The World Bank said service-level medical inflation in Malaysia remained modest compared with the growth in claims paid and total billed amounts, suggesting that increased utilisation of healthcare services was central to the sector’s affordability challenge.

“Potentially avoidable inpatient episodes provide a clear signal of misaligned incentives and gaps in clinical pathways,” it said in a report published today titled “Cost Drivers in the Malaysia Health Insurance and Takaful Sector: A First Look at the Centralised Claims Database”.

In a separate statement, the World Bank said rising utilisation accounted for about 70% of cost growth, while higher average costs per claim were a secondary driver, contributing 25%.

“Both are important, as they highlight opportunities for coordinated efforts among stakeholders to manage utilisation and promote more efficient care models aligned with value-based care,” it said.

Overall, claims inflation in Malaysia stood at 21.6% in 2024, outpacing premium inflation of 13.2%, the report showed.

“This reflects underlying medical cost trends in the private health sector that continue to exert pressure on insurance premiums, underscoring the need for reforms to preserve public access and choice through a more sustainable MHIT framework,” it said.

The World Bank also noted that current MHIT product design might contribute to higher utilisation.

To address this, it said annual limits for base plans should better reflect reasonable charges for treatment episodes across common medical conditions, based on actual claims data.

“The annual limit of the base MHIT plan, set at RM100,000 and automatically adjusted to RM150,000, would be adequate to cover 99% of treatment episodes.

“Cost-sharing features can also help curb unnecessary utilisation of healthcare services while continuing to protect policyholders from high upfront costs,” it said.

On diagnosis-related group-based payments, the World Bank highlighted the large and growing share of unregulated hospital supplies and services, which account for 70% to 74% of total costs and were prone to provider-induced demand.

The World Bank also said tiering hospitals with differentiated co-payment levels would help ensure network hospitals demonstrated appropriate resource use aligned with best-practice, cost-efficient care models, while meeting minimum standards for cost transparency and service quality.