Graduated premium rates for MediShield

14 Mar 2005, The Straits Times

Question

Name of the Person: Lim Kong Hiong 

Graduated premium rates for MediShield

WE NEED medical coverage most when we are old, but we earn less then, if at all. This reduces our ability to afford higher premiums. 

MP Low Thia Khiang suggested a flat premium rate for MediShield but this was rejected by Health Minister Khaw Boon Wan who said the young might opt out. 

May I suggest a graduated constant premium scheme? Add up the total premium a person has to pay in his lifetime and divide it equally by the number of years in the scheme. The earlier a person enters the scheme, the lower flat-rated premium he has to pay during his lifetime. 

For example, based on the current premium table with coverage till 80, a person who enters at 31 has to pay a total premium of $5,112. Divide that by 50 years and his annual premium is about $103. Similarly for a person who enters at 41, the annual premium is about $124. Both amounts are more affordable than the present $390 when one turns 79. 

In this case, the young do not subsidise the old. Rather, a young person self-subsidises his older self. This also encourages people to start early to get a lower premium.

Reply

Reply from MOH 

Graduated constant premium rates for MediShield unrealistic 

In "Graduated premium rates for MediShield" (ST, 14 Mar), Mr Lim Kong Hiong suggested that policyholders pay a flat premium rate over their lifetimes. 

As an illustration, he calculated that such a rate for a person who joins MediShield at 31 will be about $100 per year. He did this by adding up the existing premium rates and averaging them over the rest of the lifespan. It is an attractive idea. But this assumes that premium rates will stay constant for the next 40 or 50 years. This in turn assumes that hospitalisation cost, like cost of drugs, doctors' salary, nurses' salary etc will remain unchanged. Is this realistic? 

In making this suggestion, Mr Lim expressed the need for the young to pay for their future insurance premiums in advance, so that when they grow old, they can pay less than what would be the actuarially correct rate. We support such an idea. 

That is why we have incorporated a loyalty discount feature in MediShield. Those who stay loyal to MediShield can enjoy up to 40% discount in their premium rates when they cross 70. 

In addition, Medisave is based on this philosophy of saving for our future hospitalisation needs when we are still young and healthy.