I was wondering when the government would announced what is the Basic Healthcare Sum (BHS) limit that our CPF Medisave can hit for 2025.

CPF Medisave is our Medical Sinking Fund.

A sinking fund is a pool of money that you set aside earlier than you need, specifically to pay off something when you need to. Usually, it is use to describe a sinking fund to pay off debts.

It is part of my work to update some of the internal planning materials. Lo and behold, we got the update a few days ago.

The new BHS limit is $75,500, a 5.6% increase from this year’s limit of $71,500.

That increase looks drastic, but if you look at the history of increase, there isn’t a pattern. The only pattern may be that the increase is more than 4%.

Which makes some of my Telegram group members wonder if the drastic increase this year means that even with the 4% p.a. returns that our CPF Medisave will earn, it is inadequate to keep up with our future medical spending needs.

Yet, some of us wonder whether we really need $70,000 in our Medisave? The amount just kept building in our CPF as normal working adults but it seems like we never got to spend it. Even when we spend it, we spend such a small amount.

Well, I shared both of those concerns and I took some time to take a look at things and think it through.

The History of CPF Medisave BHS Limit Increase

The table below shows the past BHS Limit and the change from previous year:

This is the biggest increase in the past ten years, although almost all the change is more than the CPF Medisave interest rate.

The BHS Limit Increases Every Year Until Age 65

Raising the BHS Limit yearly is an indication that during our working years, we need to save more for our future medical needs. The government think that is a more prudent thing to do.

But the BHS Limit will be fixed when you reach 65 years old. So for those that turn 65 next year, the maximum amount that they can have in their CPF Medisave is $75,500. Any interest that is above that will flow over to your CPF RA, SA and OA sequentially.

Do We Need This Much

I thought its odd that if we require quite a fair bit for our medical needs in the future, why not let the interest earned on our CPF Medisave monies to remain in our CPF Medisave amount.

It is equally odd to me that by raising the BHS limit before 65 its like telling us before 65 its, not enough, not enough, not enough, not enough, not enough and then when it crosses 65 years old, the sum in our CPF Medisave, based on their rationale, is suddenly enough, enough, enough, enough, enough, despite not making additional contribution.

Perhaps the more plausible reason is that 65 years old is the official retirement age and if you retire then, it doesn’t make sense for you to increase the contribution amount into the Medisave. If you use more of your Medisave, you can still top up to your Medisave by withdrawing from your CPF OA monies and top up your Medisave account so that your Medisave account is well funded.

I always have this question at the back of my mind: Do we really need like $60,000 to $75,000 in our CPF Medisave Account for our medical needs?

Are we overfunding it by too much?

It becomes worse when there are people who need money for their other financial goals and wonder why can’t we rape tap our CPF Medisave money for more pressing needs?

My first thought is that yes, we are overfunding it. But as I reflected more, I think this is because we are evaluating this when we are still young, able, healthy, and without health problems.

Medical spending is such that when they come, they start layering on top of each other and that they take place when we are older. Precisely at a time when we are cognitively weaker.

But also when we have already retired.

The young Kyith is trying to help the older Kyith to size up how much he needs in his medical sinking fund, without a good experience about the concerns of the older Kyith.

CPF have this page which consolidates what you can use Medisave for.

They basically break down the usage into a few areas:

1. Outpatient treatments (Chronic diseases, vaccinations, health screenings, CT/MRI scans)
2. Inpatient care (cost of hospitalization and day surgery expenses)
3. Long-term care (Rehabilitative care at community hospitals, Palliative care in approved inpatient hospice palliative care services and disability care)
4. Insurance premiums (Medishield Life, Integrated Shield Plans, ElderShield, CareShield Life)

There are maximum limits to how much you can use your CPF Medisave for each category, but I guess in a year, you are going to be hit with a group of these:

1. You need to maintain your Medishield Life, Integrated Shield and Careshield premiums and because you are older, these will take off $2000 to $3000 per year.
2. If you are hospitalized, Medisave pays part of this up to a certain cap.
3. If you are undergoing chemotherapy under outpatient, it might cost $1800 to $3600 for the year.
4. By then, if you suffer from some chronic diseases, long term rehabilitative care, that might use another $1500.

Adding these up may amount to 10% of $70,000 and this is for one year. If you go through this for 10 years, would that $70,000 be enough? Most likely you are not sure but you might be able to see the justification for a mid-five-figure savings in CPF Medisave.

How Much Do We Need at 65 Years Old to Pay for Our Lifetime Medishield Life and Integrated Shield Plan Premiums.

Say you turn 65 next year and you have the maximum amount of $75,500 in your CPF Medisave, which means you hit the BHS Limit.

Since there is no additional contribution, aside from the interest earned, you be wondering whether your Medisave have enough to pay for the premiums from 65 years old to 100 years old potentially.

Our CPF Medisave can pay for the annual premiums of Medishield Life, part of the premiums for our Integrated Shield plan, and our Eldershield or Careshield premiums.

While I did not do the Careshield premium calculation, the lump sum value of the Medishield Life and Integrated Shield plan premiums paid with Medisave from 65 to 100 years is:

1. Premiums for Medishield Life: $110,098
2. Premiums for Intergrated Shield Plan: $30,000
3. Total: $140,098

This is based on 3% p.a. inflation rate.

I will kind of show the calculation below.

Now since our CPF Medisave earns an interest of 4% p.a., we can apply a 4% discount rate to find a smaller lump sum value to see if the premiums can better fit into our current CPF Medisave:

1. Premiums for Medishield Life: $50,224
2. Premiums for Intergrated Shield Plan: $16,081
3. Total: $66,305

Yes! We managed to squeeze the annual premiums of these two, excluding Careshield and Eldershield within $75,500.

But you can see that it may leave not a lot more for the other medical needs that we need to pay for.

We Probably Need More For Our Retirement Medical Needs.

I think not needing to use our CPF Medisave for anything might be a blessing. Given the choice, I don’t think anyone of us would want to use it.

Yet there will come a day when we would need it realistically.

I am sure if you reflect well, you will chide yourself for making poor decisions even though you thought you considered well when you were younger. I think the amount in our Medisave is one of those things that we will “feel” more when we start getting sick.

While there are limits to how much we can use it, our Medisave can be use for:

1. Ourself
2. Spouse
3. Parent
4. Grandparent
5. Sibling
6. Child

And you need it for recurring premiums and to pay for a few things in the year.

I think this is the case of a few little things add up in a year, and you will need it for 20-30 years.

And you won’t know exactly each year how much you need.

The challenge with sizing a medical sinking fund like our CPF Medisave is there is a range of outcomes for each of us that is pretty unique:

1. Some are very fit and only get very sick late in life.
2. Some have chronic problems and are plague with sickness their whole life.
3. Some have small niggling problems and last for a long life before passing on.
4. Some suffer from compounding illnesses and pass on before reaching 70 years old.

If healthcare is a concern for us, and we want certainty before we retire, then it makes sense for us to use a conservative (read significant) sizing.

Since more people requires a higher grade of healthcare and wellness, I do think that our CPF Medisave might be less adequate and we should build up more of our own medical sinking funds.

I have wrote a few articles regarding this in the past and you might be interested to read them:

1. Setting aside $80,000 at age 43 to fund my future health insurance premiums from age 43 to 100 years old
2. Setting aside $50,000 at age 43 to supplement my critical illness coverage to cover major dreaded disease event

The Math Behind the Medishield Life and Integrated Shield Plan Premiums

Some of you might be more curious how do I come up with a present value of $66,305 in 65-100 years old premium so I am going to show you the math.

Firstly, you can use your CPF Medisave to pay for the premiums on your Medishield Life. Annual Medishield Life premiums will increase as you age. But your premiums won’t stay static.

From time to time, the government will announced that the premiums will go up. For example, this year they announced that the premiums will increase by an average of 22% in April 2025.

So you face two growth rates:

1. Increase in premiums due to moving to an older age band.
2. Increase in premiums due to inflation and medical cost.

The table below shows the premium today (not the Apr 25 premiums) and how the premiums will rise by yearly, if we factor an inflation rate of 3%:

If we add up the premiums from 66 to 100, without the increase in premiums due to inflation and medical cost, it will be $60,151. But if we factor in inflation, it will be $110,098.

That $110,098 is more than our BHS.

Now you may say “But Kyith, the CPF Medisave has an annual interest of 4%, so by right we don’t need to set aside so much right?”

Well you are right, so we can assume the return of CPF Medisave interest to be the discount rate that will allow us a smaller present sum and still pay for our premiums from 66 to 100 years old. Each year’s annual premium value will become smaller today, and then we can aggregate them up:

We added a third column and you can see instead of $110,098, we need only $50,224.

This is the equivalent of saying, if I have 50,224, it can pay for the annual premiums and what is left can grow at 4% yearly. I will end up being able to pay for the premiums at 100 years old.

Here is how it looks like:

Although express differently, the math still works out.

Now we have settled the sinking fund needed to pay for our Medishield Life premiums but we also have to remember many of us own private integrated shield plans. We can use our Medisave to pay part of that premiums up to a certain amount.

This certain amount have been rather fixed and don’t rise with inflation.

Can this be revised? I would think so.

But lets assume that doesn’t change for now.

The total amount today for the integrated shield plan premium support from 66 to 100 is $16,081.

So $50k + $16 = $66k.

You can debate with me if I am being too conservative to use 3% p.a. inflation, or should I use 2% or 4%. But the main point is that the present value of your Medishield Life and Integrated Shield plan support alone will take a big chunk of that $75,500.

A mid-five-figure sum is not overfunding our CPF Medisave by too much.

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