Malaysia's Rising MHIT Costs Mainly Driven By Higher Healthcare Use -- World Bank

KUALA LUMPUR, April 28 (Bernama) -- Cost pressures in Malaysia’s medical and health insurance/takaful (MHIT) sector are driven mainly by higher utilisation of healthcare services and misaligned incentives, rather than sharp increases in treatment prices, according to a World Bank Group report.

The World Bank said Malaysia's service-level medical inflation remained modest compared with growth in claims paid and total billed amounts, implying that increased utilisation of healthcare services is central to the sector’s affordability challenge.

"Potentially avoidable inpatient episodes provide a clear signal of misaligned incentives and gaps in clinical pathways," it said in the report titled "Cost Drivers in the Malaysia Health Insurance and Takaful Sector: A First Look at the Centralised Claims Database", published today.

In a separate statement, the World Bank said the main cost driver is rising utilisation of healthcare services, contributing around 70 per cent of cost growth, while higher average costs per claim (prices) are a secondary driver, accounting for 25 per cent.

"Both are important as they highlight the opportunity for coordinated efforts across stakeholders to manage utilisation and encourage more efficient care models in line with value-based care," it said.

Overall, claims inflation in Malaysia stood at 21.6 per cent in 2024, outpacing premium inflation of 13.2 per cent, the report showed.

"This reflects underlying medical cost trends in the private health sector that continue to exert pressure on insurance premiums, underscoring the need for reforms to preserve access and choice for the public through a more sustainable MHIT solution," it said.

The World Bank also noted that current MHIT product design may contribute to higher utilisation.

To address this, it said annual limits for base plans better reflect reasonable charges for treatment episodes across common medical conditions, based on actual claims data.

"The annual limit of the base MHIT plan, set at RM100,000 and automatically adjusted upwards to RM150,000, would be adequate to cover 99 per cent of treatment episodes.

"Cost-sharing features also help control unnecessary utilisation of healthcare services while continuing to protect policyholders from high upfront costs," it said.

On diagnosis-related group (DRG)-based payments, the World Bank highlighted the large and growing share of unregulated hospital supplies and services (HSS), which are prone to provider-induced demand and account for 70–74 per cent of total costs.

"Phased implementation of DRG may help remove incentives for providers to increase hospital supplies and services (HSS) and encourage more efficient delivery of care within episodes.

"However, in the interim, there is an opportunity to further explore how restructuring hospital bills can enhance transparency in this area," it said.

On improving spending efficiency, the World Bank said tiering hospitals with differentiated co-payment levels would help ensure network hospitals demonstrate appropriate resource use aligned with best-practice, cost-efficient care models, while meeting minimum standards of cost transparency and service levels.

-- BERNAMA