Making Sense Of Health Insurance – Part 2

In last article article on Health Insurance, we covered why you need health insurance, how you can tap on your CPF Medisave account to purchase Medishield or Integrated Shield plans, the different types of health insurance products available and what to look out for when purchasing such products. This month, we will look at some of the issues commonly encountered by consumers with health insurance products and how we can avoid them.

1. Be aware of Policy Coverage and Waiting Period

Mr Tee bought a medical expense insurance policy (“the policy”) and several months later, he suddenly experienced regular bouts of intense heart palpitations with faintish spells.  He then consulted a cardiologist and was diagnosed to have a congenital heart condition that can be treated with a minor intrusive surgery requiring hospitalisation. 

Before the surgery, Mr Tee had enquired  if the surgical and hospitalisation costs could be covered under the policy.  He was shocked to discover that while the policy does cover congenital disorders, claims for such coverage could be only made after a waiting period of two years.  The waiting period is the interval of time after policy inception that one cannot make a claim.

Learning Points:

• A waiting period is imposed to prevent policyholders from buying policies only when they are aware of their illnesses so that they can claim for the medical expenses soon after
• Before you take up a health insurance plan, check the scope of coverage and waiting period, if any.
• Make sure you are clear about the terms and conditions of the product before you buy it.

2. Deductibles and co-insurance

Mr Ahmad had a medical expense insurance policy and he bought a rider.  A policy rider is an addition to an existing policy, providing supplementary coverage.

Examples of rider benefits include:

• coverage of deductible and/or co-insurance, which helps you to pay 100% of the deductible and/or co-insurance subject to a certain limit; 
• daily hospital benefit, which pays a certain amount of cash for each day that you are warded;
• critical illness benefit, which pays a lump sum  benefit upon diagnosis of any one of the 30 critical illnesses covered by the policy.

Mr Ahmad fell ill and needed to undergo an operation.  He had thought that the insurance policy would cover all costs of the operation, i.e. everything would be paid for.  As such, he proceeded to confirm the operation date without checking his policy or with the insurer for other terms and conditions.  After he was discharged, he submitted all bills to the insurer for reimbursement.

The insurer informed him that it would not pay for all the expenses that he had incurred.  The insurer explained that the rider to Mr Ahmad’s policy covers the co-insurance but not the deductible.  Mr Ahmad has to bear the deductible himself.  Furthermore, for each policy year, an annual deductible and co-insurance apply. Some of Mr Ahmad’s hospitalisation bills fell under the new policy year, so they were subjected to a separate annual deductible and co-insurance.

Learning Points:

• Understand what is a deductible and co-insurance, and whether they apply to all covered expenses.  A deductible is the amount you would need to pay once, out of the claimable amount, for claims made in a policy year. Co-insurance is the amount you need to co-pay after meeting the deductible, and it is usually expressed as a percentage. 
• It is common to find a “deductible” and “co-insurance” feature in medical expense insurance policies.  As a policyholder has to bear some portion of the total hospital bill, he will not be overly excessive with his consumption of health care services.  These features help to keep premiums affordable.

An illustration: Say deductible is $3,000; and co-insurance is 10%

Hospital Bill                        $13,000
Less Deductible                  $  3,000
Net Amount                       $10,000
Less Co-Insurance              $ 1,000
Claim from Insurer               $ 9,000

Note that each policy has its own claim limit for each type of benefit . If you spend over this limit, you will have to pay the remaining amount yourself.  In this case, we are assuming that the bill falls within the claim limit of the policy.

• Understand how much of your bill is claimable under your policy. In deriving the claimable amount, there are limits to the amount you can claim under medical expense policy. The policy may include limits for all claims as well as limits for each illness, disability, year or lifetime.  You can combine the limits of two or more policies to get higher benefits, but having several medical expense policies does not necessarily provide extra benefits as the total benefit you will get is limited to your actual expenses.

3. Exclusions in insurance policies

Madam Tan recently switched insurers for her health insurance plan.  After the commencement of the new plan, Madam Tan was admitted to hospital for a mild stroke.  After she was discharged, Madam Tan filed a claim with her insurance company.

The insurer rejected Madam Tan’s claim for her medical bills as it  found out that Madam Tan had a recent history of high blood pressure.  Madam Tan had not declared it as she did not think it was serious.  Madam Tan’s hospitalisation was deemed to be related to a pre-existing condition that she did not declare in her application form. A pre-existing condition is any illness or disability that you have, or have had, before you sign up for an insurance plan.

Learning Points:

• Disclose all information factually and completely to the insurer. Non-disclosure of material facts could result in your claim being rejected, or even in your insurance policy being declared as void by the insurer. If in doubt, do find out what is considered material information by the insurer.
• It is common to find a pre-existing condition exclusion in the insurance contract. The definition used differs among insurers - some may be more stringent in their definitions than others.  Do find out what is your insurer’s definition of the pre-existing condition.
• Pre-existing exclusions are also used to keep premiums affordable.  Insurers have to balance between giving more generous coverage for the individual versus covering more people at a basic level.  The likelihood of claims arising from a pre-existing condition is higher, which results in more claims being paid. If insurers are to cover these risks, they will need to charge higher premiums that are commensurate with the experience of high payouts. Higher premiums means less people can afford even basic health insurance, which does not serve public policy. 
• Read the policy documents carefully to find out what benefits you are entitled to in the event of a claim. If in doubt, clarify with your financial adviser¹ or your insurer or insurance intermediary. 
• If you are replacing an existing health insurance policy, note that the new policy may have an exclusion of pre-existing condition exclusion.  You may end up without coverage for those medical conditions that you currently have. 
• Note that if you have certain medical conditions or occupational exposure, the insurer may restrict your coverage or charge you higher premiums as the chances of you making a claim is higher.
• Besides pre-existing conditions, there are other exclusions in the policy that you should look out for. For example, general out-patient medical services and alternative or complementary treatments, including Traditional Chinese Medicine (TCM) are commonly excluded.

4. Understand how choosing a higher ward class and means testing will affect you

Example 1:
Ms Ng is a working executive earning $3,850 per month. She was admitted into a public restructured hospital and warded in Class B2. With means testing, as she falls into the income bracket of $3,801 - $3,950, she received a subsidy of 60% for the Class B2 ward instead of the full 65%. Ms Ng is covered under MediShield, and she found out that she has to pay much more from Medisave or cash than expected, for the portion of the bill not covered by MediShield. 

Example 2:
Instead of choosing a Class B2 or C subsidised ward, Mr Teo chose to be admitted to a Class A ward in a restructured hospital. Mr Teo is covered under MediShield. After his hospital admission, he found that his bill could not be fully covered by MediShield. He had to supplement his payment with Medisave and cash.

Learning points:

• MediShield is a basic plan targeted for Class B2/C coverage in public restructured hospitals. As MediShield premiums are the same for all insured members in the same age group, MediShield payouts would be the same for insured members in the same age group, regardless of subsidy status.  So to ensure a fair payout across all MediShield insured members for the same treatment received, bills for higher class wards (e.g. Class A, Class B1, and private hospitals) are pro-rated to their equivalent Class B2 bill size.
• Similarly, Class B2 or C patients who are affected by means testing will have their claims adjusted such that the amount that they  can claim under MediShield would be similar to those patients receiving maximum subsidy. 
• For those who prefer to choose higher ward classes upon admission or who expect that they may receive lower subsidies due to means-testing, they may wish to consider applying for an increased coverage under a Medisave-Approved Integrated Shield Plan. Integrated Shield Plans are currently offered by five insurers. For details on the insurers, you can refer to the MOH website www.moh.gov.sg or CPF website (www.cpf.gov.sg). 
• It is important to consider your personal preference and affordability when deciding on what type of medical insurance to buy. The cost of healthcare differs greatly between private and public hospitals, and between different types of wards. Because of this, different insurance plans cater to different needs, with higher premiums for plans targeted at more personalised settings. Determine your and your family members’ needs and preferences, before deciding whether MediShield or an  Integrated Shield Plan will suit you better.
• Set aside enough funds for portions of medical bills not covered by the plans.

5. Automatic Coverage under MediShield and ElderShield 

Example 1:
Mrs Lee recently gave birth to a newborn son. A couple of months’ later, her husband noticed that his CPF Medisave account was debited to pay for premiums for MediShield for their son.

Learning points:

• MediShield will automatically cover Singaporeans and PRs when you first make a working contribution to CPF.
• An auto-cover package will be sent to you by the CPF Board to inform you about MediShield and its coverage. As MediShield is a health insurance policy, it may exclude pre-existing conditions. A health declaration form is included in the auto-cover package, which should be duly filled in if necessary.
• Since Dec 2007, all newborn Singaporeans and PRs are also automatically covered. This helps ensure that as many people are insured under at least basic MediShield, from an early age before medical conditions develop.

Example 2:
Mr Chen, age 41, was puzzled that his CPF Medisave account was debited to pay for premiums under ElderShield plan.  He did not recall signing up for the plan. 

He checked with the appointed insurer providing the ElderShield plan and was informed that the Ministry of Health (MOH) had designed the ElderShield policy, the national severe disability insurance scheme. The Scheme automatically covers all Singaporeans and Permanent Residents with Medisave accounts commencing from  age 40. 

Eligible persons will receive the ElderShield auto-coverage packages from their assigned insurer three months before their 40th birthday by post. Members who wish to opt out need to complete an opt out form and send it to the assigned insurer.

The appointed insurer also clarified that persons who are auto-covered will be given a 90-day offer period to decide whether they wish to opt-out.  The appointed insurer will deduct premiums from their Medisave account if they do not opt-out or choose another insurer providing the ElderShield plan at the end of the offer period. As the insurer did not receive Mr Chen’s opt out reply, it had proceeded to deduct the ElderShield premium from his CPF Medisave account.

Learning Points:  

• ElderShield provides basic financial protection to those who need long-term care, especially during old age.  It provides a monthly cash payout (up to 72 months) to help pay the out-of-pocket expenses for the care of a severely disabled person.
• ElderShield is meant to benefit you if you cannot perform any three or more of the Activities of Daily Living (ADLs). The six ADLs are washing, dressing, feeding, toileting, mobility and transferring.  As long as a person fulfills this condition, he/she is entitled to the claim.
• There are currently three insurers offering the ElderShield product.  All three insurers are charging the same premiums and providing the same payouts under the basic ElderShield policy.  You will be assigned to any one of the three insurers.  If you wish to switch to any of the other insurers or opt out of ElderShield plan, you can do so within the 90-day offer period with no penalty. If you change insurer after the 90-day period, you will be regarded as a new application by the second insurer and may need to undergo medical assessment in order to be accepted by the second insurer.
• Policyholders are given a free look privilege, within 60 days of the commencement date, to cancel the policy and receive a full refund of the premiums paid. However there will be no refund of premiums for cancellations thereafter, and such termination will only be effective from the next renewal date.
• ElderShield premiums are determined at the age of entry and do not increase with age.  Premiums are payable annually until age 65 and can be paid via Medisave.  You can refer to the Ministry of Health website (www.moh.gov.sg) for information on ElderShield.

If you missed last article on health insurance, you can access it on the MoneySENSE website www.moneysense.gov.sg

This article is produced by MoneySENSE, the Life Insurance Association, Singapore (LIA), Central Provident Fund Board CPF) and the Ministry of Health (MOH) under the MoneySENSE national financial educational programme.