Beware escalating costs in universal coverage

PHOTO: Beware escalating costs in universal coverage

SINGAPORE - On Friday, the MediShield Life Review Committee released its final report on Singapore's new national health insurance mechanism, giving specific recommendations regarding premiums.

As expected, premiums will rise to cover the much extended coverage, although The Straits Times website described the premium rises as "much lower than feared". But while there are bouquets all round for the generous benefits offered, many trade-offs have to be struck to achieve a balance between affordability and coverage.

The experiences of other developed places reveal issues that need to be addressed when implementing universal health insurance. One of these involves the integration of myriad voluntary insurance schemes. In South Korea, the process took almost 12 years and Taiwan over three years before its national health insurance scheme could be rolled out, and yet many bugbears in these systems are still being resolved.

A one-size-fits-all approach, like a single-payer system where one party, usually the state, is the one that pays for health-care costs, usually ends up with a multitude of problems. But so sometimes do heterogeneous methods.

Already, in Singapore, there is anxiety over how much premiums will rise for private plans offering Integrated Shield coverage. Those with pre-existing illness ask if these Integrated Shield plans offering higher-class ward coverage are also available to them, now that MediShield Life promises coverage for pre-existing conditions.

No health financing system is free from the risk of becoming unsustainable. Singapore has been prudent in broadening its financing. It inherited a tax-based system where health-care costs were borne by the state.

In 1984, Medisave introduced individual health savings accounts funded by employer and employee mandatory savings. In 1990, MediShield introduced insurance to the mix, with a low-cost health insurance plan for catastrophic illnesses or prolonged illness for which Medisave wasn't enough.

Medifund, designed to help needy Singaporeans who are unable to pay for their medical expenses, followed in 1993. This fund acts as a safety net for those who cannot afford the subsidised charges despite Medisave and MediShield coverage. MediShield Life is the filler needed to plug the remaining health insurance gaps and stretch the social safety net for universal health coverage of the population.

One might be tempted to think that such a diverse mix of financing - savings, insurance, taxation - puts Singapore in excellent financial condition to finance its health-care needs.

But there are danger points.

A rapidly ageing population, coupled with rising expectations of health-care treatment, can fuel sharp cost increases.

Tax revenues will still be needed to provide public health services, including subsidies for the poor and other necessary activities such as health education, training and regulation. The challenges of maintaining the quality of public services for the poor and reducing long waiting lists will continue - indeed, may even intensify, with MediShield Life, since more people are being brought under the health insurance umbrella.

There is also the risk that more generous coverage may spur demand and supply, since better coverage translates into lower out-of-pocket costs for patients, giving the illusion of "free" or cheaper services at the point of delivery.

The generous Pioneer Generation Package of medical subsidies for those aged 65 and above, funded out of tax revenue, has already set a precedent, with younger cohorts possibly clamouring for similar consideration in future.

Politically, there could be more demands for tax-funded health financing. To be sure, every prudent government will always try to prevent escalating costs of health care. Taxation-based financing is also subject to budget processes and controls.

Still, taken together, the effects of the mix of demography, expectations and political pressure should not be underestimated.If societal behaviour does not change fast enough, or people are reluctant to stomach higher premiums to pay for the old and sick, they may instead revert to over- reliance on government financing - to the detriment of the public purse at a time when revenues are shrinking due to a lower tax base.

So amid the accolades for the MediShield Life package, it's timely to sound a note of caution: Yes, Singapore is on a strong foundation with its health-care bill funded by a robust mix of taxation, savings and insurance. But beware the inherent risks of public demands for more tax-funded care.

In reality, the two financing models - one in which the state pays either through taxation or social health insurance, and the other in which citizens fund their own health care through compulsory savings - are converging in all developed countries as populations age.

Both models are basically pay-as-you-go systems, because risks are pooled for the whole population by community rating instead of risk-rating by age bands.

But as populations age, and more people enter the high-risk, high-premium category, costs will escalate. It makes sense, therefore, for people to build up savings and "front-load" premiums.

This means paying more when they are young and have a steady income so that they do not have to pay high premiums when they are old and the risks borne by the insurer are greater.

That said, no amount of increased financing can really be enough without managing costs on the supply side, usually by altering the incentives of health- care workers to provide cost-effective services. Whether through taxes, insurance premiums or savings, all parties will eventually have to pay more for better health care.

In the process, it will be important to maintain a fair and equitable balance between the public and private sectors, while integrating the different sources of financing.

This article was first published on June 28, 2014.
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