The sharp rise in health insurance premiums, ranging from 40% to 70%, has sparked widespread concern among policyholders. However, a closer examination of the medical insurance sector reveals that these premium hikes are crucial for maintaining coverage amidst escalating medical costs.
PETALING JAYA: The convenience of an all-in-one medical insurance card has long been a cornerstone of Malaysia’s healthcare system. It allows patients to receive treatment without upfront payment, with the insurance company covering hospital bills directly. However, this privilege is about to become more expensive.
In November, it was announced that premiums for medical and health insurance, as well as takaful (MHIT) plans, are set to increase by 40% to 70%. This news has left many policyholders struggling to afford the new rates, prompting some to terminate their policies. While these increases are unsettling, both Bank Negara Malaysia (BNM) and the Ministry of Finance argue that they are necessary to sustain the sector.
Rising Costs and the Need for Adjustment
A 70% premium hike is alarming, yet the increase is a direct response to the growing costs of healthcare. Medical inflation in Malaysia is outpacing regional trends. According to BNM, medical inflation in Malaysia rose by 15% in 2024, significantly higher than the 10% average across the Asia-Pacific region.
A major contributor to this surge is the rising cost of hospital supplies and services (HSS), which includes lab tests, medical equipment, and medications. These costs, which are unregulated, often account for up to 70% of a patient’s total hospital bill.
Beyond hospital charges, insurance companies face additional challenges. The lack of transparency in itemized medical bills, often filled with complex medical terminology, leaves patients unsure of what they are being charged for. This lack of clarity, coupled with practices where hospitals charge higher fees for insured patients, has led to an uptick in claims.
Moreover, many patients are encouraged to seek hospitalization for non-emergency reasons, such as minor diagnostic procedures, further inflating claims. Statistics show a steady increase in claims over the past few years. In 2023, about 9% of policyholders submitted claims, up from 7% in 2020.
With these escalating costs, insurance providers have found themselves paying out more in claims than they collect in premiums. The claims-to-premium ratio reached 111% in 2023, not factoring in the additional burden of Covid-19 claims.
The Economic Strain
Rising medical costs and increasing claims have created a precarious situation for insurance providers. The model of paying out more than is collected in premiums is unsustainable, and while there are solutions, none come without pain.
Some industry insiders suggest that profits from non-health insurance products could help cover losses in the medical segment. However, this approach, while short-term viable, would ultimately raise premiums for non-MHIT products, undermining overall business sustainability. As such, maintaining a loss-making sector is not a practical long-term solution.
The Path Forward: Premium Hikes and Long-Term Sustainability
The most immediate solution for insurers is to raise premiums. While some insurers adjust their rates annually, most do so every three years, resulting in more significant increases during those years. At an annual medical inflation rate of 15%, policyholders can expect premium hikes of up to 47% every three years.
To ensure the long-term viability of Malaysia’s medical insurance system, a broader solution is necessary. The primary goal should be to create a system where medical insurance remains affordable while keeping insurers financially stable. Without such measures, there is a risk that insurers may struggle to meet their obligations to policyholders.
Interim Measures and Immediate Relief
In response to growing concerns, BNM introduced interim measures in December 2023 to help ease the financial burden on policyholders facing premium hikes. These measures aim to spread out the premium increases over a minimum of three years, easing the impact of medical inflation. By the end of 2026, BNM expects at least 80% of policyholders to experience annual premium increases of less than 10%.
For senior citizens aged 60 and above, BNM has introduced a temporary pause on premium increases caused by medical inflation for one year from the policy anniversary, provided they are on a minimum coverage plan. However, these measures do not apply to premium adjustments related to age band changes.
Policyholders who have terminated or allowed their policies to lapse due to premium hikes in 2024 can request reinstatement without additional underwriting. Furthermore, insurers will offer alternative products with lower premiums for those who prefer not to continue with their repriced plans. These alternative products, available by the end of 2025, will not require additional underwriting or switching costs.
A Critical Long-Term Challenge
While these interim measures provide some relief, the root cause of the problem—the rising cost of healthcare—remains unresolved. Without addressing medical cost inflation, premiums may continue to rise in the coming years.
A comprehensive approach is needed to ensure that insurance remains affordable for all policyholders, while also allowing insurers to remain financially viable. Tackling medical cost inflation will require structural reforms in the healthcare sector and collaboration between all stakeholders, including BNM, the Ministry of Health, insurance providers, private hospitals, and the public.
Only through concerted action can Malaysia’s medical insurance system be made sustainable in the long term, ensuring that policyholders continue to have access to the coverage they need without being burdened by unsustainable costs.
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