Does the New Health Insurance Co-Payments Expose Households to Financial Disaster?

The Galen Centre for Health and Social Policy today warned Bank Negara Malaysia (BNM) that its new requirement of a co-payment option in health insurance could expose households to financial catastrophe.

The Deputy Finance Minister told the Dewan Rakyat special chambers on July 1 that BNM would require insurance and takaful operators (ITOs) to begin providing a co-payment option for their medical and health insurance and takaful (MHIT) products by September 2024.

Source: https://www.insurancebusinessmag.com

Co-payments are additional out-of-pocket payments that insured patients have to pay when they get treatment of covered illnesses – on top of their regular premiums paid before they encounter illness. According to BNM’s February 29 policy document on MHIT business, as cited by the Galen Centre, ITOs will be required by September 1 to have at least one individual medical product with co-payment features, with a minimum co-payment amount of no less than 5 per cent co-insurance and/ or RM500 deductible per policy or certificate year. This co-payment feature also applies to renewal of existing MHIT policies or certificates. So, for example, if an insured patient receives an RM50,000 hospital bill, a 5 per cent co-payment means that the patient has to pay RM2,500 in cash out of pocket – even though they have been regularly paying monthly or annual premiums. What is noteworthy in BNM’s new policy is the absence of a cap on co-payments.

Beginning 2025, ITOs are no longer permitted to design new medical reimbursement insurance or takaful products without the minimum co-payment feature. Household out-of-pocket payments on health expenditures currently approaching 35 per cent, would and will jump.

According to BNM’s policy document, co-payments will not apply for emergency treatment (including in accident cases), outpatient treatment for follow-up treatments arising from critical illnesses such as for cancer or kidney dialysis, or treatment sought at a government health care facility. The new co-payment policy as aimed at incentivising “more responsible usage of health care services” to reduce costs on insurance providers, citing medical inflation and the “buffet table syndrome” as the main drivers of a rise in health insurance premiums.

This action will also be able to reduce false claims and subsequently reduce overall costs, besides increasing the long-term sustainability of MHIT products, according to the Deputy Finance Minister. 

The “buffet table syndrome” describes policyholders with zero co-payment coverage or full riders, who are unwell and sick availing themselves of medical treatments and medication in the belief that they should maximise their insurance policy coverage. This increases the average claims per insured and subsequently leads to higher insurance premiums. No one wants to get a chronic illness such as kidney failure, cardiovascular disease or cancer just to utilise their insurance coverage. No one chooses to get unwell, seriously ill or incapacitated due to a catastrophic condition. Not all doctors prescribe expensive treatments and not all full rider policyholders submit large claims, said the Galen Centre.

The real cause of Malaysia’s 12 per cent health care inflation rate that is approximately five to six times higher than the general inflation rate (and is among the highest in the Asia-Pacific region) is that demand is higher and medical bills imposed by private hospitals are unregulated.

The Galen Centre expects people to cancel their health insurance policies with the introduction of co-payments and go to the public health care system instead, thus increasing demand on already overloaded government hospitals and health care clinics.

There is also the issue of quantum. Will these co-payments be capped? Will there be a maximum annual co-payment amount for policyholders? Bank Negara’s February 2024 policy document leaves that critical decision to insurers. Will patients be forced to tap into their Employees Provident Fund savings to pay their co-payments if they lack the money? What if they cannot pay? What happens then? Is Bank Negara’s new policy requirement ultimately going to be of more benefit to insurers and private hospitals, rather than patients and their families?

According to BNM, this strategy will help to reduce fraudulent medical claims and contain medical cost inflation that has risen by 36.3 per cent cumulatively from 2020 to 2022. In the longer term, it aims to ensure that the cost of medical insurance and takaful remains affordable. But couldn’t BNM have had a stakeholder’s discussion and sought views and measures that will help consumers and the industry? It is best to postpone this idea till we have everyone on board – the consumers, insurers, think tanks and hospitals!

Reference:

Galen: New health insurance co-payments expose households to financial catastrophe, Codeblue, 5 July 2024