Continued from: Part 1
Now let's look at the health insurance & health care ecosystems in Malaysia.
Firstly, what is the purpose of health insurance?
Why do we need Health Insurance?
The answer to the above is unique to each country. In Malaysia, public healthcare is essentially free of charge to citizens, but gives no assurance on the timeliness and getting the right treatment becomes a question of luck and connections at times. Health insurance is obtained mainly for treatment at private health facilities, as the cost of health treatment can be astronomical (above RM100,000 for severe hospitalisations) and does cause bankruptcies for the uninsured.
What options do we have for financing healthcare? Insurance, savings, personal loans/BNPL (buy now, pay later), credit cards etc come to mind. When structured right, insurance should be the most cost-effective of all of these financing options, provided the individual is insurable (i.e. the individual is healthy enough to be accepted into a health insurance plan).
Insurance can be seen as a way of pooling together a large number of individuals to collectively get a better shared cost for financing healthcare. In its essence, insurance has a pure motive of people coming together to share costs and help each other. But as the ecosystem is built and becomes more complex with a variety of providers and stakeholders, the motive gets more complex & mixed up.
The Health Insurance Ecosystem as it stands
In Corporate Finance, a lot of study is devoted to the "agency problem".
Simplifying this topic - a company has shareholders and appoints a management team to run the company. In an ideal world, the management team works in the best interest of the shareholders (who actually own the company), and make decisions that maximise the shareholder's wealth. Practically, there is a conflict of interest because the management team is not always incentivised to maximise the shareholder's wealth, and may have their own interests at play - hence we have the "agency problem"
Taking this to the context of the health insurance ecosystem, the "agency problem" is magnified significantly at the expense of the poor customer.
This is quite apparent when we unravel it. At the centre, we have the customer, who needs health treatment from private hospitals (and clinics, tertiary care, etc), and buys medical insurance now to finance this intangible need that may arise at a future date.
There are separate entities, all "for-profit" corporate entities in this ecosystem. Firstly the insurance company, which is funded by shareholders (including private & foreign investors, Malaysian sovereign funds) and creditors. The insurance company's management reports to its board of directors, which consists of both independent and non-independent executive directors, representing shareholders. So the customer and the shareholder here are different entities - the insurance company needs to generate profits for the shareholders, through its insurance products marketed to the end customers.
Secondly, the private hospitals. These are also "for-profit" corporate entities, with shareholders & creditors - where they too need to generate profits for the shareholders, through its healthcare services marketed to the end customers.
Here, a disjoint occurs because the payment to private hospitals happens through insurance companies, while the services are given to the customer. So now the hospital is incentivised to treat the customer very well, to ensure a good pipeline of revenue, but is not incentivised to keep its costs affordable, because an insurance company with deep pockets is paying for it.
This leads to what I call an "adversarial ecosystem".
What is an "adversarial ecosystem" and what is its implication?
In the current ecosystem (and many others around the world), each entity is working against the other. The private hospitals need to get more payments from insurance companies to ensure a strong revenue stream. Insurance companies need to limit payments to control costs of running the insurance program to ensure it is profitable. Essentially one entity's gain is the other's loss.
The customer, for whom the entire eco-system is designed in the first place, is forgotten as the ultimate payer for everything here. The goal of the best healthcare outcome for the customer may not be prioritised for both entities, as it need not necessarily be the best outcome for their shareholders (best healthcare can both be extremely cheap, or very expensive)
Linking this back to the points mentioned in part 1, the "cashless" design of medical insurance has exacerbated this "agency problem" in the health insurance ecosystem.
What are alternatives to this adversarial ecosystem?
In the next part, we will study the different models of healthcare ecosystems around the world - each is unique, and some (eg Thailand, Taiwan) have been very successful at controlling medical inflation & ensuring good health outcomes.
Through this, we will aim to find elements from these models that can be applied in Malaysia. Of course, changing the eco-system is no easy task, but recognising the need for change is the first step in this journey.
(To be continued...)
Comments