Medical and health insurance and takaful (MHIT) costs in Malaysia rose 21.6% in 2024, outpacing premium growth of 13.2%, according to a World Bank Group report published this week.

The report, titled “Cost Drivers in the Malaysia Health Insurance and Takaful Sector: A First Look at the Centralised Claims Database,” found that the widening gap between claims and premiums reflects cost trends in the private health sector that continue to push insurance pricing upward.

Healthcare Use Is Outpacing Treatment Price Growth 

The World Bank found that higher utilisation of healthcare services accounts for around 70% of cost growth in the sector. Higher average costs per claim, meaning pricier individual treatments, account for about 25%.

Treatment prices themselves have not risen sharply. What has grown faster is how often people are using private healthcare, and how much each episode of care ends up costing the insurer.

The report pointed to potentially avoidable inpatient admissions as a sign that incentives in the system are not well-aligned. When patients are admitted for conditions that could have been managed at a clinic or treated earlier, those admissions add costs that would not have arisen under a better-functioning system.

Broad Coverage With Low Cost-Sharing Encourages More Use 

Current MHIT product structures may be contributing to higher use of services. When coverage is broad and policyholders pay little at the point of care, there is less reason for either patients or providers to weigh whether a particular test, procedure, or admission is strictly necessary.

On annual coverage limits, the report found that a base plan set at RM100,000, automatically adjusted upward to RM150,000, would be sufficient to cover 99% of treatment episodes based on actual claims data. Plans designed with higher limits than most policyholders would practically need may reduce the natural check on how services are used.

Introducing cost-sharing features, where policyholders pay a portion of costs themselves, could help reduce unnecessary claims without leaving people exposed to large out-of-pocket costs.

Unregulated Hospital Items Drive Most Of The Bill 

Hospital supplies and services that are not subject to price regulation make up 70% to 74% of total costs and are particularly prone to provider-induced demand, where the volume of services billed grows beyond what clinical need alone would justify.

The report discussed phasing in diagnosis-related group (DRG)-based payments as a way to reduce the incentive for providers to increase billing through these unregulated items. In the meantime, it suggested restructuring how hospital bills are presented to make this area more transparent.

Your Hospital Choice Could Get Pricier 

The World Bank proposed tiering hospitals within insurer networks based on cost efficiency, with different co-payment levels at each tier. Policyholders would pay more out of pocket at higher-tier facilities and less at those that meet cost-efficiency benchmarks.

If you are currently on a plan that covers most private hospitals at little to no co-payment, this kind of structure would make the choice of hospital a financial consideration in a way it is not today.

The Cost Gap Is Already Showing Up At Annual Renewals

Private medical premiums have been adjusting upward at consecutive renewals, and the 2024 claims data explains why. When insurers pay out more relative to what they collect, pricing follows.

For most policyholders, this plays out at the annual renewal letter. Someone who bought a policy five years ago at a manageable premium may find the same coverage costs noticeably more today, even without having made a significant claim.

The effect is uneven depending on how you hold your coverage. If your employer provides medical benefits, the increase does not appear in your payslip directly, but companies absorbing rising premiums face their own pressure, which can eventually show up in how benefits are structured or reviewed. If you hold an individual policy and pay out of pocket, the adjustment is more visible and more directly felt each year.

People who use private healthcare frequently for chronic condition management or specialist care may find their renewal increases steeper over time. Those who hold coverage mainly as a safety net and rarely claim may see less movement, but the system-wide trend still affects what they pay.

The reforms the World Bank discussed, including cost-sharing and tiered hospital networks, are not yet in place. Until utilisation is addressed structurally, the gap is likely to keep closing through higher premiums rather than through changes to how care is delivered or billed. For those holding individual policies without an employer absorbing the increase, that pressure arrives once a year and compounds each time.

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