Adequate reserves to be set aside to ensure MediShield Life's sustainability
Health Minister Gan Kim Yong says sufficient reserves will be set aside to ensure that MediShield Life is sustainable as long-term health insurance scheme.
Wrapping up the debate in Parliament, he says it would not be responsible to all Singaporeans and policyholders if yearly premiums for MediShield just exactly balanced yearly payouts.
This would mean that it cannot meet any continuing commitments for long-term dialysis patients or premium rebates.
In assessing premium adequacy, Mr Gan says we must look beyond claims incurred in the current year.
This looks only at current cashflow without considering the long-term claim liabilities for conditions which are already receiving payouts, leading to the misconception that MediShield is collecting more premiums than needed.
Instead, he says a more appropriate measure is the incurred loss ratio.
The compares total premiums to the total monies required to ensure that the Fund is able to meet both current-year claims as well as its liabilities into the future.
And MediShield Fund's incurred loss ratio over the last five years (2009 to 2013) was 96 per cent.
He says is sufficient to ensure sustainability of benefits but not excessive.
Mr Gan says insurance schemes also have to set aside capital to ensure sufficient buffer against adverse scenarios.
The Monetary Authority of Singapore requires funds to meet a minimum Capital Adequacy Ratio or CAR of 120 per cent.
A target CAR of 200 per cent is broadly in line with industry practice and was recommended by MediShield's appointed actuary to ensure that the Fund is able to meet its liabilities to policyholders even in adverse scenarios.
These include worse than expected claims experience or a sharp drop in investment returns.
Mr Gan revealed that during the 2008 financial crisis, the CAR fell to 148 per cent. If the financial crisis then had worsened further, the minimum requirement could have been breached.
While he's keenly aware of the impact on premiums, Mr Gan says he'd rather have sufficient reserves in Medishield Life and provide the necessary premium subsidies, than to put Singaporeans' healthcare needs at risk.
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