While insurance premium hikes may be inevitable, what can help rein it in?

KUALA LUMPUR, Jan 14 – The rising price of insurance premiums is one issue that has been carried forward into the new year from 2024.

While there are some people contemplating not renewing their insurance policies altogether — leaving them without any medical coverage amid soaring healthcare inflation — many are still able to cope, thanks to the interim measures announced by Bank Negara Malaysia (BNM) on December 20.

Under the new measures, insurers and takaful operators (ITOs) will spread out the premium changes for their medical and health insurance/takaful (MHIT) products caused by medical cost inflation over the next three years, until the end of 2026.

A simplified illustration of “spread out” is that if the premium of your MHIT policy is due to increase by 30 per cent, the ITO will now spread out the 30 per cent by three years, so your premium increase will be 10 per cent a year.

This is expected to result in yearly premium adjustments of less than 10 per cent for at least 80 per cent of policyholders.

For policyholders aged 60 and above with minimum plan coverage, premium adjustments due to medical cost inflation will be paused for one year from their policy anniversary.

However, a premium hike due to age band changes will be managed separately by ITOs.

Policies that lapsed in 2024 due to premium revisions will also be reinstated without additional underwriting requirements and with the spread-out premium increase.

If the policyholder decides not to continue with the more expensive MHIT policy, then BNM made it clear that the ITOs will need to offer them MHIT product options with the same or lower premium by this year.

Though these measures were met with much relief, Malaysia could still see drastic premium hikes eventually if it does not rein in its medical cost inflation.

So why is medical cost inflation soaring in Malaysia?

Malaysia’s medical cost inflation soared to 15 per cent in 2024, surpassing both global and Asia Pacific averages of 10 per cent.

Galen Centre for Health and Social Policy chief executive officer Azrul Mohd Khalib has said in reports that unregulated private hospital charges are a key factor for rising healthcare costs as over 60 per cent of a hospital bill – excluding consultant fees and medicines – is unregulated.

Similarly, Munich Re Retakaful (MRR) former chief executive officer Dr Mohamed Rafick Khan Abdul Rahman has been reported saying rising healthcare costs are due to controlled profiteering, and not inflation per se.

“Hospitals profit by inflating unregulated drug prices, besides encouraging and incentivising the utilisation of their diagnostic services.

“They impose different rates for cash-paying patients, credit card users, and medical card users.

“The differences are substantial, as private hospitals see assurers (ITOs) as a goldmine. There is no basis to impose this differential pricing,” he wrote in a Code Blue op-ed article on December 3.

Echoing similar sentiments, Children’s Cancer Association Malaysia (CCAM) founder Lavaniyah Ganapathy questioned the need for private hospitals to ask patients about their insurance status before admitting them.

“Those with insurance are often charged for items they don’t even use. For instance, private hospitals charge for a whole packet of syringes when only one is used.

“These additional charges result in higher payouts by ITOs to hospitals which exceed the premiums collected by them,” she said.

Lavaniyah also raised concerns about the use of medical jargon in bills, which can make it difficult for patients to understand what they are paying for.

“Since hospitals are giving the bill to laymen, why can’t they just write it in layman terms?

“And, they should have standardised billing for everyone, whether they are insured or not,” she added.

What’s next with interim measures in place?

The interim measures announced by BNM have taken some financial pressure off the shoulders of policyholders while allowing ITOs to gradually reprice their premiums to manage medical cost pressures.

However, comprehensive healthcare reforms are still urgently needed to manage medical cost inflation and future MHIT premium adjustments — and they cannot be done by just ITOs and BNM.

Prime Minister Datuk Seri Anwar Ibrahim responded to a question at Dewan Rakyat on December 10, 2024 saying that the Ministry of Health is exploring the use of generic medications to manage and reduce medicine costs.

He added that the government is also looking at the possibility of implementing a new payment model called Diagnosis-Related Group (DRG), which will have to be expedited.

It was announced that a joint fund of RM60 million will be set up by the government, ITOs, and private hospitals to support the healthcare reforms and the implementation of the DRG.

The DRG model groups similar medical cases together to make it easier to predict costs and ensure fair payment for treatments.

It aims to make the costs of medical procedures more transparent. It will help to curb excessive medical cost inflation once the private hospital charges are aligned to the system.

“I have instructed the Ministry of Health to come up with an immediate measure, and this has been discussed at length. If possible, it should be implemented early next year (2025) so that costs do not rise exponentially,” he said.

This instruction is also related to medicine prices as there have been some bigger companies charging Malaysia RM5,000 due to lax controls and monopoly, while charging Thailand RM1,500 for the same medicine.

He added that this is the reason the private sector should also procure wholesale.

Minister of Health Datuk Seri Dzulkefly Ahmad said on December 11 that the DRG pricing system to regulate private hospital bills is more likely to be rolled out by the second quarter of 2025.

He said that the Private Healthcare Facilities and Services Act 1998 must first be amended to strengthen the regulatory framework of the private healthcare sector.

The review of the Act will specifically focus on Schedule 13, which pertains to professional fees in relation to payments and reimbursements of private healthcare providers.

“I actually want this to be completed as soon as possible. However, it requires extensive engagement because it involves multiple parties,” Dzulkefly said.

Meanwhile, Dr Rafick Khan called on the government to corporatise public hospitals and break the profiteering cycle between insurers and hospitals by offering more reasonable prices.

The government, he said, must also regulate drug and diagnostic services charges and make incentivising practices between doctors and hospitals illegal.

He also stressed on the need for a whole-of-nation approach to tackle insurance premium hikes.

“The issue of rising insurance premiums is not an MOH or BNM problem. It’s a government problem.

“A parliamentary-level task force involving multiple agencies (BNM, MOH, KPDN, and the Inland Revenue Board) is needed to address the issue,” he wrote.