MEDISHIELD LIFE FRONT LOAD IS ANOTHER CON JOB

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Intro -

One of the suggestions to address the problem of affordability in the proposed Medishield Life is to have front loading. What this means is that the person insured pays a higher premium when he is young and healthy. This sounds good on the surface. But due to the fact that the Medishield Life is a forced scheme, the question of ethics and fair play, or rather should I say non-ethics and non-fair play, come into the picture.

What this article is about -

This article argues why it is highly not ethical to front load policies in the Medishield Life. The main reason being that first and foremost, it is a forced scheme. This being the case, any term that is imposed on the policyholder if he finds unfavourable, cannot be rejected. Secondly, front loading means you pay for the company's cost upfront, and that too may be a loaded policy that may not be favourable to you, which you can't reject.

The whys of front loading according to Dr Lam Pin Min -
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Q: There’s going to be public consultation for MediShield Life. What are the challenges?

One is that of the affordability of the premium. How much increase is fair and manageable for the majority of Singaporeans?

Secondly, how much coverage is necessary and sufficient? You can strengthen MediShield to cover very expensive bills, but that will result in significantly higher premiums. Like what PM mentioned in the Rally, Ministry of Health has combed through all the cases, and those cases where patients incurred really big bills and are unable to afford them, are far and few between.

If the increase is too excessive, low-income and elderly Singaporeans will definitely find it difficult to manage.

One way is to seriously consider Dr Amy Khor’s (Minister of State for Health & Manpower) proposal to front-load the premium.

However, we need to explain to Singaporeans the concept and rationale of front-loading. Younger working Singaporeans can pay higher premiums so that when they grow old and are retired, the premium quantum can be lowered to a more manageable level. It’s like front-loading for your own policy in the future.

...snip

Q: Risk pooling and front-loading only works if MediShield Life has enough young and healthy people. With an ageing society and declining fertility, fewer young people will support a fast growing number of elderly. Will premiums have to go up by a lot later? Will the scheme be sustainable?

I see front-loading as a way of funding one’s healthcare needs for the future. By paying higher premium when we are young, it allows the premium to be lowered when we reach retirement age.
The challenge lies in the current pioneer generation whose Medisave savings may be inadequate to pay for their current MediShield premium. The Pioneer Generation Package comes in handy.

Let us take a look at why front loading is unethical -

IMO, front loading is highly unethical. What it does is that it transfers the risk of the company back to the policyholder. Hey, isn't the purpose of insurance for the company to take the risk from the policyholder in the first place? Why then transfer the risk back to the policyholder right after agreeing to take the policyholder's risk?

Below are my arguments to support my case:

1. Insurer's costs are highest at the start of the policy -

For almost every insurance policy the company issues, the cost at the initial stages is at its highest. That's because besides all the admin and underwriting procedures, the company also has to pay commissions to its agents. As time goes by, when the premiums get paid over the years, the company will start to make profits. The biggest risk is when the policyholder makes a claim after just a few premium payments. Hence, it is an accepted fact and an industrial norm for insurance companies to bear the high risk of any insurance policy at the initial stages.

With the above in mind, front loading actually transfers the risk of the insurer to the policyholder. By charging a higher premium earlier, the company reduces its own risk in the inital stages substantially, and transfers that risk to the insured instead. This is the gist of front loading. All the crap talk that "it would make it more affordable" as you grow old, is just talk to appease the public. By hiding the whole truth on front loading, isn't this unethical?

2. No option to reject unfavourable terms -

On top of front loading, a person with pre-existing illnesses will be further loaded with either a higher premium than an unloaded case, or have terms of exclusion, or both. But what if the terms are unfavourable? The person has no option to reject. Hence he is now double penalised through no fault of his own. First, the loading on his premium due to his pre-existing illness, and secondly, the front loading.

It must be remembered that a person with a pre-existing illness runs a higher risk of hospitalisation. That is why insurance companies load him in the first place. Hence, high initial cost of the company is already taken into account when his premium is loaded. With a further front loading, the company now transfers even more risk from itself back to the customer.

As cited in #1 above, doesn't this expose the non-ethics of front loading?

3. It is against the principle of risk transfer -

The purpose of any insurance policy is one of risk transfer. It transfers the risk of the policyholder to the insurer. It doesn't matter what insurance plan. It could be life insurance, health, education, hospitalisation insurance. Even motor or fire insurance. The purpose is always to transfer the risk from policyholder to insurer. This is the core essential practice of insurance.

We have also seen that the highest risk and cost to the insurer is at the initial stages after the policy is issued. To the company, the highest cost and risk is when a claim is made just after one premium payment. In terms of figures, the policyholder pays just one premium payment which is $x, while the company is expected to make a payout of perhaps $1,000x or even $100,000x dollars.

The above risk is part and parcel of the insurance industry. By front loading, the company takes a shorter time to recover its costs, which means that it is transferring part of its risk back to the insured. And because this is a compulsory plan, you cannot reject this unfavourable term. So why must the insured take part of the insurer's risk when an insurance policy is supposed to mean the insurer is the one who should taking the risk? Are you not shortchanged?

This is like paying for a 10-day travel insurance when you decide to fly to another country. Then one of the terms of the policy is that this 10-day insurance will not cover claims for flight related incidents on the first and last two days of 10-day insurance plan. But they will double your claim for flight related incidents on the 3rd, 4th, 5th, 6th, 7th and 8th days. What nonsense! Isn't the risk of flight accidents highest during the first and last two days of your holiday, when you need to make that flight? And the company now wants to skirt that risk and place it in the lower risk time period?

The above is no different from the front loading plan where the high risk and cost to the company (which is at the beginning of the Medishield Life policy), is transferred to its low risk and cost period when you are already above 60, after you have made so many premium payments. So it transfers its high risk period back to you and will make it up for you during its own low risk period. Just like the unethical insurance travel policy I cited.

The diff between my hypothetical travel insurance and Medishield Life is that the latter is for real and forced upon you.

4. What if after front loading, you still can't pay when you are in your 60s and beyond?

I am surprised to note that the PAPpy guys can't see the front load scheme is a harbinger for a potential future disaster. What if after making front load payments for many years, you turn 60 and your funds are now dry? Will you be penalised and your hospital bills be left unpaid? In the insurance industry, that is standard practice.

So after you have paid all these years and after you have taken the high risk for the company at the early stages, you are left in this difficult position. What now? In other words, while you have been bearing the risk at the early stages and relieved the company of their high costs, you are now further at risk of missing the payouts when you need it most.

Have the PAP guys who have been promoting the front load scheme thought about this?

Wrapping up and conclusion -

The front loading is nothing but transferring part of the risk back to the insured. This is unethical because the principle of any insurance policy is first and foremost, the transfer of risk from the insured to the insurer. By front loading, the insured is shortchanged. This is made worse since the Medishield Life is compulsory and there is no way anyone can reject the unfavourable terms.

Many insurance policies even out the risk by "smoothening" the payments, hence, you get to pay the same amount in premiums from the start to the end of the insurance term. Front loading works against this principle too.

In the end, I feel that Dr Amy Khor and Dr Lim Pin Min are only whitewashing the unethical practice of front loading. They are selling to the masses so that hopefully, Singaporeans will find it easier to accept this scheme. In reality, you are cheated front, back, right, left and centre.

The insurance companies now are truly laughing all the way to the bank. And they're laughing at Sinkies too, now that they are able to transfer their high risk and costs back to the people!

The front loading scheme is schemed to skim your money while you are still young and have the ability to pay. The PAP and the insurance companies know that when you are old, you may not be able to pay anymore. But that doesn't matter. They would have already skimmed and milked you dry by then.

Wasn't it said that the front loading scheme is to benefit the companies and not the people?

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