Malaysia has seen sharp increases in private health insurance and takaful premiums in recent years, elevating affordability concerns and prompting a broad policy response. This report provides a first empirical look at cost drivers in the Malaysia’s Medical and Health Insurance/ Takaful (MHIT) market using de-identified claims from the centralized claims database covering 2022–2024.
The analysis tracks medical inflation by measuring price changes for standard sets of healthcare services over time, breaking down the growth in healthcare spending to determine its drivers. The report also evaluates the efficiency of hospital care to identify specific opportunities for operational improvements and better resource management. Findings should be interpreted in light of the MHIT database’s current structure and coverage, which captures only insurer-paid claims and therefore do not represent prices and utilization among self-pay patients in the private sector.
Key Findings
- Total claims rose substantially across all major service categories over 2022–2024, with particularly fast growth in pre-hospitalization and post-hospitalization claims. Insurer payments and billed amounts increased in parallel, indicating that expenditure growth reflects both increased service use and higher total payments.
- “Service-level medical inflation” appears moderate, but uneven across settings. Inpatient prices accelerated in 2024 relative to 2023, while outpatient/day care prices rose more in 2023 and stabilized (or slightly declined) in 2024. Pre- and post-hospitalization services show a steadier upward trend across both years.
- Cost growth is largely driven by volume (or utilization)- accounting for three quarters of all cost growth, followed by higher service charge prices. This highlights the significance of utilization intensity, shifts across care settings, and changes in the composition of services delivered as the key cost drivers in recent years.
- There is suggestive evidence that other factors, such as moral hazard from both patients and providers, are contributing to utilization. While a detailed analysis is not possible given the data, using proxy variables, we find that claim amounts are substantially higher when there is moral hazard present.
- Similarly, the share of claim amounts due to hospital supplies and services (HSS), which include medical supplies, laboratory tests and exams, etc., is over 70 percent and rising.
- About one-fourth (23.6% in 2024) of inpatient admissions are potentially preventable with longer-term strengthening of primary care including prevention, early detection and management of chronic diseases.
- Malaysia has already initiated important responses to affordability pressures, including interim premium adjustment measures (2024–2026) and the broader RESET strategy framework to curb medical cost escalation and strengthen transparency and value. The findings in this report support several directions for implementation:
- Use the centralized claims database as a routine monitoring tool. Regular reporting of utilization, unit prices, and service mix can strengthen oversight, improve accountability, and enable earlier detection of emerging cost pressures.
- Prioritize reforms that address utilization and care pathways, and explore incentives for outpatient care use (typically not covered by current MHIT products).
- Advance provider payment reforms to reduce incentives for itemized billing. A phased move away from fee-for-service, toward diagnosis-related group (DRG)-based approaches, can better align incentives with value, but will require supporting data standards, coding quality, and coordination between regulators, payers, and providers.
- Enhance transparency and empower consumers. Given the large and rising share of hospital supplies and services (HSS) in inpatient bills, policy attention to pricing transparency, billing practices, and procurement arrangements could yield meaningful cost containment.
- Recognize that MHIT governance is shared and requires coordination across institutions. Financial regulation and provider regulation jointly shape the incentives and constraints in the private system. Effective implementation of RESET and any standardized base MHIT plan will require coordination on provider payment mechanisms, price transparency, and enforcement of billing standards.