BY: Larry Haverkamp (Doc Money)

THERE seems to be general agreement that everyone should have health insurance. It comes in two varieties: Basic and advanced.

The basic health insurance is MediShield. It has the advantage of being cheap. But it doesn't cover every conceivable health problem.

More advanced is private health insurance. It starts with MediShield and adds onto it. While it gives more coverage, it is not cheap.

Everyone seems to favour private shield plans. They are offered by five insurers: AIA, Aviva, GE Life, NTUC Income and Prudential.

All are CPF-approved, which means you can use up to $800 a year from your Medisave account to pay the premiums.

Of course, you can also use Medisave to pay MediShield premiums, which are much lower.

Why lower? For one thing, MediShield does not pay commissions. Private shield plans do.

Insurers do not disclose it, but agents and advisers tell me they get 10 to 15 per cent of first-year sales. The commission declines in subsequent years.

It is easy money because most people do not switch health insurers very often. Renewal is automatic.

While no one has a bad word to say about private shield plans, the high costs are a problem.

What you get compared to what you pay - claims to premiums - is low. It is much lower than either MediShield or group health insurance.

DOUBLE COVERAGE

Group insurance is a third option, but it is available only to people who work for an employer that offers it. The coverage also expires when you leave your job.

On the plus side, it offers the best value for money as the claims-to-premiums ratio is highest.

A concern has been that if you leave a job at retirement, you may be in poor health, making it hard to get insurance.

The standard advice has been to buy a shield plan when you are young, before any medical problems surface.

Of course, this means you will be paying for double coverage for many years. It makes health insurance extra expensive, especially if your back-up insurance is not MediShield but a private shield plan.

As explained, it is in the financial interest of advisers to sell private on top of group health insurance. The media also tilts in this direction.

The article, 'Shield plans spare you the worry of having to fork out thousands of dollars for that trip to the hospital' (The Straits Times, 20Jul) explained it well:

'Many people hold off buying private Shield plans because they believe that they are adequately covered by their employers. That's a very short-sighted view.

'Such covers are usually not portable, and there will come a day when you will leave your employer. Also, as you grow older, you may develop medical conditions and it is very difficult to find an insurer who will cover you once you have them.'

I agree. That is good advice IF you can afford it.

But not everyone can pay for protection that sits on the shelf for decades.

Any claims are typically made against the group insurance policy, perhaps thinking that it works like car insurance and making a claim will raise the premiums. (It won't.)

For insurers, it is the best of both worlds: Premiums are high and claims are low. The result is big profits.

Insurers earn 97 per cent of their profits from private shield insurance and only 3 per cent from group insurance.

Double coverage reminds me of my rich Indonesian friend, Jefri.

He typically orders three meals at a time so he can sample the best of each dish. (Surprisingly, he is a thin fellow.)

Big spending is okay if you can afford it. For most of us, ordering one meal at a restaurant is probably enough. One group health insurance plan may also be enough.

If it's not, an inexpensive back-up plan - like MediShield - may be a good choice in these inflationary times.

This article was first published in The New Paper on August 11, 2008.