Hi ,

How Are You Getting Ready for Long-Term Future Health Insurance Premiums?



When planning for financial independence, one of the key considerations is our healthcare needs. If we cannot take care of our well-being, the quality of our early or traditional retirement (retiring after 65 years old) will drastically drop.

Today, I would like to explore how much we may need to pre-pay the premiums for our health insurance.

The main objective of our health insurance is to offset large hospital bills, whether inpatient or outpatient.

For example, an organ transplant at a private hospital may cost around S$300,000. If we need to pay this amount out of pocket, it will greatly strain our household finances.

Our health insurance plans require us to pay a certain deductible and also copay 10% of the bill. In this example, the bill may be reduced to $33,000.

The Ministry of Health (MOH) in Singapore has published data showing significant variations in lifetime premiums for Integrated Shield Plans (IPs) across different insurers.

Data published for the first time by the Ministry of Health (MOH) showed that premiums can vary significantly, even for plans covering the same ward class, since both coverage and price are determined by the insurer. Below is the comparison for Private Hospital Coverage Plans

MOH’s website shows the premiums that people have to pay from birth to age 100, based on rates in effect on April 1.

A recent calculation I did for a customer aged 42 showed that he would need $192,000 in Medisave and a bulk in cash today to pay for his Private Hospital plan with Income Insurance and the rider until age 85, based on the premium table published today.

Another client on a Prudential Private Plan and the old ‘Full Rider’ would need $378,000 in Medisave and a bulk of the sum in cash to maintain the plan, based on the premium table published today.

I understand that most would say we could downgrade to lower-class ward coverage when we are older to reduce the premium.

However, we need to balance this decision by considering our desired healthcare quality. I have encountered clients who urgently wanted a second opinion from a private specialist and worried that the consultation bill would not be fully covered as they were on lower-tier plans covering only government hospital doctors.

If you have experienced the public health system and cannot stand the slow waiting times, you may always opt for private care. To worry less about the specialist you choose, we need to start building a healthcare sinking fund to pay your future health insurance premiums.

Generally, the higher the quality, the higher the sum you would need to set aside.

To give you an example, a private coverage plan with AIA without a rider in 2017 for a 41-year-old would have cost $570, fully covered by Medisave.

Now in 2024, the premium is $1004.40, of which $600 comes from Medisave and $404.40 in cash.

This is an annual 8% increase over the past 7 years!

However, this rate of increase is not the same for all insurers, as each has its ways to manage too many premium revisions, such as claims-based premiums for Prudential or stricter application stages excluding coverage for pre-existing conditions for other insurers.

Nonetheless, it would be difficult to be certain of how much further the premium would inflate in the long future, as medical cost inflation is a long-term challenge as medical science and technology advance. We should not assume that medical treatment in government hospitals will stay low as government budgets are already feeling the pinch from all the subsidies given to Singaporeans.

" The Challenges in Planning: How Much to Set Aside Just for Hospital Insurance Plan Premiums?"

Hence, for illustration and planning purposes, I have used a 4% annual inflation rate to calculate future premiums for one of the insurers.

For example, if we are planning for someone aged 41 on a Private Hospital Plan with a low-cost rider from a well-known insurer, we would observe that premium tables for all insurers get revised year after year. Therefore, the premium we see today may not be the same in subsequent years.

Based on the projection, when it reaches 70 years old, instead of $4,445 in premiums, I may be looking at $14,416.42 per year. From age 40 to 85, the average mortality age, the total amount to be paid is over $720,000!

Another thing to note is that premiums go up over time because, as we get older, the probability of suffering from ailments requiring hospital treatment increases.

If we do not start building a sinking fund soon, we must set aside at least $720,000 today.

Is that realistic? It seems crazy to set aside such a sum for premiums.

Investing can help with the heavy lifting!

Currently, we already have one health sinking fund: Our CPF Medisave, which grows at 4% a year.

Since most of our premiums will come from cash in the future, we will need a sinking fund other than our CPF Medisave.

In my next email, we will explore how much to set aside to build your sinking fund based on an insurer’s plan.

Note that the highest Medisave withdrawal we can use to pay a portion of our medical insurance is $900/year. Here is the breakdown of the Medisave withdrawal limit to pay for our medical insurance:

• Age 1 - 40: $300/year
• Age 41 – 70: $600/year
• Age 71 – 85: $900/year

The total Medisave that could be withdrawn to help offset our hospital insurance premiums from age 41 to 85 is only $31,500.

Planning your premiums as part of one consolidated annual retirement expense becomes challenging. Hence, to plan our retirement sum, we cannot make it simple by deciding how much you need in retirement based on your spending needs today.

But your total premiums (i.e Main Plan + rider) today at 41 years old may be $1,187 a year, while at 75 years old, it could be $26,608 a year. This suggests we are underestimating our future medical needs if we plan this way.

Conclusion

The premiums that we need to set aside from 41 to 60 years old are not too challenging compared to the premiums after 60 years old.

Nonetheless, we cannot afford to stop paying for the health insurance premiums because that will leave us unprotected.

I use a software called Goalsmapper to chart out your future retirement income so we can identify any future shortfall that we can address today. Refer to the chart below, a sample retirement projection done for a client.

If you would like to experience and chart out your future retirement with the inclusion of your future health insurance expenses, please reach out!

It's not too early to start your retirement plan if you haven't!

Zest Chia

Executive Wealth Consultant | Associate Estate Planning Practitioner |

Licensed General Insurance Advisory

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