Yes — demand-side behaviour by policyholders is a significant and often under-discussed contributor to medical inflation in Malaysia. This does not mean patients are acting dishonestly. It means that when comprehensive coverage removes any financial stake from the decision to seek treatment, people naturally make different choices than they would if they were paying themselves. That aggregate shift in behaviour — multiplied across millions of policyholders — drives claims costs higher, which drives premiums higher for everyone.
Why Full Coverage Changes How People Use Healthcare
Insurance economists call this “moral hazard” — a term that sounds judgmental but is simply a description of rational human behaviour. When a third party covers the full cost of a service, the person consuming it has limited incentive to compare options, question whether something is necessary, or choose the lower-cost alternative.
In practice, this plays out across the Malaysian medical insurance market in predictable ways:
- Choosing inpatient admission over day surgery — when both are clinically appropriate, a hospital stay can cost 3-5 times more than a day procedure. Without financial exposure, patients often prefer the perceived security of a full admission.
- Requesting premium ward types — a private single room at RM 600-800 per night costs significantly more than a standard ward at RM 150-200, with no clinical difference in treatment outcome for most conditions.
- Specifying brand-name drugs — generic equivalents with identical active ingredients are significantly cheaper. When the insurer pays, many patients default to branded versions without questioning the difference.
- Unnecessary diagnostic tests — a precautionary scan ordered without a clear clinical indication adds cost to every episode of care. When neither the patient nor the doctor bears the cost, the threshold for ordering tests lowers.
- Using specialist outpatient when a GP would suffice — a specialist consultation for a condition a GP could manage costs 3-5 times more and places unnecessary load on tertiary facilities.
None of these individual decisions is unreasonable in isolation. The problem is systemic: when every person in the risk pool makes the more expensive choice more often, the collective claims bill rises faster than any demographic or epidemiological trend alone can explain.
What the Data Shows
PMCare, Malaysia’s largest Third-Party Administrator (TPA) — the company that processes claims on behalf of insurers — has observed consistent upward trends in both claims frequency and average claims value that exceed what demographics alone would predict.
Put plainly: Malaysians are making more claims, and each claim is larger, and the rate of increase is faster than population ageing or genuine disease burden can account for. The difference is utilisation behaviour.
This is not a Malaysian anomaly. Every market that has offered comprehensive, low-friction medical insurance without utilisation management has experienced the same dynamic. The question is not whether it is happening, but how to design a system that addresses it without creating barriers to necessary care.
Why Co-Payments Are Designed to Address This
The co-payment mechanism being built into Malaysia’s Base MHIT product is a direct response to over-utilisation. A co-payment — a fixed amount the policyholder pays per claim event — restores a modest financial stake in the decision to seek care.
Research from multiple healthcare systems shows that even small co-payments meaningfully reduce unnecessary utilisation, while having minimal impact on care-seeking for genuinely necessary treatment. The design challenge is setting the amount correctly: high enough to change behaviour at the margin, low enough not to deter people from seeking care they actually need.
You can read more about how co-payments are structured and what they mean for your out-of-pocket costs at co-payment explained.
This Is a System Design Problem, Not a Blame Problem
It is worth being explicit about this: over-utilisation is not primarily about dishonest or manipulative behaviour by policyholders. It is a predictable outcome of the way comprehensive coverage was designed and sold in Malaysia over the past 15 years.
The market moved toward “as-charged” plans with no financial exposure for the policyholder because those products were easier to sell and more appealing to buyers. The consequence — which was visible in international experience but perhaps not fully anticipated here — is that removing all price signals from healthcare consumption changes how people consume healthcare.
RESET’s co-payment mechanism, value-based care incentives, and hospital pricing transparency measures are all attempting to reintroduce appropriate price signals without stripping coverage away from people who need it. The goal is a system where the incentives are aligned — where hospitals benefit from delivering efficient, effective care, where insurers benefit from healthy policyholders rather than denied claims, and where patients have a modest stake in appropriate utilisation.
What You Can Do Right Now
If you want to be part of the solution — and to protect your own premiums from the consequences of system-wide over-utilisation — there are practical steps:
- Ask your doctor whether a procedure can be done as day surgery — if day surgery is clinically appropriate, it delivers the same outcome at a fraction of the cost.
- Choose a standard ward unless there is a clinical reason for a private room — your plan likely covers a standard ward fully; the premium room is often an amenity choice, not a medical one.
- Ask whether a generic drug is available — your pharmacist or doctor can confirm whether a generic equivalent exists. It will cost your insurer less, and cost you nothing in terms of treatment outcome.
- Use a GP for conditions that do not require specialist input — GPs are trained to handle the majority of outpatient presentations. Reserving specialist consultations for when they are genuinely needed is better for the system and for your own continuity of care.
These are not sacrifices. They are rational choices that also happen to reduce pressure on a risk pool that currently affects everyone’s premiums.
Frequently Asked Questions
Is over-claiming the same as insurance fraud in Malaysia?
No — over-utilisation and insurance fraud are different things. Fraud involves deliberate misrepresentation, such as claiming for treatments that did not occur or inflating bills. Over-utilisation refers to legitimate claims for care that may not have been strictly necessary — choosing inpatient over day surgery, requesting unnecessary tests, or specifying a premium room. Both drive up costs, but they are addressed by different mechanisms: fraud by enforcement, over-utilisation by system design and incentive structures.
How much does over-utilisation actually contribute to premium increases?
No single published figure isolates over-utilisation as a proportion of Malaysian medical inflation. However, BNM and PIAM have both noted that claims frequency and average claims size are rising faster than demographic trends alone explain. PMCare’s TPA data consistently supports this. The RESET co-payment measure would not have been incorporated into the Base MHIT design if regulators did not consider utilisation behaviour a material driver.
Will co-payments stop me from getting care I genuinely need?
A well-designed co-payment — which is what BNM has committed to building into the Base MHIT — is calibrated to discourage unnecessary utilisation while not deterring necessary care-seeking. The evidence from other markets shows that co-payments primarily reduce elective or discretionary utilisation rather than emergency or essential treatment. The amount and design of the Base MHIT co-payment will be published before the product launches in early 2027.
Can I switch to a co-payment plan now to get a lower premium?
Yes — co-payment plans are already available in the Malaysian market and typically carry lower premiums than equivalent “as-charged” plans with no co-payment. Whether switching makes sense depends on your current plan, your claims history, and your financial capacity to absorb the co-payment amount. A policy review is the right way to assess whether this trade-off works for your situation.
Does using a co-payment plan affect my annual limit?
No — your annual limit applies to the total claimable amount, and the co-payment is deducted from your share of each claim event, not from your limit. Your insurer can explain how the specific co-payment on any plan you are considering interacts with your annual and lifetime limits.
Have a question that wasn’t covered here? Our advisors at FINNO. offer free, no-obligation consultations — no hard sell, just honest answers about what’s right for your situation.