Thoughts On The Elimination Of Full Riders For Health Insurance

Variations of this piece of news flooded my Facebook Feed last night.

Coincidentally, I am halfway through Taleb’s latest book: Skin In The Game and there’s plenty of interesting applications I can make to this issue.

1. There is a high price to pay for certainty 

Personally, both the Mrs and I are not really affected as we are not part of the 29% who are on full-riders.

We are covered by NTUC’s Enhanced Income Shield with an additional rider that reduces our co-insurance to 10% and cap hospitalisation expenses to $3,000 a year.

A limit of $3,000 of out-of-pocket expenses is pretty reasonable to us and more importantly, I see it as a signal to insurance companies that we are less susceptible to moral hazard. Therefore, it keeps our premiums lower and more affordable.

But boy am I surprised that there’s almost 30% of Singaporeans on full riders!

When you are on a full rider, there is basically no skin left in the game with regards to reducing your own healthcare costs.

Which also means you are likely being subsidised by the rest of the population. Not the insurers, though as we see next.

2. Insurers Have No Downsides

The twin threats of moral hazard and adverse selection in the healthcare and insurance sector are not new. So my bet is that these insurance companies could have predicted this outcome a long time ago.

If a dimwit like me can get it, I am sure it can’t escape those Ivy League and OxBridge graduates.

An ethical and moral decision would have been not to offer full riders at all from the onset. But since full riders are such a popular choice among the populace, being ethical would have meant losing market share to other insurers.

Being ethical comes at a huge personal cost to the decision-makers in the insurance companies. For instance, they would not be able to meet KPIs and hence, claim their huge bonuses at the end of the year.

In this industry, premiums are collected upfront while claims are made some years down the road, so it’s possible to kick the can down the road.

Which is precisely what they did as the losses are coming in now.

Basically, nothing happens when they are making profits. But once losses are made, they threaten or in most cases, raise premiums to shore up their balance sheets. 

Another classic case of privatized gains and socialised losses. Heads we win, tails you lose.

Well, without the G’s intervention, this move pulled off by the insurers would definitely be a an anti-competitive collusion.

But hey, the insurers are big, powerful oligopolies which employ lots of people (with huge paychecks and bonuses) and simply can’t lose money, eh?

3. Don’t Just Blame The Patients

In this article, Minster Of State Chee Hong Tat gave two examples of moral hazard.

One was a patient who made 12 nose scopes without clear medical need. 

I don’t know about you, but I have gone through an endoscopy before and it sure as hell was painful. I don’t think a sane person would voluntarily and eagerly go through 12 nose scopes just to make his health insurance worthwhile.

And by the way, who approved those nose scopes? Are you hinting to us that the doctor/s were negligent at the same time?

If the patients are “punished” with higher premiums for overconsumption, how can we incentivise doctors not to overservice?

And then in the second case, MOS Chee alluded that there was an equally effective treatment that costs $5,000 as compared to $70,000 for a small breast lump removal surgery.

If this is the case, why was the $70,000 option even being offered at all? 

There’s lots of information asymmetries in the medical industry between the doctors, the pharmaceutical companies and the patients. It is not fair to just inflict penalties on the general populace to improve the outcome. In fact, more onus should be placed on the “experts” because well, they are the experts, right?

“Beware of the person who gives advice, telling you that a certain action on your part is “good for you” while it is also good for him, while the harm to you doesn’t directly affect him.”  – Nassim Nicholas Taleb

Thanks for reading.