The Business Times, Wednesday 17 November, 2004

A crucial first shield for investments

A hospital plan is a must if you want to be sure you can afford rising medical bills , says CHONG KOK PENG

MY father did not have any insurance when he was hospitalised after a stroke several years ago. Like most Singaporeans, he preferred to grow his wealth instead of protecting it. His oversight adversely affected his family, as the hefty medical bills meant that my mother had to postpone her retirement and my sister and I had to borrow from banks to finance our university education.

I thus always advise clients to acquire a hospital plan before embarking on the wealth accumulation path. The hospital plan acts as the crucial first shield for investments, as hospital expenses will be the first drain on our finances when our health takes a downturn.

The future doesn't look better, as the government may reduce medical subsidies per citizen given the fiscal strain from our aging demographics and shrinking tax base. Alternatively, the government may peg the amount of subsidy to the financial status of the patient - that is, means-testing like the National Kidney Foundation, which only automatically subsidises citizens and permanent residents with a total monthly family income of less than $3,500. A classic middle class squeeze.

Unfortunately, many Singaporeans have the following invalid objections that deter them from having a comprehensive hospital plan.

Objection 1: My company covers me for hospitalisation.

If you've watched the movie John Q - where the medical benefits by an American employer were reduced in bad times when one needed it most - would you want to be at your mercy of your company? Remember medical benefits are not a right.

In addition, you have to retire eventually and lose the medical coverage provided by your employer. You could also develop medical conditions that won't be covered by insurers should you take out a hospital plan when we retire.

You should opt for a hospital plan that is guaranteed renewable, which obligates the insurer to cover you at standard rates regardless of your health. While you are less likely to be hospitalised when you are young, we can treat a hospital plan as a passport for your old age.

Objection 2: I am covered by Medishield, and Medisave can be used to finance the deductible and co-insurance.

Under Medishield, besides the deductible and co-insurance, you have to pay any medical costs in excess of the limit stipulated under the plan. And the biggest leakage is in the surgical limit table, where the highest claim limit is only $7,800. It is likely that any major surgery would significantly exceed that figure, which would greatly drain your Medisave, capped at $30,000.

The crux of the issue is often that individuals are unwilling to use cash to purchase hospital plans while they have accumulated substantial savings in their Medisave which cannot be used to finance hospital plans. Current legislation should be amended so that one dollar of Medisave can be used to pay many more dollars of hospital bills via hospital plans to complement Medishield.

Objection 3: I already have a major illness plan.

You should be aware that a major illness plan only pays out the insurance proceeds upon the insured fulfilling certain medical conditions. Conversely, a hospital plan reimburses all medical expenses upon hospitalisation up to the stipulated limits, regardless of your health condition. So it serves as a first plug to any potential cash outflow.

Objection 4: I already have a hospital plan that pays me cash for each day of stay.

There is a very strong possibility that the cash benefit won't be insufficient to cover hospital bills, as it is based on length of stay and not actual treatment. You may undergo very costly surgery that requires a few days' stay in hospital. There is a need to align coverage with the medical expense incurred.

Some of these plans are packaged as a rider to a major illness plan, which implies that the cash benefits won't be available if the insured makes a claim for major illnesses. Hospital plans should be stand-alone, so coverage won't be affected by other insurance plans.

Ultimately, all of us want to be responsible - not just to ourselves, but more importantly, our families. While we want to provide the best for them by building up our asset base, we don't want to be a liability to them when we are sick or handicapped.

A hospital plan is a must if you want to be sure you can afford rising medical bills. By plugging this potential leakage of funds, you ensure that your dream of early retirement won't be blown away.