The personal costs incurred for healthcare has led many Malaysians to face severe financial problems, and in some cases even leading to bankruptcy. In 2017, Malaysians paid RM21.5 billion or 38% of the total amount of healthcare expenditures in out-of-pocket payments. It is projected that by 2027, this will rise to RM55 billion. Through the Fintech for Health program, we are exploring how investing money in diverse investments and products provided by fintech companies will enable the Malaysian people to be better prepared for rising out-of-pocket payments before they lead to severe financial hardships.

First, we must address the possible risks involved when paying for healthcare costs through investment. Any investment involves risk and there is always a fear that individuals might lose some, if not all, of their healthcare savings because of this. Investing is oftentimes seen as a long-term strategy and as such, can be considered unsuitable for short-term withdrawals to pay for healthcare costs. Furthermore, investing might not involve quick liquidity to the investors, as healthcare costs may arise unexpectedly, demanding investors to quickly turn their investment into cash flow. Given the potential risks, one might question whether it would be wise to use this strategy of investing to help pay for rising healthcare costs, especially for out-of-pocket payments.

I advocate that it is a practical and wise decision to invest money in fintech companies to pay for out-of-pocket healthcare costs. Comparable to that of investing for retirement and education, it should be a crucial cultural practice in every society. In Malaysia, the presence of universal healthcare and access to private medical insurance products might actually prevent Malaysians from embracing the culture of saving and investing for healthcare. This is where introducing a new culture of investing is crucial in preparing Malaysians for the rise in healthcare costs that are expected in the years to come.

Changing Paradigm and Democratizing Society

Investing for healthcare is about changing a paradigm. With the emergence of fintech companies, Malaysian investors now have access to the latest technology to minimize their investment risk, earn returns and prepare for the rising out-of-pocket payments they will experience. This is a powerful alternative to what the Malaysians have had in the past.

It is imperative to recognize that investing for healthcare should not be seen as a T20 (top 20% of Malaysian household income earners) strategy alone. Fintech companies are actually democratizing investment through the use of robo-advisory/algorithms and minimum fees. Now more than ever, the B40 (bottom 40% of Malaysian household income earners) and the M40 (middle 40% of Malaysians household income earners) can register and invest their money in these fintech companies’ products. Investment for healthcare is no longer an exclusive strategy for those who are wealthy, but has become a viable strategy for all strata of society.

Fintech companies are able to encompass the full range of needs required by investors, by allowing investors to adjust the level of risk they are willing to take. This means investors could opt for minimum risk to invest their money to pay for shorter-term healthcare costs. As all investments involve risk, the ability to tailor risk level is one of the great benefits of using fintech companies’ products. Investors using the robo-advisory app can easily adjust the level of risk they are willing to take for their investments via the app. For short term healthcare investment, most often low to moderate risk is the best option.  For example, someone saving for a pregnancy package in a private hospital in Malaysia could choose a moderate risk investment and save RM478 per month for 12 months to be able to afford the RM6000 package.

The Benefits of Investing for Healthcare

The major benefit of investing for healthcare is the availability of a personal fund to pay for healthcare costs. The possession of this fund will aid Malaysians in affording and accessing healthcare without the fear of being saddled with healthcare debts. Malaysians with investment funds will now be able to access healthcare screenings and preventions in private healthcare centers, in turn lessening the burden of public healthcare facilities. 

Secondly, investing for healthcare can be a mid-term investment for some healthcare plans such as a pregnancy or dental braces, as well as a long-term investment strategy for aging individuals in parallel with investing for retirement. While it is true that many healthcare costs can be unexpected, many elective and non-urgent surgeries and treatments still need individuals to have access to financial resources.

Thirdly, individuals who are currently putting their money into savings alone for future healthcare costs are taking no risk and are not allowing their money to work for them. While this may be a safe bet for some individuals, the inflation of healthcare costs will surpass the value of their savings.  As savings generate little to no interest, they are unable to keep up with inflation and would consequently demand increasingly more money to be put aside, ultimately forcing individuals to allocate a larger percentage of their income to healthcare savings. In the long term, using savings for healthcare costs is not a sustainable behavior.  This is where investing can play a big role since putting their money into investment products would allow individuals to catch up to, or at least keep up with, the inflation of healthcare costs. In this way, investing for healthcare is a crucial strategy to beat inflation.  For example, the medical inflation rate in Malaysia is reaching 14% per year, while investing in robo-advisor would provide an interest rate of 3-10%, thus allowing the investors’ money to grow alongside the rate of inflation and ultimately helping to fight the rising healthcare costs.

As healthcare costs are predicted to increase by seven-fold in 20 years’ time, it is increasingly important to help Malaysians to prepare for any healthcare payments by capitalizing on these investment products. Take a normal delivery for a pregnancy as an example, by 2040 we are looking at a price tag of up to RM42,000. Likewise, the healthcare costs for a knee replacement is projected to rise from RM18,000 to RM121,000. This means an investor who is preparing him or herself for a knee replacement surgery in 2040 might need to save RM18000 in 2020 and keep saving RM300 per month for 20 years with 3% return on investment to be able to afford their knee replacement surgery. If the risk is increased to 6%, that investor would only need to put aside RM160 per month for the coming 20 years, a dramatic decrease. Therefore, the risk level determines the amount needed to be invested each month.

Lastly, the fear of liquidity is no longer an issue as the movement toward cashless healthcare in Malaysia means that individuals can pay for their healthcare using credit cards or small loans. Individuals will now have enough time to liquify their investment and turn it into cashflow, as robo-advisory companies offer easily accessible rapid transition to liquidity via their app. For some robo-advisory companies, the transition from investment to cash can take place in fewer than seven business days. This ease and speed of transition makes it ever more appealing to utilize investments to pay for healthcare costs.

All in all, investing in fintech companies to prepare for any and all healthcare costs is an important strategy to fight the rising out-of-pocket payments seen in Malaysia. As fintech companies will provide a democratic platform for this to happen, it is indeed the right strategy for Malaysians.

Author: Mohd. Nasir bin Mohd. Ismail, PhD, ACCESS Health International consultant in Malaysia

Dr. Ismail received his PhD in social and behavioral sciences from Johns Hopkins University, a master’s degree in energy and mineral engineering, and a bachelor’s degree in Physics from Pennsylvania State University. He has worked in the healthcare system in the United States, Malaysia, and the United Arab Emirates. To contact him or to inquire about Fintech for Health programs, please write to [email protected]