Medical insurance premiums have been rising steadily, forcing some Malaysians to downgrade their coverage or drop their policies altogether. One proposal now under discussion could make it easier to pay for basic health insurance, but it would do so by allowing members to tap into their retirement savings.

The Employees Provident Fund (EPF) is considering whether members should be allowed to use withdrawals from Account 2 to pay for the government’s proposed Base Medical and Health Insurance or Takaful (MHIT) product. The proposal aims to help more Malaysians maintain medical coverage as premiums increase.

The idea has divided economists and consumer advocates. Some view it as a practical way to improve access to healthcare protection, while others warn that it could weaken retirement savings if members begin relying on EPF funds to pay recurring insurance costs.

Proposal Targets Rising Medical Insurance Costs

Bank Negara Malaysia introduced the Base Medical and Health Insurance or Takaful framework in January as a standardised insurance product aimed at people who are uninsured or struggling to keep up with rising premiums.

The framework is intended to create a basic level of medical coverage across insurers and takaful operators while improving price transparency and making policies easier to compare.

For individuals who have dropped medical insurance because of rising premiums, a standardised product could provide a more affordable option to maintain some level of protection. Allowing EPF withdrawals to pay for premiums would reduce the immediate financial burden for policyholders who are struggling to keep up with rising costs.

Retirement Savings Could Be Gradually Reduced

Consumer advocates caution that using retirement savings to pay insurance premiums may address a current financial pressure while creating a longer-term problem.

Federation of Malaysian Consumers Associations secretary-general Dr Saravanan Thambirajah said the EPF’s primary role is to safeguard members’ financial security in old age. Allowing withdrawals before retirement therefore requires careful consideration.

EPF savings grow over time through long-term contributions and compound dividends. When funds are withdrawn earlier, members lose the future investment returns those savings would have generated.

Insurance premiums are recurring payments rather than one-off expenses. If withdrawals are made repeatedly to cover these costs, the cumulative effect could gradually reduce the final retirement balance, particularly for individuals who already have modest savings.

Saravanan also warned that expanding withdrawal options could shift how people view their EPF accounts. Instead of being treated as protected retirement savings, the funds could increasingly be seen as a flexible source of money for current financial needs.

In a country where many workers already retire with limited savings, further withdrawals may increase the risk of inadequate retirement income.

Concerns That The Policy May Not Expand Insurance Coverage

Economist Geoffrey Williams questioned whether the proposal would significantly improve insurance access for lower- and middle-income households.

He noted that many EPF members already have relatively limited savings and may not have enough funds available in their accounts to pay insurance premiums.

At the same time, higher-income households could potentially switch to the cheaper Base MHIT product and pay for it using EPF withdrawals while preserving their personal savings. Such behaviour could alter the insurance market without meaningfully expanding coverage among those who are currently uninsured.

Williams also warned that encouraging withdrawals at a time when retirement savings are already insufficient could weaken long-term financial security.

Alternative Approaches To Healthcare Protection

Some observers argue that healthcare protection should be supported through mechanisms that do not rely on retirement savings.

Possible alternatives include targeted subsidies, government-backed assistance programmes or the creation of a dedicated healthcare support fund that helps lower- and middle-income households afford medical coverage.

Another suggestion is the establishment of a non-contributory healthcare fund in which the government covers certain treatments at private hospitals while also playing a role in managing treatment costs and medical inflation.

Such approaches could expand access to healthcare protection while preserving retirement savings.

Health Coverage May Reduce Financial Risk In Retirement

Other economists see potential benefits in allowing limited use of retirement savings for medical insurance.

Sunway University economics professor Dr Yeah Kim Leng said allocating part of retirement savings toward long-term health protection could improve access to medical treatment in both public and private healthcare systems.

Insurance coverage can also help reduce pressure on government hospitals and clinics by giving patients additional treatment options.

Many workers rely on employer-provided health benefits during their working years but lose that coverage once they retire. Access to a basic insurance plan that remains available beyond retirement age could help fill that gap.

Healthcare spending typically increases during retirement, and having insurance protection in place may help retirees manage those costs more effectively.

Balancing Healthcare Access And Retirement Security

The debate highlights the trade-off between two financial priorities: maintaining access to healthcare protection and preserving retirement savings.

Medical insurance helps households manage the financial shock of serious illness, but funding premiums through retirement savings could reduce financial security later in life.

Whether EPF withdrawals should be used for the Base MHIT product will depend on how policymakers weigh these competing goals as healthcare costs continue to rise.

For many Malaysians, the question reflects a larger financial reality. Rising medical expenses are increasingly forcing households to balance immediate health protection with the need to safeguard long-term retirement savings.

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