Prudential Assurance Malaysia Berhad offers affordable and innovative financial solutions that provide financial freedom and peace of mind to all Malaysians.
Driving a sustainable medical insurance portfolio
As a leading life insurer in Malaysia, medical insurance significantly contributes to the total business portfolio of Prudential Assurance Malaysia Berhad (PAMB). The country is continuing its march towards developed nation status and, consequently, the demand for healthcare services is expected to rise in line with growing urbanisation, an aging population, and the increasing prevalence of non-communicable diseases.
The demand for better access to healthcare services, as well as more advanced drugs, medical technology and equipment will likely expedite an accelerated shift towards private medical insurance financing, or co-financing. Thus, a pertinent concern for insurance companies is how they can play a proactive and integral role in sustaining a long-term medical business portfolio in order to facilitate the continued delivery of their promises to customers.
Healthcare financing: Malaysia
Malaysia’s public healthcare system is financed predominantly through general revenue and taxation collected by the federal government, while the private sector is funded through private medical insurance, employee benefits and out-of-pocket payments made by consumers.
According to data from the Global Health Expenditure Database (GHED), which is maintained by the World Health Organization (WHO), more than half of the total Malaysian healthcare expenditure in 2014 was subsidised by the government, with the next largest share being financed by out-of-pocket payments. In contrast, private medical insurance made up a small percentage of total national health expenditure (see fig. 1).
A system heavily reliant on government subsidies and private spending poses significant challenges and has important implications for consumers. As healthcare and living costs continue to rise, the current financing model will become less sustainable, the government will find it more difficult to maintain current growth levels in healthcare funding and, thus, households will have to dig deeper into their savings to fund healthcare expenses.
However, despite the increasing cost, GHED data shows that general government health expenditure, as a percentage of general government expenditure, has remained relatively constant. Between 1995 and 2014, the government allocated between five and seven per cent of their resources to healthcare.
In this context, and taking into account the climate of subsidy re-evaluation in Malaysia, as well as the adjustments in commodity prices, the government could decide to reduce its healthcare expenditure. As a result, Malaysian citizens may have to endure increasing out-of-pocket payments, particularly as the majority are not covered by private medical insurance. According to figures cited by The Economist Intelligence Unit, 79 per cent of treatments received in private sector hospitals and clinics are paid for directly by consumers, while only 18 per cent of private spending goes towards insurance coverage. This disparity leaves consumers vulnerable to cost rises, especially as the burden of chronic disease increases.
To compound this situation, in March 2014, an amendment to the Private Healthcare Facilities and Services Act saw the maximum allowable charges for private medical procedures increase by 14.4 per cent on average, but with some consultation fees potentially increasing by more than 200 per cent. Moreover, the medical inflation rate has been steadily rising in Malaysia and this is expected to continue. To add some perspective, a decade ago, the cost of treating lung cancer was in the region of MYR40,000; in 2016, it was approximately MYR100,000. If the current trend is maintained, the cost could soar to MYR300,000 within another ten years.
Other factors that will also contribute to a higher healthcare cost include medical innovation and the Goods & Services Tax (GST), which was implemented in April 2015. While medical innovation has clearly had a positive impact, bringing about important new technologies and treatments, it is likely to engender higher costs. Additionally, while some concessions were made, healthcare was not completely exempted from the GST. Thus, certain medicines, supplements and nutritional products, as well as selected medical equipment and pharmaceutical services are included in the items on which the new tax will be levied.
Private medical insurance
Private medical or health insurance plays a vital role in enabling individuals to hedge against the cost of future care needs. It offers protection against the financial risk of high-cost medical emergencies and mitigates the probability of Malaysian citizens having to rely on personal savings to cover the cost of treatment and medication. It also serves as a significantly more efficient alternative to precautionary savings as a means of paying for required care services.
As previously highlighted, only a small percentage of private spending goes towards insurance coverage in Malaysia. While the Asia Medical Survey 2014, conducted by Swiss Re, revealed that awareness and ownership of medical reimbursement insurance among Malaysian respondents living in urban areas was high, it also found that many still relied on out-of-pocket expenditure and family support as their main channels of healthcare financing. Furthermore, respondents expressed concern about their ability to pay for medical expenses in the case of critical illness. These findings point to existing product inadequacy.
Managing the cost of healthcare
At PAMB, our mission is to provide financial freedom and peace of mind for all Malaysians. We not only strive to spread awareness and educate the public about the importance of medical insurance, but we also aim to transform our customers into smart, informed consumers. Clearly, hospitals and insurers both have key roles to play in medical management; yet, consumers should be acutely aware that they have a vested interest in managing cost escalation to ensure their medical policy works for them in the long term.
Most medical policies, besides having a lifetime limit, also have an annual limit and many consumers do not realise that their coverage can be exhausted prematurely if they utilise medical benefits on non-critical treatments.
Long-term medical protection
As the take-up rate for private medical insurance gradually increases, consumers, insurers and healthcare providers all must play their part in keeping healthcare affordable. Besides driving smart consumer behaviour, PAMB works closely with its Panel Hospitals and doctors to ensure that patients are charged fairly to protect their medical coverage.
However, the escalating cost of treatments and medication will certainly impact the ability of insurers to pay out claims, as consumer-paid premiums will not be able to sustain the increased claim costs. This has implications for consumers because premiums will inevitably become more expensive, thus affecting the ability of the consumer to afford private medical insurance and, ultimately, their access to better quality healthcare.
PAMB believes that having the right products, which appeal and cater to the range of consumer requirements within the Malaysian market, is the key to helping more Malaysians build a financially secure future. When a customer purchases a medical policy from us, we are also providing them with financial protection and peace of mind when they need it most. This is our promise to customers, and we intend to keep our promise.
WONG ENG TENG
Chief Operations Officer
PRUDENTIAL ASSURANCE MALAYSIA BERHAD
Level 17, Menara Prudential
10 Jalan Sultan Ismail
50250 Kuala Lumpur
Kuala Lumpur, Malaysia
+60 3 2116-0228