KUALA LUMPUR, April 3 — Higher medical costs and the resulting rise in medical insurance claims could eventually result in some Malaysians being unable to afford health coverage, Bank Negara Malaysia (BNM) has said.

BNM offered, however, some possible solutions to this problem, including for private healthcare providers to be more transparent about healthcare costs and providing itemised billing.

What is the risk of growing healthcare costs?

In its Annual Report 2019 released today, BNM touched on the need to manage the problem of "medical claims inflation”, noting that there has been rising demand in Malaysia for medical and health insurance and takaful (MHI) as private healthcare treatment is increasingly available as an alternative to private hospitals.

At the same time, the cost of Malaysia’s medical care was reported in Willis Towers Watson’s "2019 Global Medical Trends Survey Report” to be rising at 13.1 per cent — above the global average of 7.6 per cent and among the highest when compared against South-east Asian neighbours (Vietnam 16.3 per cent, Philippines 11.5 per cent, Indonesia 10.9 per cent, Singapore 9.1 per cent, Thailand 8.5 per cent), BNM cited in its report.

BNM noted that claims in Malaysia for medical and health insurance and takaful (MHI) grew by 11.6 per cent a year between 2016 and 2019, adding that this has increased pressure on the insurance providers as the rising claims have continued to outstrip the increase in insurance premiums paid by customers.

"Over the same four-year period, MHI premiums grew on average by 9.5 per cent a year. In that period, 96 MHI products were repriced, affecting 4.5 million policies. This is a concern as more expensive premiums make coverage increasingly unaffordable to many,” the central bank said when noting how 4.5 million existing healthcare insurance policy holders were given new premium prices to pay during the same 2016 to 2019 period.

What are the factors causing the MHI claims inflation?

Before offering suggestions to the problem, BNM examined the factors driving the rise in the quantum of MHI claims, noting that Malaysians today live longer and have access to better and more advanced medical care.

"While this is a positive development and a sign of progress in the country’s health outcomes, this development naturally contributes to higher medical costs,” it said of Malaysians’ longer lifespan.

But BNM said there were also various other factors that are contributing to "unwarranted increases” in medical costs, citing anecdotes of different prices being charged depending on whether a patient is paying out of their own pocket or whether the medical bill would be footed by insurance companies.

"There are anecdotal accounts of healthcare providers who engage in price differentiation, charging higher if a patient is insured.

"This is exacerbated by the ‘buffet syndrome’ where policyholders seek to maximise the value of premiums paid. Hence, they tend to utilise medical services with little incentive to consider the associated costs.

"These behaviours contribute to escalating costs that are ultimately translated back into higher premiums,” the central bank said in its annual report.

BNM noted that an analysis of insurance claims data from 2013 to 2018 showed that the largest cost component of healthcare claims was hospital supplies and services (such as laboratory, imaging, medicine, nursing and medical equipment like medical ventilator, dialysis machine and eye microscope and that this on average accounts for more than 50 per cent of a medical bill), pinpointing this as one of the main factors driving up hospital charges.

"In the long run, this makes MHI policies for all policyholders less affordable, and increases the prospects of some higher risk groups being excluded from access to medical insurance,” the bank said.

Longer-term solutions call for reforms to address medical claims inflation in Malaysia. — Bank Negara Malaysia's Annual Report 2019 screencap

Solutions and reforms

BNM said that controlling the inflation of medical claims requires a coordinated effort addressing the different incentives at play, as the ecosystem for medical services in Malaysia involves many stakeholders including those who pay for the bills, healthcare providers, regulators, managed care organisations and the end consumers.

BNM said it had already issued the Guidelines on Medical and Health Insurance Business, which set out minimum standards for insurers and takaful operators to promote sound underwriting and pricing practices.

"While recognising the need for insurance premiums to adjust in line with claims experience, the Bank has required insurers and takaful operators to provide policyholders who have been impacted by repricing actions with options to maintain or to vary their medical coverage,” it said.

But BNM said "deep reforms” are needed as lasting solutions to ensure medical and healthcare insurance protection remains sustainable, adding that patients will be able to make better decisions if standard prices for medical procedures are made publicly available.

"As a start, there is a need to provide greater public transparency of the various costs of medical procedures. This can be achieved through the publication of reference benchmark costs for common medical procedures. This will enable patients – particularly those who are self-paying – to make well-informed decisions on their desired level of healthcare service and its associated costs,” it said.

But for patients with insurance and who do not need to pay out of their own pocket, costs are less likely to be a factor influencing their healthcare decisions, BNM noted.

BNM then suggested that this could be overcome by having medical and healthcare insurance plans where the insured patient will also have to pay for or share some of the healthcare costs.

"In order to encourage a collective responsibility to ensure affordable access to MHI protection for all, the adoption of co-payments or deductibles in MHI plans which can give policyholders more control over the costs of their healthcare decisions is also important.

"These changes, which have also been observed in other countries such as Singapore and Australia, can have an important effect in capping the persistent increase in healthcare costs through better market discipline,” the central bank said.

Among other things as contained in an illustration of strategies to control healthcare costs, BNM suggested education and awareness for Malaysians to buy insurance coverage that matches their needs, to understand the necessity of medical procedures and also the need to scrutinise medical bills.

BNM also spoke of the need to make data standardised and to collect data, which can then be used by insurance companies to "increase efficiency, reduce waste, prevent fraud and improve product design”.

"This calls for, among others, the application of a consistent diagnostic classification standard and standardised formats for billings to increase cost transparency,” the central bank suggested, further saying that digitising medical records and integrating health information systems could potentially result in significant operational efficiencies and contribute to keeping medical claims inflation in check.