Written by Dr Stewart Nixon, Director of Research of the Institute for Democracy and Economic Affairs (IDEAS).

Last month, Bank Negara Malaysia (BNM) released a white paper detailing its jointly developed (with the Ministries of Health and Finance) proposal for a base medical and health insurance/takaful (MHIT) plan. The base MHIT forms part of a government strategy to make medical insurance more accessible and affordable — a goal that is not only worthwhile but imperative to raise healthcare standards and equity in Malaysia.

The proposal neatly describes the steep challenges surrounding MHIT in Malaysia. Population coverage is desperately low for a country of Malaysia's development, with just 22% of Malaysians having individual private medical insurance. Low coverage rates and the absence of a national insurance fund result in high out-of-pocket expenses, inequitable access to treatment, and insufficient pooled scale to prevent rising health system costs from rapidly inflating premiums on policyholders.

The white paper proposes two insurance plans as "standard" alternatives to commercial offerings. The plans appear studiously developed, with one aimed as an affordable entry product with lower co-contribution levels but a lower limit on claims and higher premiums, and the other targeting people with basic employer coverage who want to insure against catastrophic events only. Premiums could be paid using EPF savings and there would be options to include discounted preventative care and wellness cover.

As carefully crafted as the proposed plans are, it is hard to see them meaningfully addressing Malaysia's insurance market and health cost challenges. Key design choices skirt around instead of incorporating more impactful approaches available to BNM.

Firstly, opt-in insurance products designed to fit within existing market structures are unlikely to meaningfully expand population coverage. The products represent more closely regulated options purportedly customised with consumers front of mind, but they are still private insurance products that are marginally distinct from existing plans. They offer incremental innovation not a potential market disruptor and are thus unlikely to move the needle enough to greatly expand the insurance pool.

Secondly, the paper provides quite limited guarantees around expected premiums. The plans will have premiums set by authorities based on sound analytical principles, but compelling insurers to offer the product under threat of market expulsion is a high-risk strategy that could easily backfire. Political and reputational pressure to ensure the product improves rather than collapses the market tempers BNM's scope to drive a hard bargain. Pressure to lower premiums may not be as great as hoped.

Thirdly, creating a two-tier system for participating and non-participating medical providers, alongside setting claim limits calibrated against low- to mid-tier private hospitals, risks limiting treatment access and coverage. Malaysia's access to specialist medical care is already geographically unequal without insurance coverage penalising policyholders for seeking care at 'out of network' providers. On face value it creates a perverse incentive for hospitals not to participate, as 'out of network' providers retain flexibility to charge more while policyholders foot more of the bill. And it's hardly an advertisement to take up insurance if premiums only provide access to a 'lesser' private hospital system.

Fourthly, the exact scope of treatments to be covered is not declared but appears focused on emergency events not chronic conditions. The white paper argues that the proposed claim limits would be sufficient to cover 99% of existing claims, but this is not the same as saying it would cover 99% of conditions or treatment expenses, given the expansive range of conditions and treatments that are typically excluded from insurance in Malaysia. As IDEAS' recent report on innovative financing models for rare disease treatments highlights, the promise of building deeper insurance pools should be to expand equitable access to treatments that can save and improve lives. The proposed plans do the opposite by circumscribing coverage to prioritise affordability over accessibility.

And fifth and foremost, the white paper treats governance uplift as an afterthought when it needs to be an essential insurance reform pillar. The last paragraph provides a vague promise that "claims rules and adjudication processes will be developed", providing insufficient recognition of the role Malaysia's punitive and archaic systems play in discouraging insurance uptake. Speaking from personal experience, uncaring and inflexible insurance providers deploy every trick to turn straightforward claims into endless, mind-numbing red tape to avoid paying. They can do this because of loopholes in remedial action, like a financial ombudsman service that cannot support policyholders until the insurer has officially finalised a claims process. And because laws care more about protecting insurers from fraud than consumers from predatory claims processing.

As a financial economist and health policy advocate determined to see Malaysians have greater and more equitable access to world-class medical care, I am a firm believer that deeper pooled mechanisms including private insurance need to be grown. Achieving this requires a major structural shift in insurance markets and their governance, not a gentle prod from base MHIT plans. Regulators and insurers must build a system that is trusted, equitable, and accessible — not just affordable — to have any hope of getting more Malaysians on board.

The views expressed in this article are solely those of the authors and do not necessarily represent the views or positions of IDEAS Malaysia. All opinions are the author’s own.