by Jason Tan

Premiums for MediShield Life, Singapore’s mandatory national insurance scheme, are set to increase by up to 35%, with an average rise of 22%, starting from April 2025.

This adjustment follows recommendations from the MediShield Life Council, an 11-member panel chaired by Mrs Fang Ai Lian, the former chairwoman of Ernst & Young. These increases are linked to an expansion of coverage, offering higher claim limits and broader protection for policyholders.

According to the Ministry of Health (MOH), the premium hikes will be distributed over the next three years. Notably, the rise will disproportionately affect older Singaporeans.

However, the MOH has committed to financial support measures aimed at alleviating these increases for most citizens. Over 90% of Singaporeans will benefit from S$3.4 billion in MediSave top-ups and S$700 million in premium subsidies, ensuring that most individuals will not pay out-of-pocket during this period.

Justifications for the Premium Hike

The upcoming changes are primarily driven by efforts to enhance the adequacy of MediShield Life coverage. As healthcare costs in Singapore rise, these adjustments are seen as essential to maintaining the scheme’s sustainability. Additionally, the MOH emphasised the importance of ensuring MediShield Life remains robust enough to meet its future liabilities.

A key factor being reviewed alongside premium adjustments is the Capital Adequacy Ratio (CAR).

The CAR reflects the scheme’s ability to meet its obligations under adverse conditions, such as higher-than-expected claims or sharp declines in investment returns.

The Monetary Authority of Singapore (MAS) mandates a minimum CAR of 120%, but most insurers, including MediShield Life, aim for a target closer to 200%.

This target provides a buffer to ensure the scheme’s financial resilience. In 2017, MediShield Life’s CAR was said to be similar to private insurers, between the range of 205% and 282%, ensuring that the scheme is well-positioned to meet its liabilities without the need for sudden premium adjustments.

The high level of reserves held by the MediShield Life Fund ensures that policyholders can feel confident the scheme will continue to meet claims even in adverse conditions.

This practice is especially relevant given the mandatory nature of MediShield Life, which contrasts with private insurers that face potential lapses in coverage when policyholders switch providers or fail to renew policies.

Potential for Premium Moderation

While the premium increases are designed to secure the long-term viability of MediShield Life, some observers have suggested that a review of the scheme’s CAR could potentially reduce the scale of these hikes.

MediShield Life is funded primarily through special issues of Singapore Government securities, which pay a steady interest rate of 4% per annum, so the scheme may not face the same volatility in investment returns as private insurers.

In 2023, the MediShield Life Fund reported holding S$13.8 billion in these government securities. This stable investment yielded an estimated interest of S$0.55 billion annually, which could potentially be used to offset some of the planned premium increases.

With total liabilities of around S$10.7 billion, the investment returns, combined with the high CAR, may provide an opportunity to lower the quantum of the planned premium adjustments.

The MOH has not yet indicated whether these considerations will be incorporated into its review. However, the potential to leverage the fund’s significant reserves and steady investment income has raised questions about whether the current rate of premium hikes is necessary.

Some analysts suggest that, by reducing the CAR from its current target of 200% to a slightly lower but still safe threshold, it may be possible to moderate the scale of the upcoming increases.

Financial Support and Future Implications

For most Singaporeans, financial support from the government will be key to managing the premium increases.

The MOH has assured that the majority of policyholders will receive enough in subsidies and MediSave top-ups to offset the increased costs, especially over the next three years.

As part of the support package, elderly policyholders, who are expected to be most affected by the premium hikes, will receive targeted subsidies to prevent excessive financial strain.

The total cost of the premium increases, over the next three years, is estimated to be around S$6.5 billion. If spread equally across the three years, this would represent an increase of approximately S$2.17 billion per year.

However, given the anticipated support from government subsidies, it remains unclear how much of this burden will ultimately fall on policyholders.

In light of these considerations, reviewing the CAR could help reduce the quantum of the premium increases, balancing the need for financial security with more moderate premium adjustments.

In a July 2024 interview with The Straits Times, Lim Boon Heng, chairman of NTUC Enterprise, framed the proposed acquisition of Income Insurance by German insurer Allianz as a positive development.

The former People’s Action Party minister, who is also the chairman of Temasek Holdings, emphasised the deal’s potential to strengthen Income’s competitiveness and enable it to fulfil its social mission more effectively.

However, Culture, Community, and Youth Minister Edwin Tong’s 14 October 2024 ministerial speech uncovered inconsistencies in Mr Lim’s statements, particularly regarding the planned capital extraction, casting doubt on the broader implications of the transaction.

While Mr Lim’s remarks focused on the benefits of Allianz’s majority stake, Mr Tong’s detailed disclosure in Parliament revealed significant concerns over the deal’s financial and social impacts, leading to the government’s intervention to block the transaction in its current form.

Misrepresentation of Income’s Social Mission

In the July interview, Mr Lim assured the public that Income’s social mission, which has historically supported low-income and vulnerable communities, would remain intact even after Allianz’s acquisition.

Lim noted that commercial companies worldwide had adopted similar values, suggesting that Allianz would likely uphold Income’s mission of “doing well to do good.”

He also reassured Singaporeans that the partnership would not compromise Income’s involvement in national insurance programmes.

However, Mr Tong’s ministerial statement revealed that the deal involved a significant capital reduction of S$1.85 billion within three years of the acquisition.

This planned extraction, which had not been disclosed publicly by Mr Lim or NTUC Enterprise, cast serious doubt on Income’s ability to continue fulfilling its social responsibilities.

During its corporatisation in 2022, Income had emphasised that the shift from a cooperative to a corporate entity was necessary to build a stronger capital base and ensure long-term sustainability.

Furthermore, NTUC Income, Singapore’s only insurance cooperative, was corporatised in 2022 into Income Insurance Limited “to achieve operational flexibility and gain access to strategic growth options to compete on an equal footing with other insurers locally and regionally.”

Shareholders were assured at the 2022 annual general meeting that NTUC Enterprise would remain the majority shareholder of the new company post-corporatisation, a promise that was not honoured in the proposed deal.

The proposed capital reduction directly contradicted these earlier justifications, raising concerns about the deal’s real motivations.

Lack of Transparency on Capital Optimisation Plans

In Mr Lim’s interview, there was no mention of Allianz’s post-transaction capital optimisation plans, which Mr Tong later disclosed.

These plans included freeing up capital for shareholder returns, which fundamentally altered the nature of the deal.

Workers’ Party MP for Sengkang GRC, He Ting Ru, questioned why NTUC Enterprise decided to proceed with the sale despite knowing about the capital extraction. She highlighted the difficulty of reconciling the withdrawal of capital with the goal of strengthening Income’s financial base, especially given its social mission.

Mr Tong responded by stating that the capital withdrawal needed to be seen within a broader context. He explained that even with the capital reduction, NTUC Income would still meet regulatory capital adequacy requirements.

Nevertheless, Mr Tong emphasised in his speech that the government’s decision to block the deal was not based solely on financial factors but also on concerns about governance and the lack of structural protections to ensure that Income could continue to pursue its social mission under Allianz’s majority ownership.

Second Minister for Finance Chee Hong Tat also clarified that the Monetary Authority of Singapore (MAS) had not approved the proposed capital reduction plan, leaving key questions about the deal unresolved.

Contradictions on Income’s Financial Needs

Mr Lim’s portrayal of the Allianz-Income deal as essential for shoring up Income’s finances was contradicted by Mr Tong’s revelations.

He had pointed to Income’s struggles with its capital adequacy ratio (CAR) during past economic downturns as justification for seeking a majority shareholder.

However, Mr Tong noted that the planned capital extraction undermined Income’s long-term financial sustainability.

The lack of transparency over the capital reduction drew sharp criticism from Non-Constituency Member of Parliament (NCMP) Leong Mun Wai of the Progress Singapore Party (PSP).

During the 14 October parliamentary session, Leong expressed shock over the revelation of the planned capital extraction, which had not been disclosed to the public during discussions about the deal.

He argued that this critical financial condition should have been made public from the outset.

“This information should be available to all Singaporeans,” Leong said. “For the last few months, we were under the impression that the information provided was complete. Now, we learn about capital extraction, which is a very important condition of any financial deal.”

Leong expressed his dissatisfaction with how the deal had been communicated to the public, stating, “I’m surprised, I’m shocked, and I’m very unhappy today that this important condition was not disclosed to Singaporeans when we were all discussing this deal.”

He pressed the government for accountability, asking, “Who is responsible for not disclosing this information? Can the government give a commitment that it will pursue responsibility in this matter?”

Despite the various misleading or non-disclosed elements in NTUC Enterprise’s and Income Insurance’s communications, Mr Tong is of the view that no one deliberately misled the public.

PSP NCMP had questioned whether action would be taken against those responsible for misleading the public and government. In her speech, Poa highlighted that the deal contradicted earlier representations made during Income’s corporatisation and called for greater transparency.

Mr Tong, however, rejected the suggestion of deliberate misinformation but acknowledged that the government had concerns about whether Income could continue to serve its social mission after the capital reduction.

Was Lim Boon Heng Misleading?

While Mr Lim’s statements in the July interview painted a positive picture of the Allianz-Income deal, subsequent revelations by Mr Tong and MPs He Ting Ru, Hazel Poa, and Leong Mun Wai have raised significant concerns about the financial and social impacts of the transaction.

The planned capital extraction and lack of transparency over key financial conditions suggest that important details were withheld from the public.

This leaves an important question: Did Lim Boon Heng’s statements mislead the public, or was it a matter of differing interpretations of the deal’s long-term impact?

As more details emerge, the public will have to decide whether NTUC Enterprise’s leadership was fully transparent or whether key aspects of the deal were deliberately downplayed. What do you think?