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We have one question about CareShield and the answer may be the key to unlock lower premiums

Posted 3 June, 2018 by Surely
in Opinion

For the longest time, a group of Singaporeans have been given a derogatory name by the Government. Once you reach the ripe age of 40, you are termed as an Elder. Not in a cool way like Elders of the Universe but you are automatically included in a long-term care insurance scheme, Eldershield.

Obviously many Singaporeans object to this uncaring name-calling. Thankfully, we have a Government who listens to us via numerous Singapore Conversation dialogues. They have since introduced CareShield Life so that we no longer feel old at 40. We are very lucky to have a government that cares so much about us.

Remember all the recent talks about building a more inclusive society? The Government is putting its money where its mouth is by making sure that all Singaporean have to participate in CareShield Life!

 

 

If you are keen to know more about CareShield, you can head over to the MOH website. Or you can enjoy these informative videos with strangely uplifting background music.

 

 

A Question that keeps us up all night.

 

 

No, our question is not why the name sound like a legume. Obviously, the idea was hatched at Cashew Road, and probably by a nut job.

 

CareShield

 

What we are actually perplexed about is this.
Why is Eldershield not merged into CareShield Life scheme?

Despite our earlier satire, we are quite pleased about the new CareShield. In our earlier post about Eldershield review, we made these three suggestions

  1. Increase claim payouts
  2. Prolong the duration of payout
  3. One-time waiver of disability assessment fee.

We are glad that these improvements have been adopted and put into place in the new CareShield scheme by the committee.

At the same time, we warn that the unnecessary nationalization of Eldershield will equate to a higher premium. Unfortunately, that prediction came true too.

We are surprised though that Eldershield still operates as a separate scheme, instead of being absorbed into CareShield.

 

Why this matters

 

The recent furore over CareShield revolves around the costly premium rate which is a concern that we share. Some have suggested No-Claim Discount while others question the statistic employed by MOH. These are valid and relevant points that the government should address as premium subsidies cannot be the long-term solution.

On the other hand, CareShield premiums have been priced higher than its present cost because it has to build up adequate reserves to meet the demands of tomorrow. We have a rapidly ageing population and this may become a real problem if CareShield is not built for the future.

That is where Eldershield can come in and help.
With an established insurance pool, it can provide an immediate cushion for CareShield Life which then lowers the premium for everybody.

 

How insurance pooling works

 

To understand how Eldershield pool can help, we must first understand the concept of insurance pooling.

When you buy any policy from an insurance company, the insurance company gathers the collected premium from you and other customers and put them in an insurance pool. This pool will also pay out in the event of a claim.

For the insurance pool to remain solvent, the premium collected must be higher than the claims. The actuarial department has to calculate a rate that keeps the pool afloat not just for now but also for the future. The underwriters have to ensure that each person going into the insurance pool is a suitable risk.

 

You can think of it as a leaking pail that the insurers have to keep filling

This insurance pool can be a good or a bad one, depending on the makeup. If the underwriters are prudent and cover good risks, then the pool will not only be solvent but also profitable. On the other hand, bad underwriting decisions may result in a loss-making business which in turn drives up the premium rate. This can be observed from the increase in shield plan premium in the past few years.

 

Why merging Eldershield with CareShield is the right way to go

 

Eldershield insurance pool is an insurance pool that is definitely above water and making good underwriting profits. This statistic speaks for itself.

 

“From 2002 to end-2015, about $2.6 billion have been collected in premiums for ElderShield insurance and around $100 million have been paid out in claims, adding that about $130 million in premium rebates have been given to policyholders so far, the first tranche in 2007 and another in 2012.” – Hansard

 

Instead of starting off with a big fat zero, CareShield can rely on the huge Eldershield reserves that have been accumulated. Unlike Medishield Life whereby medical inflation affects the pool, the Eldershield is a rather stable insurance pool as the payouts were fixed. With a profitable insurance pool to depend on, the premium for CareShield can be lowered as the insurance pool is under less pressure to build up an adequate reserve.

A positive side-effect of merging the two plans is that Eldershield shield pool will not suffer in the future. When the year 2020 comes by, Eldershield will no longer be an automatic opt-in scheme. The premium collection will be reduced as existing customers may switch over to CareShield for better benefits. As we know from Integrated Plan precedence, this will result in increased premiums or reduced benefits for Eldershield clients.

A merger of the two schemes will not only lower the premium for CareShield but also benefit Eldershield customers.

 

Wrapping up

 

We have to give credit to the governing body for listening to the public and implementing an insurance scheme that will serve the rapidly ageing population well in the future. The Eldershield scheme alone is inadequate to meet the demands of the nation and thus, should be replaced.

However, it is rather perplexing that CareShield and Eldershield exist as two separate entities. To us, it makes sense to integrate the two for cost-saving purposes.

Perhaps it is difficult to take back Eldershield from the private operators in terms of logistics and administration. However, it is something to be considered if it benefits Singaporeans. CareShield Life with lower premiums will be a great national long-term care insurance plan.

Let us hope that various suggestions from the public will change the minds of the policymakers although we are not holding our breath. Meanwhile, you have no other choice but to keep calm and carry on (since you have no choice about Careshield anyway).

 

 

www.ClearlySurely.com aims to eradicate the knowledge gap between consumers and Life Insurance. Our Vision is that one day, every Man, Woman, and Child will be properly insured.

  1. Sinkie

    Haha, govt is very kiasu & believes in “each generation paying for its own”.

    It has already triple checked on the premiums adequacy for Eldershield. That’s why the huge pre-payment for Eldershield and the extremely low claims-to-premiums collected ratio so far. The acturaries know that the bulk of the claims will come when insureds cross 80, 85 yrs old. The size & investment growth of the Eldershield pool has been calculated specifically for the fixed payouts when most of the insureds cross the critical age. The pool probably has a terminal stable buffer of 10%-20%, but is not designed to pay out much more than the $400 for 6 years benefit.

    If govt forces all those on Eldershield to Careshield, it would probably create more political backlash than it’s worth. Since the Eldershield premiums & pooling appears adequate (in terms of self-funding), they’ve probably decided to leave it as optional to move from Elder to Care. Remember that those who move from Elder to Care will need to pay much higher premiums than normal, in order to make up for the pre-payment.

    Govt is now doing the huge pre-payment collection of premiums for Careshield (it has already been doing for Medishield Life).

    Remember that Careshield has built-in inflation adjustment, plus lifetime payouts, hence the premiums will be constantly adjusted upwards. Although statistically speaking, not being able to do 3 out of 6 ADLs will put one at risk of dying sooner due to pneumonia or bed sores & sepsis (moreover the claimant will likely already be advanced age).

    Just have to see the claims experience in 30 or 40 years time. By then all your premiums collected liao. Haha!

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