5 Awesome Facts You Didn't Know About Medisave & Shield Plans!

When your loved ones get warded in a local restructured hospital, it is common knowledge to expect to settle the hospitalization bill through Medisave, Medishield Life, and Integrated Shield Plans. Our previous article on "3 Terrifying Facts About Critical Illness, You (Probably...) Didn't Know", we found that most people are only prepared to survive one critical illness before drying up their savings.

In this article, we shall take a step back and understand how our national healthcare system helps us out in times of need. Here are 5 awesome facts you didn't know about Medisave and Shield Plans!

#1 Medisave account gives up to 5% interest rate

Medisave follows the CPF Special Account (SA) interest rate, which at present is up to 5% per annum¹.

An additional 1% interest is paid for the first $60,000 combined balance in your CPF account. This floor interest rate represents a form of risk free rate, which can generate quite a substantial interest earned for CPF members. With the additional interest, this brings us to the next point...

#2 Interest earned from Medisave can be more than sufficient to pay your premiums till age 74

The basic healthcare sum (BHS) is the maximum cap a CPF member can have in their Medisave account. The current BHS is at $49,800 on 1 Jan 2016, and is adjusted yearly to keep in pace with healthcare costs nationwide². A little known fact when we talked with people is that anyone with at least a minimum income of $3,500 per month can easily cap out their BHS in around 10 years once you take into account the 4% floor interest rate.

Don't believe it? Let us use a simple illustration, assuming a person earning $3,500 per month, receives no increment for the next 10 years, and have no prior Medisave savings. Their Medisave account would look something like this:

Table 1: Potential Medisave Balance and Interest Earned

^{*iFAST Compilation. Data as of 24 Nov 2016}

This simple illustration shows that even with no salary increment for the next 10 years, a person can still be self-reliant through Singapore's national healthcare system. If you are looking at staying in a B1 ward (4 bed with air-conditioning and television), the current premiums for integrated shield plans will outpace your interest earnings past the age of 85.

However, due to the additional withdrawal limits (AWLs), for a basic B1 integrated shield plan, a person would have to start taking out some cash to fund the premiums around the age of 74. This may be subjected to change as the insurers review their premium rates yearly based on the present claim experience.

#3 Excess Medisave will flow to CPF SA or Retirement Account

Every year when a person turns 65, their required BHS would be fixed. For example, if you are currently 65 this year, the BHS you will need to set aside is $49,800 for the rest of your life. So what happens based on the scenario shown in table 1, when a person exceeds the latest BHS in their Medisave?

The excess balance will be placed into your Special or Retirement Accounts to increase your monthly payouts. So don't worry whether you have too much cash in your Medisave, there is a cap to it and you are still getting a 4% interest on the balance whether it is with your CPF Special Account or Medisave Account.

#4 About 800,000 Medisave account holders are not covered by integrated shield plans (IP)

Despite the benefits of Medishield Life, many CPF account holders prefer the peace of mind and option of choosing to get treatment in higher class wards or private hospitals. There are also sub-limits which are imposed on Medishield Life, which are usually not applicable for IPs as they utilize as charged model.

Out of 3.3 million Medisave account holders, only 2.5 million are policy holders with IPs (in 2015). As such, there are about 800,000 people that are uninsured under the IP³.

Getting an IP which covers A1 ward does not mean you are restricted to stay in that specific class ward. You can still choose to stay in a B1 or lower ward to enjoy the medical subsidies.

Table 2: Ministry of Health Hospitalization and Day Surgery Subsidy⁴

^{*Ministry of Health}

#5 With the right riders, you may not need to pay anything even for private hospitalization

All hospitalization plans in Singapore has two components which the insured needs to pay when they get hospitalized. The first component is deductible, where the insured us expected to pay a portion of the total bill first before any claim is payable. The second component is known as co-insurance where the insured need to co-pay or share after the deductible which is expressed as a percentage.

With the riders on IP, this will lower the total bill that the insured needs to cover. However there can be instances due to multiple complications and surgeries needed, where the bill can rack up to a substantial size. (See "All You Need to Know About Health Insurance")

All IP insurers offer riders which waive the need to pay both the deductibles and co-insurance. The major benefit is, when you need to get hospitalized and seek treatment, you need not worry about the costs and can fully focus on your recovery.

(see "Do You Know That Medical Inflation In Singapore is 15% Now? Part 2")

At Insurance@FSM, we are here to walk with our customers through their life’s journey. Our team of friendly advisers is able to help you review your financial objectives, long term commitments, and customize investment and insurance advice specific to your needs. If you would like assistance in reviewing your financial and protection portfolio, or simply to get a quote for an insurance plan, you can contact our advisers at advisory@fundsupermart.com.

^{1Source: http://www.channelnewsasia.com/news/singapore/minimum-4-interest-rate-for-special-medisave-and-retirement/3143812.html}

^{2Source: https://www.moh.gov.sg/content/moh_web/home/costs_and_financing/schemes_subsidies/medisave/Medisave_Contributions.html}

^{3Source: https://www.moh.gov.sg/content/moh_web/home/statistics/Health_Facts_Singapore/Healthcare_Financing.html}

^{4Source: https://www.moh.gov.sg/content/moh_web/home/pressRoom/Current_Issues/2014/s-3ms-resources/hospitalisation-and-day-surgery.html}

Interested to learn more? Check out these articles:

3 Terrifying Facts About Critical Illness, You (Probably…) Didn’t Know

Worried About Critical Illness? Here’s 3 Plans You Should Know

Do You Know That Medical Inflation in Singapore is 15% now? Part 1 / Part 2 / Part 3

With Medishield Life, will I be sufficiently covered?