Medical insurance: Over $300,000 to cover for life

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It is critical for everyone to boost their CPF savings if they want private hospital care.

It's one of the few perks about getting old - senior citizens pay less for many things like public transport and movie tickets.

But there is one glaring exception: medical insurance. It gets costlier with every year you age, and it is hardly a luxury item you can trim from your budget.

Some will probably have come across this already, but how many of us know how much we will need to spend on medical insurance if we have the good fortune of living to 90?

Sit tight before you read on - you will need between $300,000 and $400,000 if you want to be covered for private hospitalisation from the age of 50 to 90. Of course, these amounts do not include the tens of thousands of dollars that you would have paid earlier if you had bought such policies when you were much younger.

These figures are not estimates but are the cumulative premium amounts that have been painstakingly added year by year by Mr Alfred Chia and his team from financial advisory firm SingCapital, from published price lists of all the insurers.

Their research shows that this is what you would have to pay in total from age 50 to 90 if you had bought policies from these insurers: Prudential Singapore ($415,000), Great Eastern ($409,000), AIA Singapore ($362,000), Income ($337,000), Aviva Singapore ($326,000) and AXA Singapore ($276,000).

The amounts include the total premium payable for national insurance MediShield Life during the same period - $52,000 - which insurers also have to collect from their customers.

You can use MediSave to pay for MediShield Life premiums fully, as well as a small portion of your own plans.

As Prudential, Great Eastern and AIA have claim-based riders, their premium prices are not fixed and can be a lot lower if their policyholders stay healthy for the most part of their lives. So applying an average 20 per cent no-claim discount on the price of their riders, which make up half the total, will put them in the price range of $330,000 to $370,000.

That said, if their policyholders fall sick frequently and choose to stay in non-panel private hospitals, which would send their premiums up by 50 per cent to 100 per cent, the cumulative amount would be higher than the published rates.

 

Don't judge based on price

Of course, just like when you buy a property or a car, you should get the policies that meet your needs. So don't just judge plans based on the premiums but look at what each insurer offers you.

If you plan to switch to or buy a new policy, look closely at the insurers' preferred doctors and hospitals, co-payment and premium terms (for those with claim-based policies) as well as their claim processes, because these factors will hit your pockets too.

For instance, if the insurer's medical panel does not suit you, this means you will probably have to go to your own doctors. In such cases, you need to scrutinise the co-payment terms because some insurers require you to pay a lot more.

Similarly, some insurers require you to come up with a lot of cash to settle your bills first before they reimburse you. Since you know now that buying a medical plan is a costly affair, it pays to check how you can benefit from the policy you buy.

If you have the right one, you will not only pay less for your actual medical treatment, but also face a painless claim experience.

 

The paramount importance of retirement planning

The purpose of this exercise is not to do a cost comparison of the insurers' products.

Rather, this is yet another wake-up call for those who still choose to be blind to the fact that a good retirement does not come cheap.

As Mr Chia, the chief executive of SingCapital, puts it: "If you want to enjoy private hospital care in your old age, you should know that the premium for your medical insurance will be hefty. So you will need to include such premium costs into your retirement planning."

But not everything has to sound bleak and costly; if you start to do something about your finances now, you stand a better chance of avoiding running short of money.

 

The importance of MediSave

The basic healthcare sum or maximum MediSave amount for those under 65 is now $63,000, up from $60,000 in the previous year.

People who have been employed or contributing to their own Central Provident Fund (CPF) all these years should hit this maximum by the time they are in their 50s, if not earlier.

If you have over $60,000 in your MediSave account, here's the good news: The 4 per cent annual interest that you get for this sum alone will be more than enough for you to pay for your MediShield Life premium as well as a portion of your private medical plan.

If you are self-employed, you should make it a habit to contribute part of your income to CPF every month, so that you won't be worse off than salaried workers.

The maximum amount that you can put into your CPF annually is $37,740, and the money will go to all three pots - MediSave, Special Account and Ordinary Account.

Indeed, freelancers working for government agencies currently enjoy a perk open only to them - the agencies help them by contributing a portion of their fees directly to their MediSave accounts under the contribute-as-you-earn scheme.

The Government will match their contributions made between Jan 1 last year and Dec 31 this year dollar-for-dollar, up to $600. Already, about $1 million of such matched contributions have been paid to over 4,000 workers.

 

Critical to have lifelong income

The pricing model of medical insurance means the highest premiums for customers will start to kick in when they are in their 80s.

This is because when you get older, you tend to need more hospital care. But if you have been retired for more than a decade, where are you going to get the money to pay these rising costs without depleting your savings?

Just as you need to have a healthy MediSave balance to pay for most of your basic healthcare costs, you can rely on CPF and its lifelong income scheme, CPF Life, to cover most of your basic living costs as well.

To do this, you should aim to set aside the highest tier for CPF Life when you hit 55 - the Enhanced Retirement Sum for this year is $279,000 and $288,000 for next year.

If you set aside these amounts, you can get up to $2,300 a month from 65.

This stable income continues for as long as you live. Saving just $500 from this sum means you will have at least $6,000 extra annually to pay for your medical insurance.

Of course, if you have been diligent in growing your CPF, you will probably have a lot more stashed in your Ordinary Account.

It is another good source of lifelong income: If your balance is high, the annual interest alone can pay for the medical polices of both you and your spouse for life.

So the lesson here is: You need to do your part to make sure you have enough money to pay for your medical insurance, so that it can take care of you for as long as you live.

 

Source: The Straits Times © Singapore Press Holdings Limited. Reproduced with permission.

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