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Whither our 3M healthcare system?

There are great expectations arising from the year-long Our Singapore Conversation. Many have expressed their concerns and wishes for the future development of healthcare. And recently, we have been deluged with many articles and commentaries on the advantages and disadvantages of the Singapore system, offering various diagnoses, prognoses and even policy lessons for other countries.

Elderly patients having check-ups at Kwong Wai Shiu Hospital. An announcement on increased budget allocation is expected in the coming days to cover rising costs for long-term care of the elderly. TODAY file photo

Elderly patients having check-ups at Kwong Wai Shiu Hospital. An announcement on increased budget allocation is expected in the coming days to cover rising costs for long-term care of the elderly. TODAY file photo

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There are great expectations arising from the year-long Our Singapore Conversation. Many have expressed their concerns and wishes for the future development of healthcare. And recently, we have been deluged with many articles and commentaries on the advantages and disadvantages of the Singapore system, offering various diagnoses, prognoses and even policy lessons for other countries.

Healthcare consultant Dr Jeremy Lim, who has worked in the public and private sectors, will be launching his book, Myth or Magic: The Singapore Healthcare System, next month.

As a frequent commentator on the local health scene — having written several pieces for this paper, for instance — he recently noted that “it is not the invisible hand of the market that drives costs down in Singapore’s healthcare system. It is the very visible hand of a strong Government that does so, as regulator and in deciding what to subsidise and what not to subsidise”.

Dr William Haseltine’s recent book, Affordable Excellence: The Singapore Health Care Story, attracted both bouquets and brickbats from international reviewers on the left and right of the ideological spectrum. Lay users such as Financial Times Assistant Editor Gillian Tett, who personally tested the quality of Singapore’s health services, praised it in an article.

The system is held up as a model for achieving impressive health outcomes with a low level of spending compared to other developed countries. Dr Haseltine attributes this success to “managed capitalism”, with competition and informed consumers who are incentivised to keep costs down as they have to exercise “individual responsibility” and co-pay high user fees.

But like many other casual observers, he mistakenly links Singapore’s excellent standards of health — such as high life expectancy and low mortality rates — primarily to the merits of the 3M financing system: Medisave, MediShield and Medifund.

A recent editorial in the British Medical Journal by Professor Martin McKee and Professor Reinhard Busse expresses a similar basic misunderstanding of the Singapore system. They describe the notion of savings and individual responsibility (as encapsulated by Medisave, in particular) as anathema to the European values of equity and solidarity — concluding thus that the Singapore system has nothing to offer other countries.

30 YEARS ON, MEDISAVE RE-EVALUATED

It is evident that many industrialised countries with aged populations or developing countries with poor populations may find it impossible to enforce savings for healthcare. (Emerging countries, as they transition to higher-income economies, would yet have a window of opportunity to enable greater savings for retirement and healthcare in old age, while reaping the demographic dividends of their younger workforce.)

So, are “pay as you go” systems of financing healthcare through taxation or social insurance doomed to certain bankruptcy in countries with very high elderly dependency ratios?

To answer this question, it is instructive to re-examine fundamental assumptions in the National Health Plan of 1983, when the idea of a national savings scheme for healthcare was first mooted — the first anywhere in the world.

Medisave as part of the Central Provident Fund was touted as the way to avoid the problems of inter-generational income transfer. The original intention was for every generation to build up its own nest egg, so it would not have to depend on limited contributions due to a shrinking tax base or insurance pool as the population aged.

Yet, 30 years later, we are saddled with the fears that, despite our huge savings — Medisave has accumulated savings of more than 10 years’ equivalent of our annual health spending — there will not be enough in the average individual’s Medisave account.

In fact, after Medisave was launched, it was soon realised that it needed back-up insurance coverage for catastrophic illnesses requiring higher expenditures. MediShield was thus born in 1990, as a low-cost and limited social insurance for dreaded diseases. Medifund was created as an endowment to pay the medical bills of the indigent or individuals whose families qualify after stringent means testing.

In an ideal situation, a well-designed and well-implemented 3M system would have become the dominant mode of financing over the years — instead of a situation where there is Medisave surplus for most people and inadequacy for many others. Its restrictive use has also led to the lop-sided, perverse use of hospitals, rather than encouraging alternatives and substitutes to hospital care.

MORE OUT-OF-POCKET COSTS

Meanwhile, we also have an imbalance in the other financing levers of taxation and user fees. While subventions to public hospitals are capped and subsidies are targeted, cost-recovery rates ranging from half to two-thirds of total hospital spending have resulted in more and more out-of-pocket payments being forced outside the 3M framework.

At the current rates of medical inflation and rising prices, many older and lower-income Singaporeans do not have enough in their Medisave, and may not want to burden their children or be stigmatised by applying for Medifund.

So, how do we correct the imbalances in healthcare financing?

Short of a radical overhaul, there are several adjustments needed to fine-tune the Government’s share of financing and the 3M schemes. Healthcare financing mechanisms would have to be realigned to create the necessary incentives for both users and providers to use healthcare services in a more cost-effective manner, and for these to be more affordable.

There are calls to avoid the excesses of generous welfare benefits or the abuses generated by for-profit insurance that induces unnecessary spending. Thus, it is prudent to move with caution in developing both the social and private insurance components of MediShield and the Integrated Shield Plans.

Yet, Singaporeans are lucky that they have built up a large pool of Medisave savings and still have the luxury of tapping these to enhance the insurance components for future catastrophic and long-term care.

FIVE CHANGES AHEAD?

It is expected that, in the coming days, the following measures would be announced and implemented:

One, increased budget allocation to cover rising costs in the health sector (the Government has signalled its intention to double its share in coming years), for outpatient care or long-term care of the elderly population, especially the lower-income.

Two, further liberalisation of Medisave to allow for greater coverage of chronic conditions — such as more preventive care like certain vaccinations and screening that may save on future treatment expenses.

Three, a shift of Medisave premiums into MediShield so as to provide greater social protection for larger catastrophic illness bills.

Four, the possible enhancement and integration of MediShield and ElderShield covering community-based services for long-term care.

Five, control of supply–side medical practices and professional fees when it comes to the use of medical technologies and expensive drugs or medical equipment.

FUTURE WITH MORE PEACE OF MIND

It is timely that the various control knobs in our healthcare financing system be adjusted continually — taxes to redistribute resources to the poor and elderly, savings to generate more resources for future ageing needs, and social insurance to provide greater risk-pooling to cover high-cost catastrophic illnesses.

This is needed to achieve the proper balance between supply and demand for healthcare, between the different levels of primary preventive, acute and long-term care, and between the public, private and people sectors.

Singaporeans have voiced their needs and expectations in the Our Singapore Conversation. They look forward to some major reassurances from the Government to correct the imbalances in healthcare delivery and financing.

In the years ahead, Singaporeans want good governance through stronger regulation and information-sharing within the health sector, as the policies are translated into action. They want to enjoy old age with greater peace of mind — with good health and medical care at affordable prices.

ABOUT THE AUTHOR:

Dr Phua Kai Hong teaches health and social policy at the Lee Kuan Yew School of Public Policy, National University of Singapore. He has consulted for many governments and international agencies, including the World Bank and the World Health Organization.

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