Health Financing System Unsustainable Time For A Revamp

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From Gavin Teoh
Malaysia’s healthcare system, with its dichotomous system of public-private structures, has long been praised and even emulated by other countries for providing accessible and equitable healthcare.
However, discussions about the financial sustainability of this system are often overlooked.
While access to healthcare services is critical, health financing must be equally prioritised to protect individuals and households from financial hardship and ruin.
Malaysia’s healthcare financing system is based on the Beveridge Model, similar to the UK’s National Health Service. Healthcare was largely funded through taxes, which were part of general government expenditure.
Despite increasing fiscal challenges, the model continues in the public healthcare sector.
But with the rise of privatisation, particularly in hospital services, in the 1980s, the need for private health insurance grew.
Initially, the country was on track to achieve universal health coverage, ensuring equitable access to care, protecting people from financial ruin due to medical costs, and promoting fairness in healthcare payments based on income.
Privatisation shift, rising costs
Things began to shift significantly after the massive privatisation of hospitals post-2008, following the global financial crisis.
My research revealed that from 1997 to 2008, private health expenditure grew at a modest rate of 3.2% annually. But from 2009 to 2016, this rate escalated sharply to 7.2% annually.
Overall, medical inflation in the private sector averaged 11.2% per annum, factoring in consumption and supply effects.
This rate is well above the global average of 7.6%, making Malaysia one of the countries in the region with a very high medical inflation rate.
This surge in costs is a major cause for concern, especially considering that private healthcare expenditures grew faster than income, with GDP per capita growing at 5.96% per annum between 1996 and 2017.
Additionally, out-of-pocket health spending has risen significantly, accounting for 31.5% of total healthcare expenditure in 2021 — one of the highest rates among middle-income countries.
The high out-of-pocket expenses highlight the inadequacies of the current pooled financing model, particularly medical insurance.
It fails to cover primary care, dental care and health maintenance —areas in which Malaysians still heavily rely on personal finances.
Private insurers show little interest in expanding coverage to primary care, as their profit-driven models discourage participation in risk-pooling for these services.
Suggestions like the recent statement by health minister Dzulkefly Ahmad, urging the upper-middle and T20 income groups to opt for medical insurance over out-of-pocket spending, do little to address the issue.
These groups are typically well-insured for hospitalisation, but their high out-of-pocket costs for primary care remain an unresolved issue that medical insurance alone cannot address.
Covid-19’s impact and human development
The financial challenges faced by the government during the Covid-19 pandemic further complicated the situation. With limited resources, the government encouraged private hospitals to play a greater role in delivering healthcare services.
At the same time, the pandemic accelerated a societal shift towards private healthcare, as individuals sought not just treatment but a higher standard of care and well-being.
While this inexorable shift is understandable, driven by human development and rising incomes, the question remains: are we doing enough to contain the rising costs associated with private healthcare, especially post-pandemic?
The challenge of rising insurance premiums
As both a consumer and financial advisor in healthcare and medical insurance, I have witnessed firsthand the impact of rising insurance premiums.
Many policyholders have expressed concerns about these increasing costs, with some even dropping their medical insurance altogether due to financial constraints.
The Association of Private Hospitals Malaysia’s call to raise premiums further is troubling. Many people are already struggling with high medical insurance premiums, and this is likely to continue unless we address the underlying causes of rising healthcare costs.
Politicians should be sensitive to the fact that if more people cannot afford to continue paying for their medical insurance after premium hikes, they will likely turn to public hospitals for treatments.
This will increase the financial burden on the government to continue providing public healthcare, creating a potential “causality effect”.
A call for single payer of health financing
In light of these challenges, some have proposed social health insurance (SHI) as a more sustainable solution. This model, also known as the Bismarck Model, has been successfully implemented in countries like Japan, China and Germany.
Dzulkefly made a similar proposal in 2019, during his first term as health minister, suggesting the introduction of a National Social Health Insurance system which would provide universal health coverage for all citizens.
In fact, this plan has been delayed since the 1996 Seventh Malaysia Plan, primarily due to a lack of political will and resistance from certain stakeholders.
It is clear that a national social health insurance scheme could provide a more sustainable alternative to the current reliance on private medical insurance. Under this system, the government would act as a single payer for medical services, which can help control healthcare pricing.
Alternatively, the government could consider a National Health Insurance (NHI) system, similar to those successfully implemented in South Korea and Taiwan, which extends coverage to aged care and primary care.
If private provider participation is crucial to government economic policy, this approach could help control costs, provide universal coverage and perhaps extend to primary care services.
Such a reorientation would not only offer mandatory and universal coverage for all citizens regardless of age or health condition but would significantly reduce out-of-pocket health spending.
The advantages also extend to public healthcare services. A robust health financing system like this would reduce government spending on health treatments and improve the fiscal position through the risk-pooling method.
The way forward: immediate solutions
While a long-term solution such as SHI or NHI may take time to implement, immediate actions are needed to address the current crisis. One potential short-term remedy could be the introduction of deductibles or co-payment options in medical insurance plans.
This should not be limited to new policies introduced after Sept 1, 2024, as decreed by Bank Negara Malaysia, but should also apply to existing policies where many policyholders are already struggling to keep up with premiums.
This move could reduce premiums while still providing essential financial protection against high medical costs.
Additionally, a mechanism for easy financing of deductibles or co-payments, through government-backed or private financial institutions, could make this solution more accessible.
The big hope, but it is urgent!
It is undeniable that Malaysia’s current health financing system faces significant challenges, particularly in the wake of the Covid-19 pandemic, rising private healthcare costs, and human development progression.
While a long-term solution such as SHI or NHI may be ideal, we must urgently address the immediate concerns to avoid a financial crisis in the healthcare sector.
By working together — policymakers, regulators, insurers, and consumers — we can develop a more sustainable health financing system that protects individuals from financial ruin and ensures equitable access to healthcare services for all Malaysians.
The time to act is now, before the situation worsens. - FMT
Gavin Teoh is practice director of UOB Kay Hian and an FMT reader.
The views expressed are those of the writer and do not necessarily reflect those of MMKtT.

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