COMMENT | Concerns over BNM's new medical, health insurance policy

COMMENT | The Medical and Health Insurance/Takaful (MHIT) policy introduced by Bank Negara Malaysia (BNM) under the Financial Services Act 2013 and Islamic Financial Services Act 2013, which mandates that all new MHIT products include co-payment provisions, will be implemented on Sept 1, 2024.

While aimed at promoting responsible healthcare use and reducing premiums, these provisions raise significant concerns about health equity, access to healthcare, and the broader implications for Malaysia’s health insurance system.

Impact on health equity and access

The MHIT policy grants insurers the flexibility to set the maximum co-payment rates, which could lead to significant financial burdens for policyholders.

Although the policy could reduce monthly premiums by 19 to 68 percent, as per BNM’s calculations, the trade-off may be higher out-of-pocket expenses for each claimable visit. This introduces the risk of underinsurance, where individuals, despite having coverage, may still encounter substantial medical costs.

For example, a five percent co-payment on an RM150,000 heart surgery would still necessitate an upfront payment of RM7,500, which is unaffordable for many.

This is exemplified in BNM’s Capability and Inclusion Survey 2015, which revealed that 75 percent of Malaysians are unable to come up with RM1,000 in emergency cash, and only 32 percent of Malaysians can cover a week’s worth of expenses should they lose their source of income.

This financial vulnerability highlights the potential impact of co-payments on Malaysians, particularly those already struggling to make ends meet.

Evidence from other countries underscores the consequences of high co-payments.

In the United States, high co-payments have led to deferred care, worsening health outcomes, and higher long-term healthcare costs as patients delay treatment until conditions become severe.

Similarly, studies from Australia have shown that co-payments can significantly reduce healthcare utilisation, particularly among low-income individuals, leading to poorer health outcomes.

In contrast, countries like Thailand, which eliminated co-payments as part of its universal health coverage reforms, have seen improvements in healthcare access and equity.

Thailand’s system integrates public and private healthcare services, ensuring that all citizens have access to necessary care without financial barriers. This experience demonstrates the benefits of minimising financial barriers to healthcare, particularly for vulnerable populations.

Medical inflation: Overlooked Issue

A critical issue inadequately addressed by the MHIT policy is the rising medical inflation in the country, which has surged to 12.6 percent, far exceeding the global average of 5.6 percent and five times the general inflation rate in Malaysia.

Medical claims payouts, which rose by 26 percent in 2023 following a 34 percent increase in 2022, are a driving factor behind increasing insurance premiums.

According to Malaysia National Health Accounts (MNHA) data, private hospitals experienced a RM3.5 billion rise in health expenditure in 2022, a 22 percent increase, with RM2.26 billion of this amount coming from out-of-pocket payments.

Additionally, spending on medical goods rose by nearly RM1 billion, and curative care costs increased by 15 percent. Without regulatory measures to control the pricing of medical goods and services, there is a risk that insurance premiums, co-payments, and out-of-pocket expenses will continue to rise, placing a greater financial burden on patients.

Medical inflation, driven by the high cost of imported technologies, the rising burden of non-communicable diseases, and inefficiencies in the private healthcare sector, including the recommendation of unnecessary diagnostics and treatments, poses a severe challenge to controlling healthcare costs.

Without addressing these underlying causes, the introduction of co-payments could exacerbate the financial strain on households, pushing more Malaysians into medical impoverishment.

Countries like Japan have effectively managed medical inflation through government-regulated fee schedules and strict controls on pharmaceutical prices. Japan’s approach has maintained high-quality care while containing costs, providing a potential model for Malaysia to follow.

Conversely, in countries with less regulation, such as the United States, unchecked medical inflation has contributed to skyrocketing healthcare costs and significant financial barriers to care.

Fragmentation of health insurance, universal coverage

The MHIT risks further fragmenting Malaysia’s health insurance system, exacerbating disparities between those who can afford comprehensive prepaid private insurance, those who may rely on medical insurance with co-payments, and those dependent on public health services.

Fragmentation can weaken risk pooling and lead to inefficiencies, resulting in unequal access to healthcare. The experience of countries in Sub-Saharan Africa, where fragmented insurance schemes have created significant disparities in healthcare access, highlights the risks of such an approach.

Thailand and South Korea offer contrasting examples where integrated health insurance systems have improved equity and efficiency.

Thailand’s universal coverage system, which eliminated co-payments, has successfully reduced financial barriers and improved access to care, particularly for the poor.

In South Korea, reducing co-payments for primary care has led to increased healthcare utilisation and reduced emergency visits, demonstrating the effectiveness of minimising financial barriers to encourage timely care.

Risks to vulnerable populations

The MHIT policy’s reliance on market-driven solutions, including the mandate that Insurance and Takaful Operators (ITOs) consider societal healthcare needs when designing products, raises concerns.

In practice, market-driven approaches often prioritise profitability, which can result in the exclusion of vulnerable populations from adequate coverage.

This concern is supported by evidence from Ghana and Kenya, where market-driven insurance schemes initially catered to formal sector workers, leaving large segments of the population without coverage.

The policy also allows boards of ITOs to set internal pricing with an emphasis on equity without sufficient external oversight, raising concerns that repricing strategies could disproportionately impact marginalised groups, such as the elderly and those with pre-existing conditions.

In Tanzania, a similar reliance on internal management of insurance schemes without robust regulation has failed to ensure equitable coverage across different income groups.

The policy’s emphasis on transparency, though well-intentioned, may be insufficient without adequate consumer protection. The complexity of insurance products and the language used in disclosure documents can pose challenges for consumers with lower health literacy.

Without strong incentives for ITOs to simplify these documents, many consumers may struggle to make informed decisions about their healthcare. Studies have shown that health literacy is a critical determinant of health equity, influencing individuals’ ability to make informed decisions about their healthcare.

Additionally, while the requirement for ITOs to submit data to a central medical claims platform is a positive step toward transparency and cost control, the market-driven framework lacks clear guidelines on how this data will be used to address inequities in healthcare coverage and utilisation.

Without a strong regulatory framework to guide the analysis and application of this data, there is a risk that existing disparities in healthcare access will persist.

Govt’s role in social protection

The MHIT policy’s reliance on market-driven approaches and insurance boards to manage equity issues undermines the government’s responsibility for social protection. Notably, the government’s mandate that future medical and health insurance policies include a co-payment facility could further entrench a fragmented private health insurance system.

This fragmentation, which has been a growing issue since the privatisation of healthcare began in Malaysia in the 1980s, has contributed to rising healthcare costs in the private sector, overcrowding in public facilities, and disparities in the quality of care between the public and private sectors.

To ensure health equity, the Malaysian government must take a more active role in regulating the medical and health insurance market.

This includes establishing clear regulations that mandate comprehensive coverage for all demographic groups and integrating private health insurance into a unified national healthcare financing framework that emphasises social protection.

By doing so, the government can ensure that all citizens have access to necessary healthcare services, regardless of their economic status.

The United Nations World Social Report released in July 2024 recommends that to successfully address insurance gaps, especially in developing countries, there should be “development of regulated insurance markets with expanded coverage that meet the varying needs of the vulnerable”.

The report further states, “As insurance markets continue to grow, there is a need for capacity-building to help regulators and supervisors keep pace with increasing complexity.”

Recommendations

To address these issues, the Malaysian government should:

Eliminate co-payments: Remove them for essential health services to prevent financial barriers, especially for middle-class and marginalised populations.

Regulate healthcare costs: Implement stringent regulations to control medical inflation, including price controls on medical services and drugs.

Integrate medical and health insurance systems: Move towards a unified system that ensures equitable access to healthcare for all, regardless of income level.

Strengthen social protection: Reduce reliance on private sector-driven solutions and ensure that health equity is central to all healthcare policies.

Conclusion

While the MHIT policy is well-intentioned, it raises significant public health concerns. A cohesive, government-led approach is necessary to ensure equitable healthcare access and protect against escalating costs driven by medical inflation.

Drawing on lessons from other countries, Malaysia can implement policies that prioritise social protection and healthcare equity for all its citizens.

LIM CHEE HAN is senior researcher at Third World Network.

SHARUNA VERGHIS is senior lecturer at Monash University Malaysia and co-founder of Health Equity Initiatives.

The views expressed here are those of the author/contributor and do not necessarily represent the views of Malaysiakini.

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