SINGAPORE (Mar 13): UOB KayHian is maintaining Raffles Medical Group at "buy" given it sees limited impact on the stock from changes in insurance co-pay terms for new policies.
With immediate effect, new insurance policies with riders or existing policyholders buying a new rider will need to eventually pay at least 5% of his hospital bill. However, the amount the policyholder needs to pay can be capped at $3,000/year although insurers can set a higher threshold. The $3,000 cap would only apply if patients are treated by doctors on the insurers’ panel.
UOB says there would be limited impact on Raffles Medical as its practice model allows doctors to focus on patients' health rather than profitability. There is also medical fee transparency for its treatment. More importantly, all in-patient treatment and operations are subject to a peer review by a panel of medical doctors.
"In our view, this helps avoid unnecessary procedures or treatment that may not enhance the treatment outcome for patients," says UOB analyst Andrew Chow in a Tuesday report.
In Singapore, riders can be purchased on top of an integrated shield plan (IP) with partial riders that allow patients to either co-pay or full riders that allow patients to not pay their hospital bills. UOB says about 3.9 million people locally have insurance and an estimated 29% have IP with full riders.
The problem is that policyholders with full riders have bills that are, on average, 60% higher than policyholders without riders. This has led to rising insurance premiums for all policyholders including those with a basic MediShield Life plan.
Meanwhile, Chow says the segment impacted by this change would be patients who rely on insurance coverage, which would exclude most of Raffles Medical's foreign in-patients who account for a third of RMG’s in-patient load and tend to have higher billing intensity. Local patients paying by insurance is estimated at 20-30% of the total in-patient load.
"Using 2017 pre-tax profit, we estimate 12-18% of RMG’s pre-tax is exposed to the insured market. However, we caveat that the estimated 20-30% of patients paying via insurance could be understated since there are patients who could have settled the hospital bills personally and subsequently claimed from their insurers," says Chow.
"Maintain 'buy' and discounted cashflow-based target price of $1.32," concludes the analyst.
As at 11.11am, shares in Raffles Medical are up 3 cents at $1.20 or 32.4 times FY18 earnings.
