Friday, October 01, 2004

MediShield reserves exceed $500 million 

The Straits Times reported today that the government-run insurance scheme MediShield has reserves of $524 million comprising both premiums collected and investment income. As a comparison, up to the end of last year, it had paid out a total of $516 million in claims. According to The Straits Times, the claims paid out each year have never exceeded the premiums collected.

In spite of this, the Health Ministry is planning to raise premiums. Financial planner Leong Sze Hian questions the need for this as, according to him, commercial insurance companies usually work on a loss ratio of over 100 percent, which means that they pay out more in claims than they collect in premiums, with profit coming from investment income.

Many would no doubt consider this as just another example of the government’s obsession with accumulating surpluses.

I wonder, though, whether the problem is really one of inadequate investment income, which then needs to be supplemented with higher premiums to meet claims.

This would be consistent with another article in The Straits Times today, which reported that ratings agency Standard & Poor’s (S&P) has claimed that the Singapore government achieves “markedly inferior” investment returns on its assets over the last five years compared with Hong Kong.

It needs to be pointed out, though, that the S&P obtained the Singapore government’s investment returns by dissecting figures in the budget statements as well as those in financial statements from the Accountant-General. This is not likely to be very accurate.

And, of course, returns from Medishield funds may differ substantially from the returns of other government funds.

Nevertheless, the fact remains that in a period of high unemployment and generally low inflation, the government needs to be sensitive to cost-of-living issues. And especially with prices that it control, it must be vigilant in ensuring that they do not rise unjustifiably.


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