Transforming Malaysia S Healthcare Financing System

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From Azrul Mohd Khalib
Malaysia’s public healthcare system took a massive hit following the Covid-19 crisis from 2020 to 2022.
At least 70% of the population continues to rely on its services, especially given the increasing prevalence of non-communicable diseases such as diabetes, cardiovascular diseases, and chronic kidney disease, as well as the growing number of elderly individuals requiring medical care.
Health workers and professionals are increasingly leaving the service for the private sector, other countries, or departing the health sector altogether. The current healthcare financing system, which dates back to the mid-1980s and relies on tax revenue, continues to subsidise up to 98% of patients’ costs.
We do not need further reminders of how fortunate we are to have an affordable healthcare system that is accessible to all, or to hear again about how inexpensive these services or treatments are.
But the truth is that nothing in healthcare has ever cost RM1 or RM5. The costs associated with consultations, nursing care, diagnostic tests, medicines, surgeries and other procedures are borne by patients, the government, taxpayers, or a combination of all three.
What we need to discuss is how to sustain, maintain and grow what we have today to ensure it meets the needs of Malaysia’s population for at least the next 30 years. The current financing mechanism has never been sustainable nor intended to be permanent.
From offices in Putrajaya to clinics and district hospitals across the country, policy decisions are often made based on what we can afford rather than what is needed to achieve the best possible health outcomes.
Recognising this, more than a dozen reports and papers commissioned by past governments since the early 1990s have recommended reforms to Malaysia’s healthcare financing to ensure it is fit for purpose and future-proofed against the expanding needs of a growing population.
Each time, the government has been unwilling to implement these recommendations, which would require bold, necessary, but unpopular actions. Instead, it has preferred to continue relying solely on taxes and the Federal Consolidated Fund, deferring tough reforms to future administrations.
Seven years ago, RM25 billion was allocated for health under the federal budget. In 2024, this amount increased to RM41.2 billion, but it is still considered an underinvestment, falling short of actual needs.
To meet the target of 5% of GDP for health allocations, at least RM85 billion would need to be secured today, representing more than a 100% increase from current levels and 22% of this year’s entire federal budget.
This is unlikely to happen.
Therefore, we need to change the conversation. We have reached the limits of a tax-based system to fund our public healthcare. We need to secure an additional, consistent source of funds to complement the existing allocation, improve access and quality, and widen the funding base to continue providing affordable healthcare for all.
The statistics department reported that as of last year, Malaysia’s average life expectancy is 74.8 years – 77.4 years for females and 72.5 years for males. Despite excess mortality due to the Covid-19 pandemic, this data reflects progress in quality of life and access to healthcare.
However, it is sobering to note that the last eight years for many people are often spent in ill health and poor quality of life.
Although 11.1% of the population is already aged 60 and above, there is no single government body with the mandate, responsibility, and necessary budget to provide for the care, wellbeing, and support of the elderly.
Neither welfare nor healthcare – under the women, family and community development and the health ministry, respectively – sufficiently covers what is needed. Aged care remains largely dependent on individuals, families, and communities, which is unsustainable.
Malaysia has been deemed ill-prepared for its status as an aged nation by 2030. Funding is urgently needed as spending for aged care is estimated to be four times higher than for the rest of the population.
What we need today is a new source of funds to support Malaysia’s healthcare needs and care for the ageing population.
One realistic option is the adoption of a national health and social insurance system, where means-tested mandatory contributions from eligible working adults would cover the costs of both health and aged care, guaranteeing a minimum level of care for all.
This would create a substantial reservoir of funds similar to the Employees Provident Fund and Social Security Organisation (Soscso). It would apply to all workers and be based on a sliding scale linked to monthly income and age.
This system would involve collective pooling of both funding and risk, enabling patients to access both private and public healthcare systems and making better use of existing resources.
It would coexist with existing private health insurance and make it possible to introduce and fund new treatments, drugs, and therapies without solely depending on the annual national budget.
These contributions would complement, not replace, existing federal allocations.
The RM1 and RM5 fees should also be eliminated. Some mistakenly believe that these fees cover the bulk of healthcare expenditure and that increasing them to RM10 and RM50 (a 900% increase!) could close the funding gap.
Unfortunately, these fees account for less than 0.5% of total health expenditure.
They are obsolete, inadequate for meaningful cost recovery, and mislead the public about the true cost of healthcare.
These charges now act as barriers and distractions to healthcare financing reform and should be removed altogether. Patients should not be required to pay anything at the point of registration.
A national health and social insurance would be a transformative innovation, potentially revolutionising Malaysian healthcare and propelling it into the 21st century rather than relying on piecemeal approaches.
We cannot depend on maintaining what we have today with a 
living from national budget to national budget mindset, facing existential questions every September and October.
A national health and social insurance could pave the way for ensuring that our healthcare workers are appropriately compensated, more nurses, doctors and medical technicians are recruited and retained, and ageing infrastructure is modernised.
It will also ensure that East Malaysia’s needs are effectively addressed, shortages of essential medicines are prevented, and discussions about life-changing and life-saving treatments shift from how we cannot access and afford them to how we can deliver these medicines to those who need them.
The government is committed to ensuring that Malaysians have access to high-quality and affordable healthcare. However, the proposal for a national health and social insurance will face the harsh reality of a continuing trust deficit among Malaysians.
Increased public funding comes with higher expectations for accountability and transparency, making it politically challenging.
Nevertheless, there will never be a perfect moment to introduce such an initiative. The UK’s National Health Service (NHS), which Malaysia is modelled after, was established in 1948, shortly after World War II, by a nation still rebuilding amidst the aftermath of conflict.
We need forward-looking, strong, and audacious leadership, as well as collaboration and partnerships between the public and private sectors.
The key benefits of a national health and social insurance should be clearly outlined: stabilising public subsidisation, allowing space for cost containment, maintaining and improving access and quality of essential services, enhancing access to innovative treatments, funding equitable access to services in the private health sector, and modernising healthcare infrastructure.
Meaningful healthcare reform is essential if we are serious about ensuring we have sufficient funds, resources, and capacity to support and invest in necessary changes. We must also be brave enough to adopt solutions outside our comfort zone.
Note: This article is Part 1 of a three-part series covering healthcare financing, human resources and health infrastructure in conjunction with the upcoming Budget 2025. - FMT
Azrul Mohd Khalib is the founder and CEO of the Galen Centre for Health and Social Policy.
The views expressed are those of the writer and do not necessarily reflect those of MMKtT.

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