In light of the recently announced CareShield Life scheme by Ministry of Health to replace the current EldersShield, The Online Citizen sought the views of Mr. Tan Kin Lian, who was former CEO of NTUC Income from 1977 to 2007. Mr Tan is also one of the first few actuaries in Singapore to be professionally certified.
NTUC Income was selected to be one of three insurers for Eldershield when it was first launched in 2002. In this post, Mr Tan gives his views about the new CareShield Life compared to Eldershield.
For those who are unaware, MOH announced on Sunday (27 May) that it has accepted the recommendations of the ElderShield Review Committee (ESRC) on changes to the ElderShield scheme and introduced an enhanced scheme called CareShield Life.
The Government stated that it plans to implement CareShield Life in 2020 for future cohorts.
"Those aged 30 to 40 in 2020 will be the first cohorts to join the scheme. Subsequent future cohorts will join the scheme when they reach the age of 30," it said, adding that the Government will provide premium subsidies and financial support to ensure that the scheme is affordable and nobody will lose coverage because of an inability to pay.
Under the new CareShield Life, the severely disabled will receive a higher cash payouts of at least $600 per month for life. But it comes with a price - in the form of higher mandatory premiums, which will be paid from a younger age.
Does CareShield make a significant difference to policyholders compared to Eldershield
Mr Tan: The change can be considered to be incremental. Eldershield pays $400 a month and the benefit is payable for a maximum of 6 years. CareShield increases the monthly benefit to $600 and is payable for life.
To qualify for the benefit, the insured person must be certified to be disabled to a severe extent, i.e. not able to perform at least three "activities of daily living". With this degree of disability, the claimant is not likely to live for many years. The lifting of the duration of benefit payment is not likely to add to the cost of the insurance significantly.
However, the increase in the monthly benefit will increase the cost of the scheme by 50%.
Some people commented that $600 is not enough to meet the actual cost of employing a caregiver or staying in a nursing home. That is correct. But they should take note that the scheme is intended to provide partial, not complete, assistance towards meeting the financial cost of the long-term care.
Given that Carehshield will be mandatory from 30 yrs old, should the premiums be lowered given the long maturity period for the premiums?
Mr Tan: The increase in premium is about 15%. This is reasonable considering that the benefit provided under the new scheme is 50% higher.
However, I suspect that the claim ratio under the old scheme is low, so there is margin to increase the benefit payment without a corresponding increase in premium rate.
Could the government actually even come up with a plan that does not require constant premium payment and rely on an accumulated amount and interest derived from it? Just like how some private insurers provide for certain policies, pay more while young and no worries at old age.
Mr Tan: The scheme already has an element of pre-funding. The premiums under the new scheme are paid up to age 67 but the coverage extends for a lifetime. The investment income earned from the accumulated fund is already factored into the calculation of the premium.
If the claim experience is within the projection, there will be no need to increase the premium rate. I expect that the actuary who did the calculation is probably conservative about estimating the future claims. If this is the case, the actual claim will be lower than expected. There should be no need for any future premium increase.
What other concerns can you raise about CareShield Life?
Mr Tan: The old scheme, i.e. Eldershield, was farmed out to several private insurers. I am not sure if CareShield Life will also be farmed out to private insurers. I hope not.
In my opinion, the new CareShield Life should be managed by a public agency, such as the Central Provident Fund, and operated on a non-profit basis. The scheme will receive the premium and investment income and pay out the claims and expenses. If the claims are lower than projected, it will produce a surplus. The surplus can be retained in the scheme and a fair share of the surplus should be returned to the estate of the insured person on his death.
Under this arrangement, no party can make a profit from operating the scheme. That is the characteristic of a non-profit scheme. All the insured persons will pay a premium that reflects the value of the actual future claims.
I am against the concept of a compulsory scheme. I do not think that people should be forced to join the CareShield, especially when the operation of the scheme is not transparent and there is the suspicion that some parties might be creaming off the profit.
If the scheme is operated on a non-profit basis, it might address this concern to some extent. To improve transparency and trust, I suggest that an annual report should be published on the financial operations of the scheme. It should contain an actuarial report on the actual and expected claims under the scheme.
I would prefer that CareShield Life be a voluntary scheme, even on an opt-out basis. It should be made attractive through government subsidy so that most people will join the scheme voluntarily.
Let me express it with this slogan "Do not make it compulsory - make it attractive instead".