, consider the difference between a C class and A class ward. By Ministry of Health guidelines, the cost of C class wards start from S$35 a day, whereas A class wards cost upward of S$466.52 per day.

Say you had to stay in the hospital following surgery, for a period of seven days. Assuming the lowest ward prices, and a co-pay of 20 per cent, you would pay S$49 for staying in a C class ward, and around S$653.13 for staying in an A class ward.

The savings of more than S$600 will convince many people to pick the cheaper ward.

But what happens if you have a rider, which would cover the entire cost of your hospitalisation up to an A class ward? Chances are you would use it to the maximum, and get the best possible ward you can. After all, you’re not paying anything.

Unfortunately, this leads to medical inflation.

Consider what would happen if hundreds of thousands of Singaporeans all thought the same way, and they all decided to buy riders. They all use A class wards, and run up massive bills.

In September 2017, this is precisely what happened; and it resulted in six insurance companies suffering major losses.

How Does That Affect You?

Ultimately, insurance companies are not charities. They’re in the business to make a profit, and they can’t keep operating at a loss. This means that, if everyone wants to buy a rider and skip on co-payment, then the insurers have to ramp up the premiums.

This can result in unbearably high insurance costs, particularly for vulnerable groups such as unemployed or low-income Singaporeans. There are further spillover effects - for example, a retiree who cannot afford comprehensive medical insurance becomes more reliant on her children, who are then saddled with further financial obligations.

As you can see, co-payment is unpleasant but important. It’s a restraining device, which prevents people from going overboard with their claims.

But is 5% Co-pay Enough? 

The new regulations re-introduce co-payment, which is an important step. However, the question is whether such a small amount (capped at S$3,000 to boot) will be sufficient to dissuade excessive claims.

For example, let’s go back to the earlier example, of staying in a C class versus an A class ward. However, let’s assume that this time, there is a five per cent copay. This means that a week’s stay in a C class ward could cost around S$12.25, whereas a stay in an A class ward would cost around S$163; a difference of around S$150.

This is a much smaller difference without co-pay, which has a difference of over S$600 (see above).

Given that the insured have already paid around S$200 to S$300 for a rider, there’s every chance they might still go for a Class A ward.

As for medical services such as tests and additional medication, it’s unlikely that someone will dispute the doctor, and refuse these things for the sake of a five per cent co-pay. A 20 per cent co-pay could make someone object to a set of S$900 MRI scans (that’s S$180 out of pocket); most would pay five per cent (S$45) without question.

At any rate, overuse of tests and medication can’t really be put on the shoulders of the average Singaporean. We’re not doctors, so it’s up to medical professionals to be honest about what we do or don’t need.

So while the minimum co-pay is an important step in the right direction, it may not be quite far enough. Time will tell if Singaporeans see it as a big enough dissuasion, and start to better restraint their claims and use of medical services.

Do You Think Riders are a Benefit, or a Problem?

It’s a bit of an unpopular opinion, to state that insurance riders are doing us more harm than good. Most people want to be able to pay nothing, when they get treated - even if that means they’ll pay more via premiums in the long run.

Do you think riders being capped at five per cent is acceptable? Or do you think we should go back to full riders, or even no riders? Let us know!

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