For many Malaysians, private healthcare has long been a necessary yet costly safety net. But in 2024, medical inflation in Malaysia hit a new high of 15%, outpacing the global average of 10% and APAC’s 11%, Bank Negara Malaysia (BNM) reports.

More than just a number, it’s a point of concern for many policyholders already struggling with rising insurance premiums, out-of-pocket costs, and the stark reality that medical coverage is slipping further out of reach.

Malaysia’s medical inflation spike has been years in the making. Opaque pricing by private hospitals, rising pharmaceutical costs, and increasingly sophisticated medical treatments have contributed to escalating healthcare expenses. In turn, these pressures have driven insurance premiums higher.

 The result? Policyholders are left paying more, while the industry’s pricing strategies continue to evolve with limited external regulatory intervention.

What’s driving medical inflation in Malaysia, how do BNM’s Five Strategic Thrusts and Nine Initiatives aim to address its challenges, and what can consumers expect next?

A Quick Dive Into the Medical Inflation Scene From 2024

In November last year, reports surfaced about looming insurance premium hikes ranging from 40% to 70%. Consumers had apparently begun receiving notices from insurers, attributing the increases to the rising cost of healthcare.

Notably, BNM highlighted other key drivers of rising medical inflation, including the growing prevalence of non-communicable diseases, an ageing population, increasing healthcare manpower costs, and advancements in medical technology.

BNM addressed concerns over the upcoming repricing of medical and health insurance and takaful products, emphasising its commitment to ensuring the public retains access to affordable and appropriate coverage. In fact, in July 2024, BNM mandated that insurers and takaful operators publish reasons for premium changes on their websites and notify policyholders in advance.

It has urged the insurers to implement fairer and more balanced pricing strategies.

In December 2024, BNM announced interim measures requiring the insurers to stagger premium increases over a minimum period of three years. This approach will remain in effect until the end of 2026, ensuring that at least 80% of policyholders face annual premium adjustments of no more than 10%, as outlined in the graphic below.

The Growing Burden of Medical Inflation on the Rakyat

Healthcare costs in Malaysia continue to rise, placing an increasing financial strain on consumers. In 2023, Malaysians spent RM84.2 billion on healthcare expenses, as reported by The Star, reflecting the greater reliance on insurance.

Contributions to medical and health insurance/takaful increased sixfold, from RM 960 million in 2003 to RM 6.75 billion in 2023.

Rising Insurance Premiums vs Industry Profits

On the insurer end, Malaysia’s insurance providers reported strong profits in 2023.

Allianz reported a profit after tax of RM730.9 million in 2023, a 19.1% increase from the previous year. Likewise, The Edge reported that Prudential Assurance closed its financial year on 31 December 2023 with a net profit of RM 963.47 million, marking a 68% jump from RM 572.16 million in the previous year.

However, these profits come at a time when policyholders are facing rising insurance premiums, amplifying frustrations over affordability and fairness in the industry.

Prudential Malaysia recently announced a medical insurance premium hike, prompting lawmakers to urge BNM to intervene, Malay Mail reports. Previously, Free Malaysia Today reported Prudential’s plans to raise premiums for its medical insurance due to a 19.6% rise in insurance claims. with future annual reviews if medical costs kept rising.

The insurer has since reaffirmed its support for BNM’s staggered premium increase measures, and assured policyholders they are being notified in stages with additional assistance for eligible customers.

For policyholders facing these rising premiums, this contrast is stark. The sixfold increase in insurance contributions over two decades underscores the growing reliance on private insurance. Yet premium hikes — such as Prudential’s proposed increase — are met with resistance and more so, concerns of a bigger consumer wallet reach.

Rising Healthcare Costs and Private Hospital Profits

Beyond insurance, Malaysia’s private healthcare sector is also seeing record revenue growth. KPJ Healthcare Berhad, a leading local private healthcare provider, achieved a significant milestone in the third quarter ending 30 September, surpassing RM 1 billion in revenue for the first time, according to a report by The Rakyat Post.

The JCorp-owned company attributed this achievement to a 6% rise in inpatient admissions. KPJ’s revenue grew 14% year-on-year to RM1.03 billion in Q3 2023, supported by a 72% bed occupancy rate, 103,228 inpatient admissions, and 784,437 outpatient visits.

While the high-valued revenue drew mixed reactions from the public, many also acknowledged that such earnings are typical for private hospitals, given their high operational costs.

Factors such as advanced medical equipment, building upkeep, and consumables, often sourced internationally, significantly contribute to the overall expenses.

Striking a Balance Between Sustainability vs. Affordability

As medical inflation accelerates, insurers, regulators, and healthcare providers must collaborate to address cost pressures while ensuring affordable access to healthcare. The long-term sustainability of medical and health insurance and takaful plans depends on tackling the root causes of rising costs, rather than relying on frequent premium adjustments that burden policyholders.

Without effective intervention, rising medical inflation in Malaysia may push more Malaysians toward the already strained public healthcare system, deepening the divide between those who can afford private care and those who cannot.

A balanced approach, one that safeguards insurer viability while protecting consumer interests, will be critical in shaping Malaysia’s healthcare landscape in the years to come.

Five Strategic Thrusts and Nine Initiatives by BNM

In response to medical inflation in Malaysia, BNM is collaborating closely with key stakeholders, including the Ministry of Finance, the Ministry of Health, ITOs, private hospitals and clinics, and consumer groups, to implement nine key initiatives aimed at slowing the pace of medical inflation.

These efforts are guided by five strategic thrusts designed to create a more sustainable and equitable healthcare ecosystem, as shared in BNM’s recent annual report release for 2024.

First Strategic Trust: Greater Price Transparency

The first key strategic trust aims to improve price transparency. This includes displaying retail drug prices and publishing price ranges for common healthcare services. These efforts will help policyholders and ITOs compare prices across different medical providers and encourage healthy competition.

A mechanism will also be developed to regularly track, monitor, and publish key medical inflation measures, aligning the methodology more closely with how general inflation is calculated.

To support these initiatives, the Ministry of Health will review and update the current regulations and oversight of private hospitals.

Second Strategic Thrust: Improved Provider Payment Mechanisms

The second strategic thrust focuses on implementing a Diagnosis-Related Groups (DRG) payment mechanism to replace the existing fee-for-service provider payment mechanism at hospitals.

Under the DRG mechanism, patients will fall into groups based on their diagnosis and medical needs, with adjustments made for severity and co-existing conditions. Each group is assigned a predetermined payment rate, incentivising efficiency and health outcomes while offering greater predictability in costs.

Third Strategic Thrust: MHIT Transformation

The third strategic focus is transforming medical and health insurance and takaful offerings by creating a base MHIT product. This product is designed to provide a scalable solution that ensures more sustainable premiums over time through larger risk pooling.

Developing this base product will happen in tandem with cost containment measure implementation. These include adopting the Diagnosis-Related Groups payment mechanism (under the Second Strategic Thrust), prioritising a cost-effective benefits package, and the strategic purchasing of healthcare services.

Fourth Strategic Thrust: Cost-Effective Options

The fourth strategic focus aims to boost the availability of affordable, mid-tier hospital beds through the implementation and expansion of the Rakan KKM7 initiative by the MOH, which can also act as a price benchmark.

Additionally, it seeks to encourage the growth of not-for-profit hospitals. This initiative is designed to provide policyholders with more cost-effective healthcare options.

Fifth Strategic Thrust: Digital Health

The fifth strategic priority focuses on improving the interoperability of electronic medical records (EMRs) across hospitals. This initiative aims to address the fragmentation of health records, currently dispersed across various healthcare facilities.

By ensuring greater accessibility and portability of patient medical data, EMRs will enhance the quality and continuity of care while minimising the need for redundant diagnostic tests and procedures. In the long run, this will boost operational efficiency and drive cost reductions.

Illuminating a Path to Consumer Confidence

The approach to tackling medical inflation in Malaysia, as outlined by BNM’s strategic initiatives, signals a measured effort to balance industry profitability with consumer protection.

The push for enhanced price transparency, revised provider payment mechanisms, a streamlined MHIT product, cost-effective healthcare options, and digital health integration could help moderate premium hikes and offer a more predictable cost structure.

If these initiatives are well executed, consumers may experience a notable shift in sentiment — from current concerns and frustration over rising costs to a more confident outlook, knowing that premium adjustments are transparent and based on a more sustainable framework.

The success of these reforms hinges on effective oversight and collaboration among regulators, insurers, and healthcare providers.

Source of main image: Edited from Freepik