~ By: Tan Kin Lian~
Many people are worried about the rising health care cost when they get old. They asked for my advice on the type of insurance that they can buy to cover these expenses.
I want to be frank. Insurance may NOT be the answer. Here are my reason insurance works on the principle of risk pooling. Many people pay a small premium to buy insurance, so that a large payout can be given to the person who suffers the insured event. A good example is insurance covering death by accident. The expected claim rate is 1 in 2,000. If each person pays a premium of $50, the insurance pool can pay $100,000 to the single person who happens to die by accident. The actual premium payable will be more than $50 as the insurance company has to pay its expenses and wants to make a profit.
- This pooling does not apply to health insurance because each person wants to be insured for a lifetime and every one will eventually have to get a serious illness, either by cancer, organ failure (e.g. heart) or other critical conditions. It is likely that every person will make a claim on the health insurance policy – the question is whether it occurs earlier or later.
- Insurance will increase the total cost of health care by about 50% to cover the marketing and administration cost and the profit of the insurance company. If the average lifetime cost of health care is $100,000, you will have to pay $150,000 when you rely on insurance. If you find health care to be costly, you will find health insurance will be more costly.
- Insurance has the tendency to increase the cost of treatment. The insured person is likely to go for more expensive treatment, as it is covered by insurance. The actual cost of treatment carried out by a private specialist in a private hospital could be several times of the same treatment in a subsidised ward in a public hospital (ignoring the government subsidy). This is due to the lack of control over the billing by the private doctor. The actual cost of health insurance could be much higher than indicated earlier, due to inflation in charges.
- Every insured person wants the high medical bills will be paid by the insurance pool, i.e. by other people. Are they willing to pay for somebody else’s bill?
- There is also non-clarity in coverage. Many patients have incurred large medical bills, only to find that a large portion of the bill is not covered by insurance, due to exclusions, limits, co-insurance and deductible. The actual coverage under health insurance can be quite complicated for the ordinary lay person to understand.
Health insurance can be useful under some circumstances, for example, if it is managed effectively and the insurance company can help the insured person to find more cost effective treatment. This would require the insured person to get the advice of the insurance company (through its medical adviser) to identify the appropriate treatment for the medical condition and the specialist who offers a competitive fee for the treatment
Unfortunately, most insured people do not trust the insurance company’s doctor as they may suspect that the doctor will try to save cost for the insurance company by offering inferior treatment.
The patient should also be wary about the advice given by the treating specialist, as the specialist may has a vested interest to increase up the medical fees. Anecdotal evidence has shown that the bills paid by insurance are higher than the cost that is paid out of pocket by the patient.
In some countries, the government provide tax relief to encourage health insurance coverage. If the subsidy is substantial, it will negate the higher cost of health insurance. Unfortunately, there is no such subsidy in Singapore.
Picture Credit: Leslie Chew