NTUC Income Day 2004 Dinner

22 Oct 2004

By Mr Khaw Boon Wan , Minister for Health

Venue: Swissotel The Stamford

Speech By Mr Khaw Boon Wan, Minister For Health At The NTUC Income Day 2004 Dinner On 22 October 2004 At 7.30 Pm At Swissotel The Stamford

"Is IncomeShield Immune?"

Mr Lim Boon Heng, Minister, Prime Minister' Office & Secretary General, NTUC

Mr Ng Pock Too, Chairman of NTUC Income

Mr Tan Kin Lian, CEO of NTUC Income

Distinguished guests

Ladies and Gentlemen

NTUC Income was started by the workers for the workers. By focusing on their insurance needs, you have grown into one of Singapore's largest insurers.

In medical insurance, I am glad that we have NTUC Income as our partner. Among the private insurers, you are the market leader.

Insurance vs Ton-Tin

I grew up in Penang. The first time an insurance agent came to the kampong to persuade my father and our neighbours to buy a life insurance policy, he was not welcomed. The kampong folks treated him like a con man, out to swindle the people of their hard-earned cash.

Paradoxically, my kampong neighbours were no strangers to some sort of pooling of their savings. I remember they were active ton-tin players. They did not trust the banks and would rather entrust their savings with the neigbours they knew. Occasionally, there were sad stories of these people they thought they could trust, running away with their cash.

So when a stranger came to sell insurance, he did not receive the red carpet. My father was one of the few who bought. As it turned out, he lived to a ripe, full age and thankfully, we never had to cash his insurance policy. He kept a healthy lifestyle: no smoking, no excessive eating or drinking.

I do not know if NTUC Income had to face skeptics like my kampong folks, when you started the insurance business. As a cooperative of the workers, I assume it was easier for you to explain the benefits of insurance to the people. Whatever it is, we have come a long way since the early days of ignorance.

As you may know, I have begun my dialogues with various Singaporeans on the proposed changes to MediShield. Last month, I met a few hundred unionists. Happily, I found myself talking largely to converts. I did not have to spend too much time explaining the benefits of risk-pooling, how a few dollars from everyone going into a pool can enable the few who get very sick pay for their very large bills. In this way, we protect ourselves financially against the risk of falling very sick.

But the unionists were interested in whether the reformed MediShield would achieve the portability of medical benefits that NTUC has been championing for many years.

IncomeShield vs MediShield

I also discovered that many unionists were on IncomeShield. From their comments, I got the impression that some of them thought that the proposed MediShield reforms were not their business. They thought IncomeShield was OK, and hence unlike MediShield would not need to be fixed. I had to correct their wrong impression.

IncomeShield is not immune. The problems facing MediShield affect IncomeShield and all the other Shields too.

Returning to basics

First, MediShield, IncomeShield and the other private insurance plans have all become less effective in looking after the large hospital bills.

For example, IncomeShield today covers about half of a hospital bill. Patients have to fork out the other half. When the total bill is large, say $20,000, half of the bill means $10,000. This is not a small sum.

One reason for this loss in effectiveness is that the claim limits have not been sufficiently adjusted over the years.

Second, like MediShield, the deductible levels for IncomeShield and the private plans have remained unchanged for years. They have become too low. The current IncomeShield deductibles of $2,500 for Class A and $1,500 for Class B were appropriate a decade ago but are no longer so. As a result, just like MediShield, IncomeShield now covers too many bills, big and small, and, in particular, covers the large bills insufficiently.

We must return all these Shields to their original purpose of only looking after the patients with large bills and looking after them adequately. This means raising both the deductibles and the claim limits at the same time, to give such patients with major illnesses larger insurance payouts. After all, this is the very purpose why they buy these medical insurance plans in the first place.

Third, competition has become dysfunctional. It has been misapplied, with little benefit to all policyholders as a whole. The current industry structure is unsustainable as it pits MediShield against all the private insurers, but in an unfair way. While all private insurers are allowed to select their policyholders and reject applicants they do not want, MediShield is generally required to take care of all Singaporeans. Quite naturally, private insurers put their efforts into attracting those who are "safe" policyholders and discourage those who are not. As a result, instead of one large healthcare insurance risk pool, there are now 15 smaller risk pools, with correspondingly higher premiums, as there are no economies of scale in marketing and administering the 15 fragmented plans.

While the young and healthy may think that this arrangement is to their benefit, it is actually not so. What happens when you are no longer young and healthy? As Comrade Lim Swee Say told the unionists in his usual graphic way: "today's cherries will turn into lemons one day as we grow old". When you are no longer cherries desired by the private insurers, then what? I don't blame the private insurers for chasing the cherries and rejecting the less young and healthy. Their job is to maximize profit. How else to maintain a healthy pool of policyholders and keep claims low?

Competition is good for all, but it should be properly applied so that the insurers compete to promote healthy lifestyle among their policyholders, reduce over-servicing by hospitals and pressure the hospitals to manage their cost better, instead of aiming to merely serve the young and healthy.

A simple solution is for MediShield to form the basic tier of insurance for all Singaporeans, at the Class B2 and C levels. Private insurers like NTUC Income can then compete to provide enhancement plans, as riders to the basic MediShield tier. Such riders would offer additional benefits for Singaporeans who, for example, wish to stay in higher class or private wards.

We can do it in such a way that existing policyholders of IncomeShield or the private insurance plans can remain with their current insurers, even as their insurance plans become riders to the reformed MediShield. This can be achieved by having NTUC Income and the private insurers make back-to-back arrangement with MediShield such that when claims need to be made, policyholders of private insurers do not have to file two claims: one to the private insurer and another one to MediShield. They only need to file one claim to the private insurer, leaving the private insurer to settle with MediShield on their behalf. This way, we reduce inconvenience to existing policyholders.

This is the proper way to apply competition in medical insurance. In this way, we achieve a sustainable industry structure that still allows Singaporeans choice and the benefits of competition.

Working together

Even as I work on the reform to the MediShield, I am exploring with the private insurers a stronger mode of cooperation for the benefits of all Singaporeans. Can we milk the efficiencies and economies arising from a move to consolidate the risk pool? Can we work together to minimize administrative costs and give policyholders more dollars of coverage for the premiums they pay?

Currently, CPF collects the premiums for IncomeShield and the other private plans on behalf of the private insurers, as deductions are made off Medisave. This is good. However, claims are still processed manually by individual insurers. Can we improve on the claims process? Can it be coordinated among the private insurers and CPF along the lines I described earlier, so that policyholders need only make one claim instead of two? Can everything be automated and coordinated among the insurers, CPF and the hospitals, with a view to cutting processing time and costs?

These questions and the issues I raised earlier are reflective of how complex the whole subject of healthcare insurance is. There are many other issues beyond MediShield or IncomeShield that we need to address, and many pitfalls which we must avoid because if we are not careful, we may introduce wrong incentives into the system, giving rise to perverse behaviour that plague healthcare systems elsewhere. But fortunately, the key foundation stones are in place. Let's work to tackle the problems of medical insurance together collectively, as the government and Singaporeans have always done in other areas. With our combined resources and efforts, I am confident we can enhance the role of insurance and give Singaporeans greater peace of mind about their medical expenses.