News reports say health insurance premiums are increasing by 40% to 70% in 2025 for Malaysians. What’s going on and why? This is Part 2 in our series about Rising Health Insurance Premiums. 

In the first part of this series, it was highlighted that insurance providers experienced slowing profits and needed to pay out more medical claims. But, what is the story from the healthcare companies’ point of view?

Medical costs have indeed been rising in Malaysia, but this is only half the story. Like insurance providers, healthcare companies face complex problems, especially when their services involve human lives.

They are after all, private companies with the objective of making profits. And if their costs are increasing, they have to increase prices to remain profitable. Higher prices equate to more being covered under health insurance, and higher insurance premiums.

Healthcare System in Malaysia

In the first part, we highlighted that the healthcare insurance industry grew in leaps and bounds from the growing demand for private healthcare services. And Malaysians sought out private options when they face long queue at government hospitals and clinics but pay a higher price.

The healthcare system in Malaysia is best described as a ‘dual system’ of both government and private services (Source: David Quek). And for better or worse, they serve different groups of Malaysians depending on their location.

Generally, in the big cities, there are both government and private healthcare options. And, there are more private healthcare companies to serve higher-income groups (Source: Susan, LooSee, Rusli). However, in the rural areas, almost all of the healthcare needs of Malaysians are provided by the government (Source: David Quek).

How the Business Model Works

A private healthcare company is either a hospital or clinic. Both will have slightly different business models, but typically serve Malaysians who can afford to pay higher prices. They provide healthcare services at a quicker speed, debatably higher quality, and with more choices compared to government healthcare.

For a hospital or medical centre, their revenue would be from patients:

  1. Consulting doctors
  2. Staying at the hospital
  3. Buying medications
  4. Undergoing surgery and medical procedure
  5. Using the various medical devices for testing/treatment

A private clinic is the same, just without staying at the hospital and undergoing surgery. But what are their biggest costs to their businesses?

We took a look at two of the biggest healthcare companies in Malaysia, and scoured their annual reports (so that you don’t have to) and here are two key findings

  1. Staff salary makes up the biggest cost for them, at around one-third of revenue.
  2. This is followed by medical supplies and other inventories at around one-fifth of revenue.

Both staff salary and medical supplies/inventories already takes away about 60% of the company’s revenue in a given year. To find out why prices have been increasing, these two components will be key to look at.

Why Medical Costs Have Been Increasing

According to data from Bank Negara Malaysia, medical cost increase reached 15% in 2024, higher than the global average of 10%.

In the first part of the series, we did highlight that higher nurses salaries (higher minimum wages) and prices of equipment and medicine were the main contributors. And also, the demand from Malaysians for more sophisticated treatments and technologies have also increased.

Let’s examine them one by one here to get a clearer picture.

Why 1: Higher Salaries?

Firstly, it is hard to get specific data on salaries of doctors, nurses, and the support staffs. But Department of Statistics Malaysia (DOSM) does publish median salaries for workers classified as ‘Human health and social work activities‘. It includes trained medical professionals in hospitals and other medical facilities.

From the data, median salaries have actually grown by an average of 7.1% every year from RM2,300 per month in 2013 to RM4,566 per month in 2023. And if we take a closer look at the trend, the sharp increases did coincide with the increase in minimum wages in Malaysia.

Source: DOSM

The rising minimum wage threshold would impact support staff in healthcare workplaces. Which then in turn would impact the salaries of everyone higher in the food chain as certainly more skilled workers, such as doctors and nurses, would naturally earn higher wages so their pay goes up accordingly. With that, it does make some sense that the higher minimum wages have increased the salaries of employees in healthcare companies.

Why 2: Higher Prices of Medical Equipment and Medicine?

While many have talked about the rising cost of medical equipment and medicine, there seems to be a disconnect when compared to data from DOSM. From 2018 to 2024, medicine prices only increased by 5.6%, while medical products’ prices even declined by 3.2%.

Source: DOSM

 

Maybe, there’s another factor at play here. While overall prices for medicine and medical products didn’t rise much, Malaysians could actually be spending more in total on a higher variety of medicine and medical products.

Why 3: More Spending on Healthcare Services by Malaysians?

Imagine when you go to the doctor complaining of a flu. In the past, he or she might just prescribe you one medication to deal with the symptoms and probably use experience to determine that the flu you have is just a regular flu.

However, fast forward to today, that doctor could be prescribing you 3 or 4 medications now to deal with the stuffy nose, phlegm, and even headache. Because of Covid-19, patients are also more wary now and want to know what kind of flu are they having. The doctor will then take a sample, and could test for it in the clinic or send the sample to another laboratory. All in all, you could be spending much more now while prices of medicine and medical equipment remain about the same.

According to data from Bank Negara Malaysia, there was some evidence of this happening as the average cost per treatment increased by about 15% due to additional costs related to the pandemic such as lab tests for Covid-19 and more protective equipment.

But this misses the bigger picture here. Malaysians are actually getting more unhealthy. We are now being treated for more diseases than ever!

As more Malaysians get treated for more ailments, medical costs will pile up at the hospital and clinics. Medical equipment and treatment will also need to be more advanced to treat a wider range of patients who also now, have more options. All of these options come with a higher price as they typically provide higher quality.

This would also mean that more procedures and medicine will need to be covered by insurance providers, and this indirectly increases healthcare premiums.

Hence, this series also needs to look at what is the situation from perspective of us, Malaysians, when it comes to demand for healthcare services, which we will cover in Part 3.

Conclusion

Like in the first series about insurance providers, the issue of escalating medical costs in Malaysia is complex with many factors to take into account. While salary and medicine cost have increased in recent years in the healthcare industry, Malaysians’ declining health and the increasing demand for more medical services have also played a big factor. (Let this be a reminder to start steps now toward improving our individual health and wellness!)

In part 3 (the last part), we will take a deeper look into what Malaysians are demanding from both the insurance and healthcare companies and how our health and preferences might be playing a big role here. Stay tuned!

 

Let us know in the comments below what you think of the healthcare industry!

You May Also Like