[COLUMNIST] The need to regulate medical insurance premiums pricing

THE cost for healthcare, like everything else, is increasing at a neck-breaking pace. This leaves many unable to afford it unless the less fortunate are willing to wait for a prolong period in public hospitals, owning to a series of mismanagements by multiple governments, or have purchased medical insurance to cover their expenses in private hospitals.

However, the rise in medical costs has heavily affected the prices of medical insurance, with reports indicating that premiums are set to increase by 40 to 70% in 2025 (Free Malaysia Today, 2024).

This report sparked public outcry, leading the Member of Parliament for Bayan Baru to call on Bank Negara Malaysia (BNM) to intervene. In response, BNM issued a statement urging insurers and takaful operators to review their repricing strategies (Malay Mail, 2024; Malaysiakini, 2024).

On the other hand, private hospitals group and insurers group have justified the price hike, with the latter citing 56% increase in medical claims costs from 2021 to 2023, further asserting that the price adjustment is inevitable (Free Malaysia Today, 2024a; Malaysiakini, 2024a; Free Malaysia Today, 2024b).

The rising cost of medical care is indeed a legitimate concern, as BNM earlier reported a 12.6% medical cost inflation rate in 2023 (BNM (2024)).

However, are costs now so high that, without pricing adjustments, private hospitals and, by extension, insurance companies would face financial losses? After all, insurance companies settle medical claims based on the bills issued by the private hospitals treating their clients.

A cursory examination of their financial statements suggests otherwise, as some insurance companies report annual profits in the hundreds of millions. Allianz General Insurance Company Berhad (AGIC), for example, has consistently increased its profit before tax, from roughly RM365 million in 2019 to around RM577 million in 2023 (Allianz, n.d.). In the first half of 2024, AGIC had made roughly RM249 million in profit before tax (AGIC, 2024).

Similarly, Prudential Assurance Malaysia Berhad (PAMB) saw its profit before tax rise from roughly RM573 million in 2019 to about RM1.42 billion in 2023—a remarkable 147% growth over the past five years (Prudential, n.d.). In the first half of 2024, PAMB reported a profit before tax of approximately RM1 billion (PAMB, 2024).

Perhaps the rising medical costs are indeed too great for private hospitals to absorb without increasing their prices, inevitably shifting the burden to insurers. Yet, an examination of private hospital groups’ financial reports suggests a different narrative.

IHH Healthcare Berhad (IHH), the operator of 18 private hospitals in Malaysia, reported a significant increase in profit before tax, rising from about RM1.04 billion in 2019 to roughly RM4.05 billion in 2024 (IHH Healthcare, n.d.). In the first half of 2024 alone, IHH achieved a profit before tax of approximately RM1.83 billion (IHH Healthcare, 2024).

Similarly, another leading private hospital operator, KPJ Healthcare Berhad (KPJ), saw its profit before tax grow from roughly RM270 million in 2019 to RM378 million in 2023 (KPJ, 2024). In the first half of 2024, KPJ reported a profit before tax of approximately RM210 million (KPJ, 2024a). Notably, KPJ had just broken its quarterly revenue record, reporting RM1 billion in revenue. This translated to around RM140 million in profit before tax, bringing its total profit before tax to around RM350 million as of 30th September, 2024 (KPJ, 2024b).

It appears that the claimed medical inflation has already been accounted for by insurers, with adjustments seemingly passed on to patients and consumers rather than being absorbed by private hospitals or insurers.

Indeed, media reports highlight that consumers have already been experiencing annual increases in their medical insurance premiums (New Straits Times, 2024).

With the 40 to 70% price hike in medical insurance premiums, more individuals are likely to be deterred from purchasing insurance. This trend could further strain the already limited resources of the public healthcare sector (refer to “A ruptured aorta: The impending collapse of Malaysia's public healthcare system”).

There’s a pressing need to regulate the pricing of private hospitals and medical insurance premiums. Currently, the only regulatory measures in place are the requirement for insurers to offer co-payment medical insurance policies and the limitation on private doctors’ consultation fees under Private Healthcare Facilities and Services Act 1998 (Act 586).

To regulate medical insurance premiums effectively it is crucial to ensure that private hospitals do not overcharge their patients.

The existing requirement for itemised billing greatly enhances transparency by detailing how hospitals charge for their services. However, this alone is not sufficient to prevent overcharging. The itemised bills merely reveal the specific items where patients are overcharged, such instances where some private hospitals charged RM10 for a cotton swab, or, in some cases, RM2,000 for 10 antibiotic tablets, as The Star reported (2024).

The value-based healthcare (VBHC) model proposed by the Ministry of Health (MOH) is a promising step towards alleviating patients’ financial burdens. This model aims to improve not only the quality but also the outcomes of medical care while helping patients reduce overall medical costs.

Furthermore, the Minister of Health, Dr Dzulkefly Ahmad, has proposed the adoption of a diagnostic-related group (DRG) system. This approach can also reduce the financial burden on patients by lowering treatment costs and enhancing efficiency.

However, the two pricing systems proposed by the MOH are not foolproof in preventing private hospitals from taking advantage of patients to maximise profits.

The VBHC model carries the risk of hospitals deprioritising patients with complex medical conditions, while DRG system could result in patients being discharge prematurely, potentially jeopardising their recovery.

Proper regulation is needed to ensure that patients’ experiences are not compromised in the pursuit of lowering treatment costs. Thus, the government must adopt and mandate a uniform system nationwide, rather than allowing operators to make independent decisions.

As for insurers, according to BNM (2024), insurance and takaful operators are required to offer co-payment policy options to consumers starting 1st September 2024. These policies may take one of two forms: either a co-payment of at least 5% of total claimable expenses per year, subject to a limit set by insurers, or a deductible of RM500 per year.

However, offering co-payment options alone is insufficient to curb the rising costs. Just two months after the directive was implemented, insurers were reported to wanting to raise the premiums. While the co-payment option reduces monthly payment burdens, it increases out-of-pocket expenses, which can be particularly devastating to individuals with limited savings.

A 40% to 70% price hike is excessively steep and cannot be justified solely by medical claim inflation, which, as highlighted earlier, has had minimal impact on insurers’ profit before tax. Consumers have also reported annual increase in premiums even before the last price hikes.

A previous publication by EMIR Research, “The Cost of Growing Old: Rising Medical Costs and the Insurance Dilemma”, emphasised the role BNM could play in safeguarding consumers’ interests. By adopting guidelines that mandate insurers to justify premium increases transparently and base these adjustments on medical inflation, BNM could ensure greater accountability.

The steep rise in medical insurance premiums has the potential to create ripple effects across the nation’s healthcare system. With the interest of people in mind, it is imperative for the government to regulate the industry and ensure that healthcare remains a basic necessity rather than a luxury.

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Chia Chu Hang is a Research Assistant at EMIR Research, an independent think tank focused on strategic policy recommendations based on rigorous research.

** The views and opinions expressed in this article are those of the author(s) and do not necessarily reflect the position of Astro AWANI.

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