Background of Medishield Reform 2005

MediShield was introduced in 1990 as a basic medical insurance scheme to help Singaporeans cope with very large hospital bills at the class B2/C level. However, it has become less effective because its key parameters like premiums, deductibles and benefits have not been sufficiently updated to reflect the current cost of hospitalisation.

MOH is reviewing the scheme with the following objectives in mind:

1) Return Medishield To Its Original Purpose
MediShield serves to protect against very large hospital bills. Hence, MediShield only kicks in for large bills. For bills below the MediShield deductible level, almost all patients would have enough in their Medisave accounts to pay for them, provided they have been contributing regularly to Medisave.

To keep premiums affordable, the MediShield deductible cannot be too low. In this way, MediShield helps cover the large but uncommon hospital bills.

The current MediShield deductibles of $500 for class C and $1,000 for class B2 were appropriate years ago but are no longer so. As a result, MediShield today covers too many hospital bills. We need to raise the MediShield deductibles to reflect the current cost of hospitalisation.

Moreover, MediShield claim limits have not been adjusted for years. As a result, MediShield payout is now less than 40% of the bill, leaving the rest to be paid by the patient. To relieve Singaporeans of the financial burden of large hospital bills, we need to return MediShield to its original purpose of (a) only looking after the large bills and (b) covering such large bills adequately.

This means raising the claim limits to provide substantially higher MediShield payouts for large hospital bills. This is the most important objective of MediShield and its current reform.

2) Keep Premiums Affordable
To fund the higher payouts, premiums will need to be raised, especially since they have not been adjusted for the last 14 years. To keep the revised premiums affordable, we need MediShield to cover as many Singaporeans as possible. This is because the larger the pool of policyholders, the greater will be the economies of scale in marketing and administering the insurance plan and hence the lower the premiums.

The medical insurance market today is unfortunately fragmented among many insurance products. As a result, instead of one large MediShield risk pool, there are now 15 smaller risk pools. While this offers Singaporeans choice, it comes with larger than necessary insurance premiums.

We would like to see how we can still give Singaporeans choices, but without fragmenting the MediShield risk pool. In this way, we hope to keep MediShield premiums affordable.

3) Remove Cherry-Picking
Generally, competition is good. It provides choices to consumers, besides driving insurers to provide better services at lower cost.

However, the current medical insurance industry structure is sub-optimal. Instead of competing with MediShield to provide better benefits at lower premiums, private insurers find it more profitable to pick and choose healthier and younger Singaporeans to insure. This is known as cherry-picking in the insurance industry.

If the cherry-picking by private insurers continues, Medishield's risk pool will become progressively older and more sickly. This must result in rising MediShield premiums in order to cover its rising payouts. This is not desirable for the majority of Singaporeans who have to rely on MediShield for their medical insurance. We must remove cherry-picking while retaining the competitive nature of the industry.

More information and related resources >>