Guidelines on Shield Policy Terms to Safeguard Interests of Policy Holders

10 August 2005

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08 Aug 2005, The Straits Times

Question

Guidelines on Shield Policy Terms to Safeguard Interests of Policy Holders

Clients assured that any changes to the policies must be cleared by ministry

CONSUMERS have been assured by the Ministry of Health (MOH) that insurers offering Shield plans cannot unilaterally vary their terms of coverage despite clauses in some of the contracts that claim they can.

MOH told The Straits Times that insurers must obtain the ministry's approval for any proposed change to Shield plans - health insurance policies that form part of the Central Provident Fund (CPF) scheme.

Still, MOH stopped short, in response to queries, of stating that insurers must make this requirement clear in the contracts - an omission that puzzled industry observers.

A spate of modified health insurance plans hit the market last month following government changes to the Shield scheme on July 1.

Out of four leading insurers that offer Shield plans, three employ contract terms that claim the insurer reserves its right to amend the coverage simply by giving policy holders 30 to 45 days' notice.

The three are Great Eastern Life (GE), NTUC Income and Aviva.

For instance, in Income's IncomeShield contract, clause 18 states: 'We may at our discretion modify the terms and conditions of this policy at any time by giving you 30 days' written notice at your last known address.'

Currently, only AIA's HealthShield Gold contract states the insurer will make changes if there are 'mandatory revisions' introduced by the authorities such as MOH or the CPF Board.

(AIA does have one clause in its Shield contract that allows modifications, but only if it is endorsed and signed by its 'authorised officer'. It said this acts in concert with the existing clause stating it will apply changes if directed to by the authorities.)

Under the terms of the Shield scheme, these plans must guarantee that the policyholder's coverage will continue uninterrupted despite any changes in the holder's health status during the term of coverage.

On July 25, The Straits Times asked MOH what value this guarantee had if these firms can vary contract terms at will. In response, MOH suggested that the paper should check with the insurers.

It was only a week later, last Wednesday, that MOH told The Straits Times that insurers cannot even vary contract terms at will.

'Insurers cannot unilaterally vary their terms of coverage. They need the Ministry's approval for any proposed change,' said MOH.

It added this requirement is applied only to Shield policies as policyholders use Medisave to pay for the premiums.

MOH's statement on the matter means that all Shield products are essentially the same when it comes to varying terms, despite the differences seen in the actual contract wordings of current Shield plans.

Industry watchers said it is odd that MOH did not insist the requirement be reflected in all Shield contracts.

'The contract is a legal document between the insured and the insurer, and the terms are binding. Shield plans are long-term contracts.

'Who will remember 10 to 50 years down the road that MOH has to approve any change that insurers wish to make if this is not reflected in the contracts now?' said an industry expert.

Another observer added: 'If the insured is not aware of this need to obtain MOH's approval and changes are made by the insurer without MOH knowing, who is the wiser?'

When MOH was asked if it would request that the three insurers spell out this requirement in their contracts, it reiterated that any change in terms of coverage must be approved first.

Income chief executive Tan Kin Lian said the firm does not consider the requirement to be 'a material point'. 'So, we left it out. In practice, we will seek approval before making any changes,' he said.

Aviva said it had left out the qualification as 'there is no requirement to do so and it is not an industry practice'.

'Generally, it is understood the Shield schemes have been directed by MOH, and any change in the terms and conditions must be approved by MOH,' it said.

Reply

Reply from MOH

Guidelines on Shield Policy Terms to Safeguard Interests of Policy Holders

We thank the Straits Times "ST Aug 8: Shield insurers cannot alter terms without MOH approval" for highlighting to the public on some of the finer details of medical insurance plans.

For a competitive insurance market to evolve, we need better informed consumers. Regulators play their part to bring about greater transparency and set appropriate rules. As circumstances change, rules and terms will be updated accordingly, otherwise policies will lose their effectiveness over time.

As part of this public education effort, we would like to add a few clarifications.

The Ministry of Health only regulates the medical insurance policies whose premiums are paid out of Medisave. There are currently five such insurers providing Medisave-approved plans (CPFB's MediShield, AIA's HealthShield Gold, Aviva's MyShield, Great Eastern's SupremeHealth and NTUC Income's IncomeShield).

The Ministry mandates these insurance policies to meet certain minimum requirements, including minimum deductibles and co-insurance, guaranteed renewability and no loading of premiums. These requirements are formally set out in the Guidelines for Medisave-approved enhancement schemes. They are published on the MOH website.

Should an insurer breach any of these guidelines, MOH will act accordingly. In extremis, MOH can remove the Medisave-approved status of the plan. This is part of our regulatory responsibility for safeguarding the Medisave as a national health savings framework.

Your article has highlighted the clause which allows insurers to change policy terms. This is a standard clause found in many policy contracts. Because the Medisave-approved plans incorporate MediShield as the basic tier of coverage, any changes which MOH makes to MediShield will inevitably affect these plans. The clause to change policy terms enables the insurers to respond to the changes mandated by MOH.

While the article has focused on the downside of the flexibility that the clause provides, there are also benefits arising from this flexibility. For example, it has allowed insurers to enhance the terms of benefits in response to competition, with no change to premium rates. The insurers have in the past done so, to the benefit of their policyholders.