TODAYonline

What price health?

Why we should be spending more –out of our own pocket – on medical expenses

Stanley Jeremiah

WE SHOULD expect to spend 12 to 15 per cent of our income on healthcare. This was the evaluation of Health Minister Khaw Boon Wan at a SingHealth event recently.

I don’t think most people have considered the significance of what the Minister said. If you earn $50,000 a year, you should expect to put aside $7,500 a year for your healthcare.

Singaporeans do not seem to appreciate how big an impact the cost of healthcare is going to have on their lives. The minister gave some good reasons: Medical developments, new drugs, better doctor-patient ratios, to name a few. To this list we have to add medical or healthcare cost inflation, which is currently running at about 4.5 per cent.

Medical cost is not only about doctor’s bills, the price of medication and hospitalisation fees. It includes the cost of medical insurance. We can therefore expect the cost of health insurance, which is only a reflection of ongoing medical cost, to rise in tandem.

The “as-charged” design of most of the private shield plans means they are more exposed to increased cost in treatment and medication, perhaps due to new advances in the field, but by the same token, they provide much better cover than those policies that limit cover under a “schedule of benefits”.

While the public has accepted increased medical costs, it appears that it does not expect this to translate to higher medical insurance premiums. The link between the two, however, is inextricable.

Recently, MediShield revised its product to improve the level of cover. MediShield premiums were then revised to take into account this wider cover. For someone in my age group — 41-50 years — the MediShield premium has been increased by a staggering 43 per cent. All shield plans are integrated with MediShield with the lower B2 and B1 plans having greater integration. This cost will be translated into increased premium for the private shield plans as well.

The Government has conceded that more of its reserves have to be tapped for healthcare and the Minister of Finance is going to table a Constitutional Amendment to facilitate this. The Minister of Health has conceded that the current spend on healthcare at a national level has to be increased from about4 per cent of GDP per annum to about8 to 9 per cent, making it comparable to Japan’s level of spending.

These will change the spending pattern of the nation, and equally, Singaporeans will have to change their personal spending patternsif healthcare is going to cost them 12 to 15 per cent of their income.

Financial planners as well as compensation and benefits consultants have not taken stock of this. Most people I know are reluctant to spend even less than 2 per cent of their income on a good health insurance plan. My peers often grumble about having to pay less than $550 a year (with the assist rider) for an Incomeshield Preferred Policy which provides as-charged cover in a private hospital — this, even when $391 of this total premium can be paid from their Medisave account.

We are not being realistic and we are not preparing ourselves for the increases to come. Think about this: The Ministry of Health just increased your MediShield premium by 43 per cent, albeit with an increase in cover. MediShield only provides the most basic form of health insurance and does not cover the total bill even in a class-C ward.

We also need to address the level of medical benefits provided by employers. The Government puts a cap on tax deductibility on medical benefits provided by employers to 1 per cent of gross wages or 2 per cent of gross wages where there is a portable plan.

Considering that even the Government admits that there has to be increased spending on healthcare at a national level and that the current spending of 4 per cent of GDP is not realistic, isn’t it time to review the1- and 2-per-cent cap for deductibility of medical benefit cost imposed on employers? Keeping these caps is not in alignment with the Government’s own admission that spending on healthcare has to increase.

On the other hand, employees and unions have long assumed that medical benefits are an entitlement. They do not expect to make a contribution to the cost of this benefit.

Let’s be realistic, no company can afford to spend 15 per cent, or 12 per cent of their total wage cost, on benefits — very few could even spend 5 per cent.

Therefore, the only way for employers to provide effective and comprehensive healthcare benefits would be on the basis of co-payment of premium between employer and employee. The sooner employees and unions accept this reality, the sooner employers will be able to realign their benefit programmes to ensure better cover for employees through the employers’ health and welfare benefit schemes.

Just as in the United States, as healthcare costs begin to take up a bigger share of personal income, GDP and even government spending, some other things will have to give and people will have to take another look at their financial and retirement plans and rework all the numbers to take into account this new reality, where healthcare cost becomes a much bigger component of their total spending.

The writer is a lawyer and chartered insurer who is a council member of the Singapore Insurance Institute.