Galen Centre: Using EPF savings for health insurance premiums risks retirement security

KUCHING (Feb 2): The Employees’ Provident Fund (EPF) should resist the recent proposal to use EPF contributions to pay for premiums under the proposed based medical health insurance/takaful (MHIT) plan, said the Galen Centre for Health and Social Policy.

Galen Centre chief executive Azrul Mohd Khalib said retirement security must not be traded for health coverage.

“The EPF should resist this proposal as it could further weaken retirement security and widen inequity. The EPF is meant to protect Malaysians from poverty in old age.

“The EPF should not be treated as a convenient funding tap for a healthcare financing experiment,” he said in a statement.

Azrul said allowing premium deductions from EPF savings may create a false sense of protection while quietly worsening a retirement crisis that is already severe.

Retirement savings are meant to safeguard dignity and security later in life, he said, warning that diverting them to monthly or annual premiums risks leaving members exposed at the point they most need financial protection.

He noted that the EPF benchmarks for basic and adequate savings for retirement at RM390,000 and RM650,000 respectively are not static and are expected to rise substantially in response to cost-of-living pressures.

However, in 2023, Prime Minister Datuk Seri Anwar Ibrahim warned that 51 per cent of EPFmembers, or 6.7 million contributors under the age of 55 had less than RM10,000 in their savings, he said.

“As of August 2024, that number had reduced to 33 per cent. Malaysia’s retirement security is fragile and weak.

“The consequence of the i-Lestari, i-Sinar and i-Citra EPF withdrawals over the past few years is a larger proportion of low income earners with low EPF savings and not having enough for retirement. Using EPF’s Account 2 to pay for monthly premiums risks compounding this vulnerability,” said Azrul.

He pointed out that it may sound pragmatic to let people tap into their own savings to purchase basic health insurance to bridge the gap in healthcare coverage and protection from financial catastrophe, but with rising healthcare costs, especially in the private sector, many Malaysians feel squeezed between inadequate public services and unaffordable private healthcare.

Even where MHIT is positioned as a “basic” plan, health insurance is not a one-off expense, he said.

“The base MHIT premiums will rise over time. Its benefits will have limits and exclusions. Its co-payments and deductibles can still leave families facing significant out-of-pocket costs during serious illness.

“In practice, EPF-funded premiums could provide the appearance of protection while increasing household financial vulnerability in both the near and long term,” he added.

He went on to say that co-payments and standardised premiums do not automatically equal affordability or real protection.

“If underlying costs remain unchecked, Malaysians will pay twice. First through their retirement savings, and later through higher out-of-pocket spending when exclusions, deductibles, caps and rising premiums hit them,” he said.

Azrul said using EPF savings to pay for MHIT premiums is also likely to advantage those with higher balances, while many in the bottom segments will be burdened by continuous premium payments.

“After all, you can only withdraw money that you saved, not those of other people. This proposed policy could deepen inequities in both healthcare access and retirement security.”

Given this, he said it is bewildering why Bank Negara Malaysia (BNM) and the Ministry of Finance (MoF) would propose this measure.

He noted that BNM’s 2024 annual report showed that the percentage of Malaysians who had difficulty raising RM1,000 in an emergency increased from 47 per cent in 2021 to 61 per cent in 2024.

“Median EPF saving levels have also not fully recovered after the Covid-19 pandemic. Why would BNM and MoF propose something that would reduce Malaysians’ retirement savings knowing the precariousness of the situation?”

Azrul further pointed out that the fundamental challenge is that healthcare costs and medical inflation continue to rise, and the system remains fragmented across public and private sectors.

Insurance and takaful premium do not exist in a vacuum, he said, adding that without stronger cost controls to work in tandem, such as the Diagnosis-Related Groups (DRGs), transparency and better purchasing and payment reforms, the base MHIT product risks becoming another layer of financing pressure rather than a durable solution.

“Malaysia needs sustainable health financing and serious cost control. We should not solve healthcare affordability by undermining retirement security.

“We must focus on reforms that lower costs, improve value and protect households without sacrificing their future,” he said.