The fundamental issue at the core of Malaysia’s healthcare crisis is the uncontrolled escalation of medical costs and our increasingly unsustainable dual system — the public healthcare sector is way overstretched while the poorly regulated private sector is profiting from the lack of transparency. We fail to see how introducing a new MHIT product that allows low-middle-income families to withdraw from their EPF savings to pay for the premiums — so that more can switch from overstretched public healthcare to private hospitals — addresses any of the underlying problems.
Yes, it might alleviate the worries of those who fear losing the protection of their medical insurance because they are unable to afford the latest insurance premium hikes and, therefore, access to healthcare when they need it. At best, this is simply a Band-Aid solution. More likely, it will lead to an even greater risk of Malaysians retiring in poverty, a growing problem that is already evident today.
It is crucial to understand that paying for insurance premiums by withdrawing from EPF savings is no different from paying out of pocket, only that we do not feel the pinch now. The pain may not be immediate, but what about decades from now?
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Here is the stark reality. According to EPF’s latest 2023 Annual Report, only 33% of active formal sector members have met the basic savings target for their age. Fewer than 20% of members (both active and inactive) aged 54 have sufficient savings to meet the minimum benchmark of RM240,000 ($72,423) (the amount based on the Belanjawanku Expenditure Guide 2022/23 that assumes a modest monthly drawdown of RM1,000 over 20 years) (see chart).
The fact is that Malaysians are struggling to save enough for retirement as it is. If we begin tapping into this already-inadequate pool of funds to pay for healthcare expenses today, we might well be left with little to nothing when we are old and most in need.
A new MHIT product also does nothing to address the deep imbalance of power between patients and private insurers and private hospitals. To make matters worse, the government appears to have sided with these private entities — by allowing them all the bargaining power vis-à-vis the patient. Desperate patients have few options, limited knowledge relative to their doctors and even less say on the costs, except to pay the price. Indeed, there is no promise of protection against rising future premiums with this new MHIT product — only that we will have to find ways to pay for the rising costs.
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Allowing EPF withdrawals to be used to pay for private insurance merely opens up yet another pool of money for private insurers and hospitals to profit from. And once this fresh stream of funding is available to absorb rising medical costs, what incentive remains for them to curb inflation at all? So, then, what might a real solution look like?
Data transparency and a shared responsibility between policyholders and insurers
Greater transparency would be a good start. Policyholders must be fully informed about what they are paying for, how their insurance policies work behind the scenes and the risks they are taking on before committing to long-term plans.
Far too often, people are drawn to (aggressively marketed) comprehensive policies that seem like a bargain, that have extensive coverage worth millions (even unlimited cap) of ringgit. Most are lulled into the false belief that by choosing a more “premium” and extensive plan and signing up young, they can lock in lifelong protection and never have to worry about healthcare costs again. But, as we have experienced in the past one year, this is just an illusion. Policyholders were hit with huge, unexpected premium hikes — and, for some, premiums they can now no longer afford. They are caught between two equally painful choices: (i) swallow the premium hikes; or (ii) forfeit their insurance altogether, effectively losing the value of all premiums paid to date.
Unlike life insurance, under which the payout is fixed and predictable, the cost of medical insurance is highly dependent on unpredictable healthcare cost escalation, disease evolution and shifts in population behaviour. Premiums are based on a set of assumptions. As we have been repeatedly reminded by the insurers, it is impossible to predict claim ratios and medical cost inflation beyond the immediate term. Trends change. People’s behaviour change. Therefore, premiums change.
Of course, we understand this. This is why transparency at the point of sale is crucial. Potential customers must be made to understand that the premiums they are quoted are only estimates, based on a set of assumptions. Yet, the assumptions used by insurers — such as the claim ratio and medical inflation rates — are not clearly spelt out in the policies sold.
Insurers (and their selling agents) must make transparency a priority and assume the responsibility to educate consumers on the true nature of insurance, its features, limitations and long-term financial implications. Policyholders must never again be led to believe that their premiums will remain constant for decades to come. They must be shown how premiums would rise if and when the actual claim ratio or medical inflation rises above the estimates applied. By understanding the possible range of future premium increases, individuals can then make more informed decisions: to choose a plan that will remain affordable even after accounting for potential future premium hikes, rather than being blindsided down the road.
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People must also be made aware of all the alternative policies (not just the most profitable one for the insurers) available, so that each can select the plan that genuinely aligns with their prevailing healthcare needs and financial capacity. Not everyone needs an “all-in” policy, especially one that overpromises and under-delivers.
For instance, insurers and their agents must apprise potential customers of lower-priced plans with a co-payment option. Bank Negara Malaysia had mandated that insurers and takaful operators must offer consumers an option to purchase MHIT products with a co-payment feature, effective from September 2024. Co-payment instils a principle of shared responsibility between policyholders and insurers by requiring the insured to bear a portion of the total medical bill, thus encouraging a more thoughtful decision-making process when it comes to seeking medical care. When policyholders are responsible for part of the cost, they are more inclined to weigh the necessity and value of each medical decision, as there is a direct financial implication for every choice made. In effect, policyholders become active participants in managing their healthcare expenses, thereby limiting the “buffet syndrome”. This creates a more sustainable system where medical inflation is less likely to spiral unchecked.
That said, the use of co-payments must be carefully balanced. They should never become barriers that deter people from seeking necessary care, nor should they serve as yet another profit-maximising tool for insurers to shift costs onto policyholders. There must be clear guidelines, caps on out-of-pocket costs and support systems to ensure that, while unnecessary utilisation is discouraged, no one is denied necessary treatment because of cost.
Stop outsourcing healthcare to profit-driven private sector
Ultimately, though, Malaysia’s healthcare crisis is not an insurance problem. It is the government’s irresponsibility that has led to many middle-income families falling through the widening cracks between public and private healthcare. How? By not ensuring sufficient public healthcare capacity to meet growing demand and outsourcing this critical service to the profit-driven private sector. As recently as June 27, Health Minister Datuk Seri Dr Dzulkefly Ahmad posted on X (formerly Twitter) that expanding access to health insurance would help ease congestion in public healthcare facilities, allowing the government to focus its budget on the B40 group.
Let us be very clear. Access to quality public healthcare is not a privilege for the poor — it is the basic right of EVERY Malaysian, funded by the people’s own tax money. The decision to seek public healthcare services or go to a private hospital must always be a CHOICE, never a compulsion. Stop pushing hard-working, tax-paying middle-class families — already struggling under the rising cost of living — to the private sector, in effect draining their savings on overpriced private care.
The government is asking middle-class Malaysians to pay higher taxes, such as through the latest expansion of the Sales and Service Tax (SST). It must, therefore, justify the higher taxes by using the tax revenue efficiently and effectively — by investing in a robust, reliable, accessible and high-quality public healthcare system: one that is not overwhelmed, underfunded and pushed to the brink. Increase the number of doctors, nurses and healthcare facilities to meet growing demand in our ageing society. In neighbouring Singapore, the public healthcare system is accessible to both rich and poor, arguably better equipped with the latest technology and able to provide a higher quality of specialist care than many private hospitals. Fix the foundation of our healthcare infrastructure to protect Malaysians from being trapped in the never-ending spiral of private healthcare costs.
The Malaysian Portfolio fell 0.1% for the week ended July 9, performing better than the benchmark FBM KLCI, which fell 1.4%. Kim Loong Resources was up 0.4% whereas Insas Bhd – Warrants C ended unchanged. United Plantations traded 1.6% lower. Total portfolio returns now stand at 183.2% since inception. This portfolio is outperforming the benchmark index, which is down 16.4% over the same period, by a long, long way.
The global Absolute Returns Portfolio also ended lower last week, down by 0.5%. The loss pared total portfolio returns since inception to 25.4%. The three gaining stocks were ChinaAMC Hang Seng Biotech ETF (+4.7%), Trip.com (+3.5%) and CrowdStrike (+3.5%). Alibaba (-5.9%), JPMorgan (-3%) and Goldman Sachs (-2.7%) were the biggest losers for the week.
The AI portfolio, on the other hand, gained 1.8%, lifting total portfolio returns since inception to 0.1%. The top three gainers were Datadog (+5.7%), SAP (+4.6%) and Twilio (+4.3%) while the two losing stocks were Alibaba (-5.9%) and Intuit (-0.5.%).
Long-term rates will stay high or higher even if Fed funds rate is forced down
An articulate reader challenged our investment thesis from last week’s article — the divergence between the US and the rest of the world on inflation, interest rates and economic growth. Principally, what US President Donald Trump wants, he gets. And he wants the federal funds rate (FFR) to be cut to 1%, from the current 4.25%. This will reduce the interest costs of servicing the ballooning US federal government debts and to stimulate economic growth. In other words, contrary to our thesis that US inflation will be higher — owing to the rise in domestic prices, following the tariffs imposed, as well as the effect of the weaker US dollar (USD) — and therefore US interest rates must stay higher for longer than other major markets, it would indeed be the opposite. Therefore, the US equity market and USD bonds would outperform the world.
Our answer and reasons are as follows. Of course, anything is possible. And, clearly, the possibility is very high that Trump will get what he wants soon with regard to the Federal Reserve. But, in this case, if Trump gets what he wants, the consequences to the US economy, US equities and US consumption could indeed be even worse than we expect. Why?
The Fed controls the short term-rates (the FFR), and if it cuts at a time when inflation is rising, the most likely effect is that long-term interest rates will rise instead. This happened in 2024 (see chart).
The other consequence will be a sharp fall in the USD. Already, despite the substantially higher US interest rates versus, say, the euro, the USD has fallen significantly.
A sharp rise in long-term rates will be disastrous for the US property market. Already, sales of residential properties in the US are down sharply. The spike in prices over the past five years have made homes increasingly unaffordable. They will be even more unaffordable if long-term interest rates rise sharply — which is what mortgage interest rates are based on.
A fall in the USD will cause US assets, including equities in the USD, to lose their value.
About 60% of US household assets are in real estate and equities. A fall in both will severely reduce US domestic consumption because of the negative wealth effect.
Could we be wrong? Of course. Investing is about seeking opportunities after careful analysis, while acknowledging and providing for the fact that one could be very wrong. It is not gambling. It is balancing the trade-offs of rewards and risks.
One is reminded of a popular quote attributed to Socrates (which may not in fact be true): “The intelligent man learns from everything and everyone, the average man from his experience, the stupid man already has all the answers.”
Disclaimer: This is a personal portfolio for information purposes only and does not constitute a recommendation or solicitation or expression of views to influence readers to buy/sell stocks, including the particular stocks mentioned herein. It does not take into account an individual investor’s particular financial situation, investment objectives, investment horizon, risk profile and/or risk preference. Our shareholders, directors and employees may have positions in or may be materially interested in any of the stocks. We may also have or have had dealings with or may provide or have provided content services to the companies mentioned in the reports.
