ElderShield surplus may only run out in 40 years?

Why are the accumulated surpluses of ElderShield not public information?

I refer to the Ministry of Health’s (MOH) reply “ElderShield premiums collected meant to support future claims” (Straits Times Forum, Jun 4) to Mr Cheng Choon Fei’s letter (Current ElderShield insurers should return surplus premiums to MOH, May 31).

It states that:

“Long-term care insurance like ElderShield works by pooling together premiums paid by policyholders in their younger years while most are still working.

These funds are collected and invested, so that they are available in future years, when policyholders are no longer paying premiums and are more likely to suffer from severe disability.

Premiums collected under ElderShield currently exceed the claims paid out because the age profile of ElderShield policyholders is relatively young, with a median age of 52.

The premiums collected are not surpluses. They are meant to support future claims, when ElderShield policyholders become older and more of them become severely disabled and start to make claims.”

Arguably, a very important piece of information is missing from the subject reply – What is the accumulated surplus now (excess of premiums to claims plus interest over the years)?

As to “To illustrate, annual claims paid out have risen by 12 per cent per year from 2013 to last year, much faster than the 3 per cent increase per year in premiums collected over the same period.

We expect this trend to continue, in tandem with the ageing demographic profile of policyholders” –  if we assume that the accumulated surplus is now $3.6 billion and the claims last year was $30 million – using the calculator at http://financeformulas.net/Present_Value_of_Growing_Annuity.html – the projected number of years into the future for the accumulated surplus (assuming 4% interest and 12% increase in claims per annum) to run out is about 32 years.

However, the above does not account for the current 3% rate of increase in the premiums collected. So, how much longer may it be if this is included – about 40 years?

Also, given that the Government does not spend any money on ElderShield – why are we collecting such arguably, high premiums now and in the past?

With regard to the claim that “the Government will be administering CareShield Life on a not-for-profit basis. Any surpluses generated will stay within the fund and go towards benefiting policyholders through higher payouts or premium rebates” – To what extent will CareShield Life be like ElderShield in respect of premiums, claims, surpluses, etc?