In Malaysia, rising medical insurance premiums have become a pressing issue, with increases ranging between 40 percent and 70 percent projected for 2025.
This surge is driven by a combination of factors, including escalating private healthcare costs, moral hazard, overutilization of medical services, and unchecked hospital charges.
Many insured patients and private hospitals contribute to this dynamic: patients often choose for more expensive treatments because they are covered by insurance, while hospitals may inflate prices, knowing insurers will bear the cost.
To address these challenges, Malaysia can look to countries such as Germany, Singapore, Japan, the Netherlands, and Australia for effective strategies to manage healthcare costs and stabilize insurance premiums.
While these nations benefit from higher tax revenues, Malaysia’s lower tax-to-GDP ratio means that cost-control measures must be carefully adapted to the country’s fiscal reality.
The role of moral hazard in rising premiums
At the core of Malaysia’s rising insurance premiums is moral hazard, where individuals or organizations make costlier decisions because they are shielded from the financial consequences. In the context of healthcare, insured patients may overutilize services by opting for premium hospital rooms, unnecessary diagnostic tests, and non-essential treatments simply because their insurance covers the cost.
This is compounded by private hospitals that may inflate charges or prescribe additional services, knowing these expenses will be covered by insurers.
Medical insurance payouts have seen a significant upward trend in recent years. According to the Life Insurance Association of Malaysia (LIAM), total claims payouts surged by 14.9%, from RM13.4 billion in 2022 to RM15.4 billion in 2023.
This increase was primarily driven by a 26.2% rise in medical claims and a 41.4% hike in disability payments. To cover these increasing claims, insurers have no choice but to raise premiums, a burden that ultimately falls on policyholders.
Breaking this cycle requires systemic reforms that encourage cost-conscious behavior and promote fair pricing practices.
Lessons from global healthcare systems
Regulating costs to reduce overcharging
Countries like Germany and Japan have successfully controlled healthcare costs by implementing strict price regulations. In Germany, a government-regulated fee schedule ensures that medical services are priced consistently across the healthcare system.
This transparency prevents hospitals from overcharging and ensures patients receive fair pricing. Similarly, Japan’s biennial review of medical fees adjusts pricing to reflect market conditions and medical advancements. Pharmaceutical prices are also tightly regulated, ensuring medications remain affordable.
These regulatory frameworks demonstrate that consistent, transparent pricing can prevent overcharging and reduce the financial strain on insurers. Adopting a similar fee schedule in Malaysia could help curb escalating healthcare costs and, in turn, stabilize insurance premiums.
Discouraging overutilization through cost sharing
Singapore addresses moral hazard through cost-sharing mechanisms that promote responsible use of healthcare services. Under the MediShield Life scheme, patients contribute through co-payments and deductibles, making them more aware of the costs associated with their care. This discourages unnecessary procedures and premium services.
Additionally, Singapore’s public healthcare system offers affordable options for those who do not need private care, easing the demand for private hospitals.
Incorporating cost-sharing mechanisms in Malaysia’s private insurance policies could reduce the overutilization of healthcare services. Strengthening the public healthcare system to provide reliable and affordable alternatives would further help balance the load between public and private sectors.
Controlling pharmaceutical and service pricing
In Japan, the government maintains tight control over the pricing of pharmaceuticals and medical services. Drug prices are negotiated with pharmaceutical companies and revised periodically to reflect market changes. This regulation keeps medications affordable and ensures that healthcare costs remain manageable for both patients and insurers.
Introducing similar price controls in Malaysia could help limit the cost of medications and medical services. Regular reviews and adjustments to pricing would ensure that healthcare costs remain fair and aligned with economic conditions, ultimately reducing the pressure on insurance premiums.
Incentivizing quality over quantity
The Netherlands has created a healthcare system that emphasizes quality of care rather than the quantity of services provided. Insurers and healthcare providers are encouraged to compete on the quality of services delivered, rather than on price. This approach discourages unnecessary treatments and tests, focusing instead on delivering effective, value-based care.
Promoting quality-based competition among Malaysian insurers could shift the focus away from high-volume claims. By incentivizing efficient and effective care, insurers could reduce unnecessary payouts and help stabilize premiums.
Enhancing transparency through billing practices
Australia promotes transparency in healthcare billing, ensuring patients understand the costs associated with their treatments. Hospitals are required to provide itemized bills that clearly outline each charge. This transparency helps patients identify and question excessive fees. Additionally, gap payments, where patients cover a portion of their private healthcare costs, reduce the reliance on insurance for minor services.
Implementing transparent billing practices in Malaysia’s private hospitals would foster greater accountability and trust. When patients and insurers can scrutinize charges effectively, it reduces the likelihood of overcharging and unnecessary claims, easing the upward pressure on premiums.
The role of taxation in healthcare management
One key factor that enables countries like Germany, Japan, and the Netherlands to manage healthcare costs effectively is their higher tax-to-GDP ratios. Germany’s tax-to-GDP ratio stands at 38%, Japan’s at 31%, and the Netherlands’ at 40%. These higher revenues allow for substantial public healthcare funding, subsidies, and regulatory oversight.
In comparison, Malaysia’s tax-to-GDP ratio is only 11.4%. This limited fiscal capacity restricts the government’s ability to subsidize healthcare extensively or enforce broad regulatory measures. As a result, Malaysia must rely on targeted, low-cost strategies such as standardized fee schedules, cost-sharing, and transparent billing to manage healthcare costs without overhauling its tax structure.
Conclusion
Rising medical insurance premiums in Malaysia are driven by a cycle of moral hazard, overutilization, and unchecked hospital charges. While countries like Germany, Singapore, and Japan use higher tax revenues to manage healthcare costs, Malaysia’s fiscal constraints necessitate pragmatic solutions. By adopting measures such as fee regulation, cost-sharing mechanisms, price controls, and transparent billing practices, Malaysia can break the vicious cycle of rising premiums. These strategies can help create a more sustainable and equitable healthcare system, ensuring that quality healthcare remains accessible and affordable for all Malaysians.
By Dr. Azian Madun
The author is a Senior Lecturer at the Department of Syariah and Management, Academy of Islamic Studies, Universiti Malaya, and may be contacted at [email protected]
-MalaysiaGazette
