Govt is right to remove an individual luxury that results in collective loss

On Wednesday (March 7), the Ministry of Health (MOH) announced it would introduce mandatory co-payment features into new Integrated Shield Plan (IPs) riders.

The new rules mean insurers must impose a co-payment of not less than 5 per cent of the total bill, but subject to an annual cap for services pre-authorised or provided by doctors on the insurers’ approved panel.

Currently, the riders, which conceptually sit on “top” of the IPs, permit policy-holders with “as charged” plans to pay nothing, or virtually nothing, towards their hospital bills, thus effectively decoupling consumption from payments.

Economists describe this as a “moral hazard”, which arises when a contract or financial arrangement creates incentives for the parties involved to behave against the interest of others. Here, patients have no incentive to contain costs, whilst providers (both hospitals and doctors) perversely have an incentive to jack up prices.

The empiric data since full riders were introduced in 2005 highlights significant differences: Rider purchasers, whilst younger on average than non-rider IP policy-holders, make more claims (9 per cent versus 7 per cent) and their claims are about 60 per cent higher.

MOH ascribes these findings to “over-consumption, over-servicing and over-charging”, which it argues are inherent risks when there are no co-payments.

Critics have decried MOH’s latest move as ineffective, with 5 per cent being too small to influence behaviour. They further note that the cap on co-payments per year of $$3,000 may even induce perverse behaviour: Once this limit has been reached, policy-holders might even be more encouraged to utilise more and more healthcare services!

This is muddled thinking, as it is wrong to discuss the co-payment as a standalone measure.

Instead, the mandatory co-payment feature in IP riders should be seen as one piece in a suite of necessary measures to manage healthcare spending.

Keen readers of healthcare-related news will recall that the 2016 Health Insurance Task Force, which was referenced by MOH in making the announcement on Wednesday, also made five other recommendations.

These are: Educating policy-holders, clarifying procedures to escalate fee disputes, establishing fee guidelines or benchmarks, introducing panels of preferred providers and implementing pre-approval before policy-holders are admitted to hospital for elective treatment.

Since then, the MOH Agency for Care Effectiveness has commenced issuing guidance on clinical- and cost-effectiveness, and a Fee Benchmarks Advisory Committee was established earlier this year by MOH and is expected to issue its first report by June.

Insurers have begun to establish panels of doctors, and pre-authorisation is reportedly in the works.

Hence, one can see that the co-payment feature of future riders is only one piece, albeit a very important one, of the total effort to manage healthcare costs.

And it is the totality of these different measures that hold the potential to stem an otherwise inexorable escalation of healthcare spending.

This should not be surprising. Healthcare decision-making on the part of both providers and patients is complex, and there is no “silver bullet” which can mitigate against rising costs whilst also addressing access and quality.

Singaporeans may feel they are being penalised for insurers’ inability to manage supply side issues. However, demand interventions are also critical, and the sensitisation of patients to actual healthcare prices is important.

The alignment of interests, with policy-holders directly and immediately feeling a little of the impact of rising healthcare prices, may be crucial in galvanising support for supply side interventions and increased willingness to work with payers (including the government and insurers) in the five other Health Insurance Task Force measures.

More fundamentally, co-payments are, as MOH emphasises, a “key tenet of our healthcare financing framework” and represent very tangibly what Health Minister Gan Kim Yong described as “the personal responsibility to choose appropriate and necessary care”.

The introduction of co-payment features to IP riders, rather than being a new paradigm of financing, really brings us back to the situation pre-2005.

What happens, then, to the more 1.1 million existing policy-holders in Singapore with IP riders?

MOH has clarified that “existing rider policies are commercial contracts between insurers and their policy-holders”, and has advised insurers that they need to consider the “interest and well-being of all policy-holders, as they seek to keep premiums affordable for everyone in the longer term”.

Clearly, it will take years for the impact of introducing co-payments to be fully realised.

I would think insurers would almost definitely offer existing policy-holders the option to switch, perhaps sweetening the proposition with an offer of premium rebates or even loyalty cash appreciation awards (this might go some way to addressing the disquiet that, for many years, insurers had enjoyed profits despite the riders, and that it was only in 2016 that all experienced underwriting losses).

The ones who take up this offer would likely be low-risk policy-holders, leaving those with a history of claims or intent to claim in the full rider risk pool.

With more and more switching to co-payment, eventually only high-risk policy-holders will be left in the full rider pool, and the resultant premiums for them would be so high that it would no longer be viable to continue.

Riders were introduced to explicitly enable policy-holders to enjoy healthcare without having to pay anything at the point of consumption.

This individual luxury, unfortunately, results in collective loss, and the Government has a duty to take the long view and keep healthcare affordable and sustainable for all Singaporeans.

Yes, it is painful to have to set aside funds for the co-payments.

But the bigger prize for all of us individually and as a country is a Singapore health system that now and in the future is of high quality, accessible to all and financially sustainable.

ABOUT THE AUTHOR:

Dr Jeremy Lim is head of the Health and Life Sciences Practice in Asia at Oliver Wyman, the global consultancy.