Why letting EPF fund medical insurance is a dangerous shortcut

Malaysia’s proposal to let Employees Provident Fund (EPF) members use Account 2 savings to pay for medical insurance premiums might sound helpful on the surface. The plan is being floated as a way to give people more control over their healthcare access, especially amid growing strain on public hospitals. But take a closer look, and the trade-offs become harder to ignore.

Account 2—the part of EPF savings designated for mid-life needs like housing, education, and health—holds just 15% of monthly contributions. For millions of Malaysians, that account is already dangerously low. Following the COVID-era special withdrawals, nearly half of EPF’s 16 million members were left with under RM10,000. Many still haven’t replenished what they took out.

Now, if they begin using that same depleted account to pay RM200–RM500 a month for private insurance, their retirement readiness could be dealt another blow. These aren’t optional luxury expenses—they’re survival funds for later life. And once withdrawn, the money doesn’t grow, doesn’t return, and isn’t guaranteed to be used.

Let’s put the policy into perspective. The Health Minister has said only “1% of the fund” would be affected. But that figure is misleading. For a contributor with RM50,000 in Account 2, spending RM6,000 annually on insurance equates to 12% of their entire balance—every year. That’s a massive hit, particularly for contributors whose overall savings are already below national retirement benchmarks.

As of late 2023, only 36% of members aged 55 had the minimum RM240,000 considered necessary to sustain RM1,000 a month over 20 years. That’s not enough to live comfortably in today’s economy—let alone in 10 or 20 years with rising costs and inflation. If contributors drain their Account 2 savings now, their future options narrow significantly.

Compounding interest—the very mechanism that makes EPF viable as a retirement tool—is rendered useless when money is withdrawn early. A RM6,000 withdrawal today isn’t just RM6,000 lost. It’s tens of thousands in foregone growth over the long haul. For middle- and lower-income Malaysians, that’s not a small mistake—it’s a structural setback.

The real story here may not be about insurance at all. It’s about who pays for the growing cost of healthcare in an ageing society. Public hospitals in Malaysia are overburdened. There aren’t enough doctors, nurses, or equipment to go around. Wait times are long. Infrastructure is aging. And as more citizens live longer, that pressure is only going to rise.

Allowing EPF savings to be redirected to private insurance may be the government’s way of quietly shifting the healthcare burden to individuals. Rather than reforming public health financing or investing in system-wide upgrades, this approach nudges people to rely more heavily on private providers—whether they can truly afford to or not.

It’s a backdoor privatization, not of the healthcare system itself, but of the responsibility to pay for it. Private hospital groups and insurance companies stand to gain, while low- and middle-income citizens carry the financial risk. Only an estimated 10% of policyholders file significant insurance claims annually, meaning insurers will likely profit handsomely while most contributors see little direct benefit.

This trend is part of a larger pattern: every time the government faces a fiscal challenge—pandemic, housing pressure, now healthcare—it dips into EPF flexibility. But that flexibility has limits. EPF is not designed to be a crisis fund. It’s meant to provide security in old age, especially in a country where formal pension coverage is thin and multigenerational support is declining.

Undermining EPF’s role undermines public trust. Once people begin to see EPF as just another pool of liquidity for day-to-day challenges, they may stop treating it as sacrosanct. The long-term consequence? A larger share of the population unable to retire with dignity—and a heavier financial burden on future governments to support the elderly.

If EPF becomes a go-to solution for every policy problem, we risk triggering a future crisis far more severe: old-age poverty, dependent populations, and intergenerational inequality. The so-called short-term relief could become a long-term trap.

There is no denying that Malaysia’s healthcare financing system needs reform. The dual-track structure—public hospitals overwhelmed and private hospitals underutilized due to cost—is inefficient and inequitable. But letting individuals use their retirement funds to paper over those cracks is not a solution. It’s a delay tactic.

What’s needed instead is a national health financing framework that shares risk across the population, guarantees access, and avoids overreliance on either the private sector or individual savings. Singapore’s MediShield Life or Germany’s statutory health insurance models could serve as a blueprint. These systems combine individual contributions with government subsidies and strict regulatory oversight to ensure equitable, long-term sustainability.

Malaysia doesn’t lack policy options. It lacks political will to implement them without resorting to quick fixes like raiding EPF. Real reform is harder—but far more rewarding in the long run.

Letting EPF Account 2 fund private medical insurance isn’t bold policy—it’s an admission that the system is strained and the government is out of ideas. It may help a few in the short run but leaves most worse off over time. Malaysians shouldn’t have to choose between healthcare today and survival tomorrow. Public policy must address root causes, not just symptoms. The time for real, structural health financing reform is now—not after the retirement crisis arrives. Because by then, the savings will be gone.

More importantly, the move signals a deeper loss of confidence in the state’s ability to protect basic social goods. When retirement funds become a recurring backstop for housing, education, and now healthcare, the message is clear: individuals are increasingly on their own. That’s not just financially risky—it’s morally regressive.

Yes, private insurance can be part of the solution. But only if it’s embedded within a fair, affordable national system where contributions are pooled, coverage is equitable, and savings are preserved for their original purpose: security in old age. Malaysians deserve both health and dignity in retirement. One should not come at the expense of the other.

This is a crossroads moment. The government can take the hard path of redesigning its fiscal priorities and health infrastructure—or continue down a road of short-term fixes that undermine the very foundations of social protection. For the rakyat’s sake, it must choose wisely.