Successful healthcare systems around the world are owed to extremely efficient framework, which, lays the foundation of proper fiscal budgeting to the relevant sectors of the economy for it to work. The necessity to better understand how such framework works has become especially pressing as the ageing population begins its rampant rise in the future. This document aims to explore the pros and cons of Singapore’s Medical Savings Account model, and the several impacts it has on the society and the future.
The structure of Singapore’s healthcare system has contributed in achieving sixth placing worldwide in terms of healthcare outcomes. Singapore’s healthcare expenditure of GDP per capita is significantly lower as compared to most developed countries, e.g. Japan and USA (Haseltine, 2013)
Medical Savings Accounts (MSA) scheme is one of the elements which has attributed to its success of providing high-quality care at an affordable rate. Due to concerns in keeping healthcare sustainable despite its rising cost (Hsu, 2010), Singapore implemented the nation-wide compulsory savings account, Medisave, in 1984. It was to reinforce individual responsibility and to mitigate the moral hazard of over-consumption in healthcare and to control the costs (Ministry of Health, 2003).
The system was to ensure that all Singaporeans had part of their monthly income set aside into their Medisave account to pay for health care expenses in the future. Utilization of the funds can either be for personal or immediate family’s hospitalization, day surgery, health screening, long-term care and certain medical expenses. As of January 2016 employers and employees contribute 8-10.5% of their monthly wage to their Medisave accounts, which is subjected to different age groups (Ministry of Health, 2016).
The adequacy of Medisave ensures that people are able to pay for themselves or their immediate family member’s healthcare costs in a long run with the use of their accumulated savings, when needed. The approach of Medisave is to keep basic healthcare accessible for all, inculcate personal responsibility as well as to counteract the moral hazards of overconsumption.
As stated in white paper (Ministry of Health, 2003), healthcare market is imperfect therefore; this essay will discuss and evaluate the advantages and disadvantages of the Medisave.
Affordability of healthcare costs
Medisave is claimable when a patient is admitted to the hospital for at least 8 hours or for a day surgery. The government heavily subsidize up to 85% for Class C wards. This is to ensure that payment of hospitalization is made accessible to all individuals (Ministry Of Health, 2017). It allows individuals to have a peace of mind and assurance that they will receive the bare minimal of basic health care needs or services.
The co-payment system inculcates personal responsibility for one’s health by encouraging citizens to live a healthy lifestyle and keep a clean bill of health in order to avoid any incurred healthcare expenses. However, precautions taken cannot guarantee one from falling ill.
The rising cost of out of pocket expenditure is unaffordable for the poor and elderly (Shortt, 2002). In 2006, the percentage of out of pocket expenditure being absorbed by patients, peaked at 68.90% (World Health Organization, 2014). Singapore also ranked 101st out of 191 countries in terms of fairness in financial contribution (World Health Organization, 2000).
The high out-of-pocket cost being absorbed by citizens have caused them to feel uneasy about falling ill. In a survey done in 2012, among 2,000 Singaporeans, it is found that 72% of Singaporeans said that they cannot afford to fall ill with fear of incurring a large medical bill (Hooi, 2012).
In an experiment conducted by Rand corporation, it is found that co-payment affects the poorer patients. Higher co-payment might deter patients from purchasing prescribed medication for their chronic conditions or even seeking treatment. This will result in an increase in healthcare expense due to readmissions or prolonged hospitalization.
In response to the issue, the government’s health financing system includes Medishield and Medifund which helps patients cope with the rising cost of healthcare. The Community Health Assist Scheme (CHAS) allows Singaporeans to seek treatment or health screening at private primary health care clinics at a subsidized rate (Haseltine, 2013). It is made available for the lower and middle income Singaporean family with household income from $1,500 to $1,800 per capita per month.
Sustainability of Medisave among elderly
Besides personal responsibility, the compulsory medical savings also incorporates features of family support. Families are able to share the cost of healthcare by risk pooling amongst themselves (Haseltine, 2013). However, this could possibly lead to premature depletion of one’s Medisave account if a member of the family contracts a major illness or elderly parents do not have sufficient funds in their Medisave account.
In a National survey conducted in 1995, the results were evident that many elderly do not have sufficient funds in their Medisave account and had to mobilize their children’s funds instead (World Health Organization, 2002). This was due to the timing of Medisave being introduced and elderly back then had lower income (Ministry of Manpower, 2017). Thus, they had lesser time and amount to accumulate funds in their Medisave account.
This issue has come under the light of the government, which resulted in the implementation of new schemes. These new schemes helped sustain the healthcare needs of the elderly and shoulder the burden of healthcare costs on families with elderly (Haseltine, 2013).
In 2014, the government implemented the Pioneer Generation Package, in order to address the healthcare needs of elderly born on or before 31 December 1949 (Ministry of Health, 2014). This package entitles elderly to receive a wide range of subsidies and additional yearly Medisave top-up.
In 2018, the government announced the Merdeka Generation Package to be implemented in 2019 for Singaporeans born between 1950 and 1959. With the Merdeka package, the beneficiary is entitled to outpatient subsidies, Medisave top-ups, Medishield Life premium subsidies as well as pay-outs for long-term care (gov.sg, 2018)
In essence, the schemes implemented are effective in overcoming the issues of insufficient funds faced by elderlies and it will lessen the burden of healthcare cost on their children and safeguard them from the premature depletion of funds in their Medisave accounts.
A study was done to explore the effectiveness of Medisave for families with children suffering from Cancer. It is evident that Medisave served its purpose, as it allowed families to pay a lower amount of cash upfront, by utilizing the funds in their Medisave account for the medical bills incurred (Kok Hoe ; Ow, 2005).
In the case study done by the NUS Department of Social Work and Psychology, two children suffering from cancer came from two different family backgrounds and sociaeconomic status. Child A came from a middle-income family, while Child B came from a low-income family. Both families utilized their Medisave to pay for the child’s treatment fees. However, Child A’s family had to pay cash, out of their own pocket for the remaining 70% of the bill after Medisave and Medifund deduction, despite of having sufficient funds in their Medisave. This was due to the limit set for the withdrawal of funds from Medisave in order to safeguard the funds for future use. Whereas Child B’s family could pay entirely through Medisave as they received close to 90% of Medifund assistance.
At that point of time, Medishield scheme was opt-in for children and the annual claim limit was only $30,000, barely sustainable for cancer treatment (Kok Hoe & Ow, 2005).
Thus in the recent years, Medishield became a mandatory basic health insurance for all Singapore Citizens and the coverage starts from birth. Parents are able to pay for the premiums through Medisave Grant for Newborns and it made affordable for all by the government. The annual claim limit was also raised to $100,000 per year.
It is clear that Medisave is insufficient to offload the high medical cost incurred by catastrophic illnesses due to the Medisave withdrawal limit. However, the various schemes such as Medishield and Medifund are effective in reducing the large medical cost incurred.
Moral hazard is the lack of awareness to guard against risk, knowing that one is protected from its consequences.
There are 2 categories to moral hazard, consumer moral hazard and supplier moral hazard. Both arise from the presence of full health insurance coverage where consumers pay minimal for the healthcare services they receive and healthcare professionals provide more than what is necessary (Gorin, 2006). Unawareness and overconsumption in healthcare services will cause inflation, ultimately incurring excessive demand and expenditure in healthcare (World Health Organization, 2010).
Medisave was introduced to alleviate the issues of moral hazards by introducing co-payment. Co-payment is effective in decreasing the overconsumption of healthcare and increasing the awareness of cost sensitivity when personal financial responsibility is engaged. This is illustrated by a health insurance experiment conducted by Rands Corporation in 1970. Approximately 5,800 individuals of the 2,000 households, across six different states of United States were provided with different coverage of health insurance. It was found that, individuals demand for healthcare would increases by more than half when they were given a 50% reduction out of pocket cost. (Dine et al, 2013).
Supplier moral hazard occurs hand in hand with supplier-induced demand (van Dijk et al., 2012). It is when healthcare professionals manipulate patient’s demand for medical services and induce the increase in utilization of healthcare (Sekimoto ; Ii, 2015), knowing that cost incurred is not an issue as the patient is fully insured by private insurance companies (Lai, 2016). Patients are also likely to heed medical professionals’ advice on treatment due to their difference in medical knowledge to actually judge the necessity of treatments and services. In this situation, Medisave is able to resolve the supplier induced demand as individuals are no longer fully insured medically and are forced to be cost conscious regarding their healthcare choices and services obtained. Thus medical professionals will only provide treatment required and medical professionals will be directed towards the aim of treating at the welfare of the public healthcare needs instead of economical gain (Sekimoto & Ii, 2015).
The adverse effects of both overconsumption and oversupply in healthcare, leads to a rise in healthcare cost and inefficient allocation of resources. It will subsequently lead to a decrease in welfare of the society (Feldstein, 1973). Medisave resolves the opposing goal between moral hazard and accessibility resources by reinforcing personal financial responsibility in healthcare and cost consciousness (Schreyogg, 2004). Effectiveness is concluded when there is a drop from 76% to 50% in the government’s share of healthcare financing after the implementation of Medisave scheme (Lim, 2013).
The philosophies which were laid out in the White Paper have mostly been achieved. To promote personal responsibility of one’s health, to provide quality and affordable healthcare as well as to overcome moral hazard (Ministry of Health, 2003). It is evident that the medical savings accounts has succeeded in ensuring that healthcare remains accessible, despite its rising cost, with the effectiveness of healthcare subsidies. It has also successfully inculcate a sense of responsibility on personal health and encourages Singaporeans to be more prudent on their healthcare choice and spending. Overall the implementation of Medical savings account and co-payment has helped in overcoming moral hazard.
However there are a few areas which can be further looked into and improved. Medisave withdrawal limit for catastrophic illnesses should be re-evaluated as the coverage of Medishield might not be sufficient to cover the highly incurred cost for treatment.
Despite having schemes implemented for elderly and lower income family, more attention should be placed on keeping it affordable as Singapore is predicted to have 1 in 4 Singaporeans to be aged 65 years and above in 2030. (FIND SOURCE). Life expectancy is expected to grow (Lim, 2013) and cost of healthcare cost is bound to increase overtime.
The effectiveness of MSA is evident in achieving the philosophies as mentioned above, however it is clear that the effectiveness is only measurable with the added feature of support schemes and implementation of the Medishield and Medifund.