Malaysia’s medical inflation is 15%, way above the global and Asia Pacific averages of 10%.
MALAYSIA is currently facing a daunting challenge with its medical cost inflation reaching 15% in 2024, significantly higher than the global and Asia Pacific averages of 10%.
This increase is mainly due to new medical technology and the emergence of more chronic diseases, which are leading to a higher demand for healthcare services.
As a result, the insurance and takaful operators (ITOs) in Malaysia are struggling with claims that surpass the premiums collected, which has led to underwriting losses.
Underwriting performance is a key indicator of an insurer’s health. Without repricing, insurers are essentially providing medical and health insurance and takaful (MHIT) products at a loss, as premiums are insufficient to meet claims and expenses.
That is why MHIT products are periodically repriced so that ITOs can continue to pay policyholder claims.
It is important to note that Bank Negara Malaysia (BNM) strictly forbids ITOs to reprice MHIT premiums for higher profits or other expenses, so the ITOs can only do so due to continued increases in claims.
While the ITOs may still be profitable overall due to other lines of business, some have suggested using these profits to subsidise the MHIT products.
However, this would require other products to be substantially more expensive than the claims, which would disadvantage those who rely on other forms of insurance protection.
Unregulated costs and lack of transparency
A significant contributor to medical cost inflation is the unregulated costs of hospital supplies and services (HSS) in private hospitals.
HSS here includes screenings (X-rays, MRIs, etc.), laboratory tests, medicines, and medical supplies such as ventilators or even gloves.
HSS charges can account for up to 70% of a patient's total medical bill.
The lack of clear pricing for these items means insured patients often pay more than those without insurance. Insured patients could also be subjected to more tests and screenings than necessary, leading to a much higher treatment cost.
Itemised bills are also complicated, with medical jargon which makes it hard for patients to understand what they are being charged for, which can lead to overcharging.
Increased utilisation of private healthcare
Since the Covid-19 pandemic, more people have been opting to go to private hospitals for check-ups and tests, spurring an increase in private healthcare services.
More patients have led to an increase in insurance claims.
In 2020, 7 out of every 100 policyholders made claims, which increased to around 9 out of 100 by 2023.
With more visits and higher costs, ITOs are paying out more in claims than they are getting in premiums.
Interim measures for policyholders
To address these immediate challenges, BNM earlier announced interim measures to assist policyholders facing premium revisions. These include:
> Gradual premium adjustments: ITOs will spread out premium changes over at least three years, limiting annual adjustments to below 10% for most policyholders. This measure will remain in place until the end of 2026.
> Support for older policyholders: Premium adjustments due to medical cost inflation for those aged 60 and above, under the minimum MHIT plan, will be paused for one year from their policy anniversary.
> Policy reinstatement: Policyholders who have surrendered or lapsed their policies in 2024 can seek reinstatement without extra underwriting, and still enjoy the spread-out premium increases due to medical costs inflation.
> Alternatives MHIT products: ITOs will also offer alternative MHIT products with the same or lower premium by the end of 2025, without additional underwriting or switching costs.
While these are good ‘interim’ measures for the short term, the government still need to address the core issue of rising medical cost inflation.
Collaborative effort for health reforms
An urgent need for comprehensive healthcare reforms is needed to manage medical cost inflation and future MHIT premium adjustments.
A collaborative effort involving the government, the Health Ministry, private hospitals, BNM and ITOs is essential.
Prime Minister Datuk Seri Anwar Ibrahim said the Health Ministry is exploring the use of generic medications to manage and reduce medicine costs, responding to a question at Dewan Rakyat on Dec 10 on the measures taken by the government to control the 40% to 70% hike in insurance premiums and medical inflation.
He added that the government is also looking at the possibility of implementing the Diagnosis-Related Group (DRG) model, which will have to be expedited.
It was announced that the Government, together with ITOs and private hospitals, will establish a joint fund of RM60mil to support these reforms, including the implementation of a new payment model called the DRG.
This model groups similar medical cases together, making it easier to predict costs and ensuring fair payment for treatments. It aims to make the costs of medical procedures more transparent. With the private hospital charges aligned to the system, this will help to curb excessive inflation.
"I have instructed the Ministry of Health to come up with an immediate measure, and this has been discussed at length.
“If possible, it should be implemented early next year so that costs do not rise exponentially," he said.
This instruction is also related to medicine prices as there have been some bigger companies charging Malaysia RM5,000 due to lax controls and monopoly, while charging Thailand RM1,500 for the same medicine.
He added that this is the reason the private sector should also procure wholesale.
The DRG pricing system to regulate private hospital bills is more likely to be rolled out by the second quarter of 2025, Health Minister Datuk Seri Dr Dzulkefly Ahmad said on Dec 11, as the Private Healthcare Facilities and Services Act 1998 (Act) must first be amended to strengthen the regulatory framework of the private healthcare sector.
The review of the Act will specifically focus on Schedule 13, which pertains to professional fees in relation to payments and reimbursements of private healthcare providers.
“I actually want this to be completed as soon as possible. However, it requires extensive engagement because it involves multiple parties," Dzulkefly said.
This would ultimately result in equal access to high-quality, value-based health services for the public.`
Towards sustainable solutions
The path forward in Malaysia’s healthcare sector also involves shifting to value-based healthcare that prioritises better health outcomes. Key strategies include:
Transparency initiatives: Publishing cost comparisons and enhancing transparency in drug prices.
Digitalisation: Advancing electronic medical records to reduce repeated, unnecessary tests.
Strategic purchasing: Implementing strategic purchasing by public and private sectors to lower costs.
Plain language in billing: Ensuring itemised bills are clear and understandable.
As Malaysia navigates these challenges, a whole-of-nation approach is required to ensure that the healthcare system can withstand the pressures of an ageing society and escalating medical costs, safeguarding the well-being of its citizens.
Collaboration among all stakeholders is crucial for building a sustainable healthcare future for the nation.
