Ministry of Health wrote a letter to me in response to this article. The letter can be found at this link HERE.
I just received the first batch of clients’ renewal notices for integrated shield plans from one insurer. For those who are not aware, Medishield Life will take effect from 1 November 2015 onwards. Thus, existing policyholders of integrated shield plans renewing on 1 November 2015 will start receiving their notices taking into account of Medishield Life’s new premium.
What shocked me was that majority of my clients do not qualify for premium subsidy. Apparently their household income belongs to the upper 1/3 of the population. I looked at the names of this batch of clients and I do not see them as high networth or anything close to that.
Before I do some calculation, let me explain what the subsidies are for Medishield Life
What are the subsidies available for Medshield Life?
There are 4 types of subsidies.
The first type is called Premium Subsidy. Premium Subsidy requires means-testing as it depends on one’s household income per person. For example, if you are 45 years old earning $5000 a month and you have three household members who are not working, the household income per person is 5000/4 = $1250. Using a complex algorithm known as a three dimensional lookup table, you will get a premium subsidy of 25% assuming your Annual Value of your home is below $13,000. Premium Subsidy is permanent.
(Why three dimensional? It is because the premium subsidy depends on age, household income per capital and Annual Value of their home).
It is projected that the 2/3 of the population will receive the premium subsidy. Since majority of my clients did not get premium subsidy, can I assume they are the top 1/3? I find it really unbelievable. Or it could be majority of the Singaporeans are living below poverty?
The second type of subsidy is called Pioneer Generation Subsidy. Pioneers will receive Pioneer Generation subsidies of between 40-60%, regardless of their household per capita income or the Annual Value of their home. Pioneers will also receive $200 - $800 a year in Medisave top-ups (depending on year of birth) for life, which can be used to pay for their MediShield Life premiums. It must be noted that Pioneers will NOT enjoy Premium Subsidy because the Pioneer Generation subsidy is more than the Premium Subsidy.
The third type of subsidy is called Transitional Subsidy. This is the most complex form of subsidy. It is hard to understand this. I did not understand this until I sat for a compulsory examination on Medishield Life. Transitional subsidies will be for 4 years. In the first year, the Government will pay 90% of the net increase in MediShield Life premiums (after taking into account other premium subsidies) above MediShield premiums. In the second year the subsidy is 70% and drops to 40% and 20% in subsequent years.
This is where it can be confusing. The Transitional Subsidy is meant to subsidise the NET INCREASE. Most people thought the Transitional Subsidy is to subsidise a percentage of the premium. The net increase is defined as the increase in Medishield Life premium after taking into consideration of Premium Subsidy or Pioneer Generation Subsidy.
Let’s provide an example for a person next age 34 years old :
The premium for Medishield prior to 1 November 2015 is $105.
From 1 November 2015 onwards, the premium before subsidy is $310.
Since most of my clients are ‘high networth’, they do not enjoy Premium Subsidy.
Thus, the net increase in premium is 310 – 105 = $205.
The transitional subsidy for year 1 is 205 x 90% = $184.50.
Therefore, the final Medishield Life premium is 310 – 184.50 = $125.50.
It must be noted that the transitional subsidy for subsequent years decreases. There is no more transitional subsidy in year 5. Thus, the trust cost Medishield Life will be felt 4 years later. The increase is a whopping 310/105 – 1 = 195% !! Although one can use the Medisave to pay for the entire Medishield Life premium, it is of no comfort afterall Medisave is still one’s own money.
The fourth type of subsidy is called Additional Premium Support. This subsidy is meant for those who cannot afford to pay for Medishield Life premium despite all the subsidies given. Those who wish to get this Additional Premium Support subsidy is not allowed to be insured with an integrated shield plan.
Graphical Representation of Premium
The total cost of an integrated shield plan is not just the Medishield Life portion, but it also depends on the private insurance company’s portion. According to a June 2015 press release, all insurers have decided not to increase their premium for one year. However, they can do so one year later.
In the same press release, the insurers stated that claims increased on average by a whopping 17% per annum and 12% per annum for private and public hospital A1/B1 wards respectively!
If you have read this article until this point, you may be confused as to exactly how much you will need to pay for your hospital and surgical insurance premiums since the private insurer’s portion will also increase. I have prepared a simple chart to illustrate how much premium a 34 years old will pay assuming an increase in premium for the private insurer’s portion at 10% per annum. The chart assumes no Premium Subsidy for Medishield Life but includes transitional subsidies. The huge increase at age 41 is because of next age band. The product name is not disclosed for obvious reason.
* Projected to increase at 10% per annum starting 2016.
Why I am disappointed with Medishield Life?
Although I have no issue with the Medishield Life’s product benefits, I do have an issue with the impression given that the premiums for Medishield Life remains affordable. What most people do not realised is that most of their subsidies for Medishield Life will become insignificant or none at all after 4 years. The true cost of Medishield Life is not known to most people.
Of course, if you are like me who spent full time in financial consulting, all details are known. But for the man-in-the-street, I doubt they are aware that Medishield Life premiums increase will be extremely high. In the above example for a 34 year old person, the increase is a whopping 195%.
Thus, I am unhappy that the material information on Medishield Life is not properly disclosed upfront but it is buried under a heap of fine prints. It is like a salesperson who keeps on focusing on the good points of a product but downplay the fine prints.
Update 6 October 2015
Someone sent me a renewal notice for Aviva Myshield which is renewing on 1 November 2015 which I have included below. Her next age birthday is 48. The renewal notice state that the Medishield Life before subsidy is $435 and the government subsidy is $193.50.
Prior to 1 November 2015, her Medishield premium would have been $220 for a person next age 48. Since 193.5 / (435 - 220) = 90%, it can be seen that she only enjoys the transitional subsidy. 4 years later, the Medishield Life premium for a next age 48 will be $435 because the transitional subsidy is only for 4 years. This represents a 435/220 - 1 = 197% increase in premium!!
But for this individual, 4 years later means 48+4 = 52 years old. She will be at next age band. Thus, the Medishield Life premium will be $630 (with no subsidy).
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