Medical Savings Accounts: The Singapore Experience

Policy Reports | Health

No. 203
Monday, April 01, 1996
by Thomas A. Massaro, M.D., Ph.D. and Yu-Ning Wong


  1. For example, in 1990 Singapore spent only 1.9 percent of its GDP on health care, while Hong Kong spent 5.7 percent and the Republic of Korea 6.6 percent. See Human Development Report, 1994, United Nations Development Programme (New York: Oxford University Press, 1994); and World Development Report, 1994: Infrastructure for Development, World Bank (New York: Oxford University Press, 1994)
  2. Medical Savings Account (MSA) legislation would give people the opportunity to move from a conventional, low-deductible health insurance plan to one with a high deductible and to put the premium savings in a personal, tax-free savings account. The account would be used to pay for routine and preventive medical care and would be combined with a high-deductible health insurance policy that pays for major expenses. Employees and their families would pay all medical bills up to the deductible from their MSAs and out-of-pocket funds. Their catastrophic insurance would pay all expenses above the deductible. Money left over in the MSA at the end of the year could be withdrawn or rolled over to grow with interest. See John C. Goodman and Gerald L. Musgrave, Patient Power: Solving America's Health Care Crisis (Washington, DC: Cato Institute, 1992). See also Mark V. Pauly and John C. Goodman, "Tax Credits for Health Insurance and Medical Savings Accounts," Health Affairs, Spring 1995, pp. 125-39. Although they do not enjoy the tax advantage, many companies already offer Medical Savings Accounts to their employees. See "Medical Saving Accounts: The Private Sector Already Has Them," National Center for Policy Analysis, NCPA Brief Analysis No. 105, April 20, 1994; and Stephen Barchet, Janine Anderson and Larry S. Chapman, "Medical Savings Accounts: An Option to Reduce Health Care Costs and Increase Health Care Satisfaction," American Compensation Association, ACA Journal, Autumn 1995
  3. Unless otherwise noted, all financial data are in Singapore dollars at a rate of S$1.00 to US$0.65.
  4. Singapore has a parliamentary government with a strong prime minister. The People's Action Party of Lee Kuan Yew, who was prime minister until recently, has dominated Singapore politics since the country won independence. While the country is officially democratic, the dominating party permits little opposition.
  5. Both the national culture and official government policies are influenced heavily by the nation's Chinese roots. Community needs take precedence over individual prerogatives, and self-reliance is a basic obligation in addressing social concerns.
  6. Mukul G. Asher, "Compulsory Savings in Singapore: An Alternative to the Welfare State," National Center for Policy Analysis, NCPA Policy Report No. 198, September 1995. See also The Statutes of the Republic of Singapore: Central Provident Fund Act, rev. ed. (Singapore: Singapore National Printers Ltd., 1994), ch. 36.
  7. Thus a maximum of $1,200 each from the employer and employee.
  8. Children are required to help their parents after retirement by providing funds should their parents' account run low.
  9. Affordable Health Care, a white paper presented to Parliament by command of the President of the Republic of Singapore, October 22, 1993 (Singapore: SNP Publishers Pte. Ltd., 1993).
  10. "Basic medical services" are those the government defines as cost-effective, essential and of proven value. Kidney transplants meet the criteria, but liver and heart transplants do not. All routine primary and specialty care is guaranteed. Only very high-technology services like liver and heart transplants, which do not meet "cost benefit" criteria, are not guaranteed. Choice of physician and free access to specialty care, although routinely available for those who wish to pay for them, are not guaranteed to all. Nonessential and purely cosmetic services, experimental drugs, techniques of unknown efficacy and expensive efforts to keep terminally ill patients alive are not included in the basic plan.
  11. Thus the CPF requires older people to pay more into their accounts. The financial reduction in the individual's income caused by the additional percentage point is normally lessened, however, since it comes when most workers normally reach their peak earning years.
  12. In 1992 the mean balance in the two million Medisave accounts was S$4,500. An average of S$695 was contributed to each account, and S$125 was withdrawn.
  13. The restriction on using Medisave money for more than three children is meant to discourage large families.
  14. This limited coverage is meant to reinforce the concept that nothing in health care is free. Even in public clinic facilities set up to provide low-cost services such as prenatal care and immunizations, there is a nominal charge ($1 to $45) to remind patients that they are making a choice.
  15. Family members can still be covered by Medishield.
  16. It is not always clear why the bureaucratically controlled decision makers choose to cover some conditions and not others. However, Singapore is a relatively conservative society that frowns upon conditions such as AIDS and drug and alcohol dependency.
  17. Companies are allowed to deduct up to 2 percent of the cost of wages to provide direct payment for employees' medical care. In 1992 employers spent an average of S$270 per worker on medical/dental benefits and workers' compensation premiums in addition to the Medisave contributions, an amount equal to 1 percent of total labor costs.
  18. Medishield Plus, implemented in July 1994, expands coverage for patients in the less-subsidized wards and has significantly higher premiums.
  19. Eleven of these are American: Columbia, Cornell, Duke, Harvard, Johns Hopkins, Stanford, University of California at San Francisco, Michigan, Pennsylvania, Washington University and Yale.
  20. Even with these data, a meaningful comparison of incomes in different countries is complex. One technique is to convert to a common standard (usually the U.S. dollar) using published exchange rates. The junior faculty physician with a monthly salary of S$10,000 receiving the "normal" three-month bonus nets S$150,000 per year, or about US$97,000 based on current international exchange rates. An alternative and perhaps more realistic approach takes into account the actual buying power that a given income has in the local environment. Purchasing power parity (PPP) estimates how much local currency is necessary to obtain a certain level of goods and services in different markets. For example, at official exchange rates (about 100 Yen/US$1), the per capita GDP of Japan is higher than that of the United States. But those Yen buy fewer goods and services in Japan than the equivalent income in the U.S. Based on PPP, or cost of living calculations, the value of the Yen is closer to US$200. The opposite is true in Singapore. The purchasing power of a Singapore dollar is greater in the local market than the official exchange rate indicates. When adjusted for PPP, the economic value of a Singapore income rises by roughly 20 percent, and the PPP-adjusted equivalent income for the junior faculty member is closer to US$120,000, which compares quite favorably with similar positions in the United States or other countries.
  21. Dr. Tan Yew Ghee, ed., Guideline on Fees for Doctors in Private Practice in Singapore, 2nd ed. (Singapore: Singapore Medical Association, 1992).
  22. These fees are comparable to those in a U.S. fee-for-service payment system.
  23. Approximately 65 percent of expenses are for labor, including physician services. American hospitals spend about 52 percent on non-physician labor, on the average. Since physician services add approximately 20 percent to the total cost of hospitalization, total labor costs as a percent of all costs are similar in both countries. For the comparative performance of U.S. hospitals, see The Sourcebook, 5th ed. (Baltimore: Health Care Investment Analysts Inc., 1991).
  24. Singapore General Hospital Annual Report 1992 (Singapore: MI-SA Press Pte. Ltd., 1993).
  25. M. Boosalis, S. Allawi, T. Collins et al., "Tracking ‘the Best' Hospitals," Healthcare Forum Journal 1993, vol. 36, pp. 53-57.
  26. One nurse serves two to three patients in intensive care, and one serves six to eight patients in the general wards, which is about equal to the international average.
  27. The Ministry of Labor report on wages for nursing personnel shows salary levels between S$1,000 and S$1,500 per month for junior and S$2,000 and S$3,000 for more experienced nurses with the high end of approximately S$4,000 for those who have clinical management responsibilities. See Wages in Singapore (Singapore: Research and Statistics Department, Ministry of Labour, 1993).
  28. In U.S. dollars, junior nurses earn between $14,000 and $17,000, and senior nurses earn between $29,000 and $36,000 - depending on the method of measurement.
  29. Lawrence Lim, "Health Care Restructuring: A Case Study on the Singapore General Hospital," presented at the Pan-Asia Hospital Development Summit, Kuala Lumpur, Malaysia, October 28-29, 1993.
  30. The government does not believe it should compete with the private sector for people who want full amenities during a hospital stay.
  31. The maximum allowable growth each year will be "CPI+X," where CPI is the Consumer Price Index and X is a factor allowing for "medical progress." X will be determined every few years by the Ministries of Health and Finance. For 1994, X was 2 percent.
  32. J. P. Weiner, "Forecasting the Effects of Health Reform on U.S. Physician Workforce Requirement: Evidence From HMO Staffing Patterns," Journal of the American Medical Association, no.3, vol. 272, July 20, 1994, pp. 222-30.
  33. R. Ray, L. H. Lim and S. L. Ling, "Obesity in Preschool Children: An Intervention Programme in Primary Health Care in Singapore," Annals of the Academy of Medicine, Singapore, vol. 23, no. 3, 1994, pp. 335-41.
  34. Disability Insurance Trust Fund: Status 1957-1993, Social Security Bulletin 1993 (Washington, D.C.: U.S. Government Printing Office, 1993), vol. 56, p. 108.
  35. Paul Gurny, David K. Baugh, and Thomas W. Reilly, "Payment, Administration, and Financing of the Medicaid Program," Health Care Financing Review, 1992 Supplement, pp. 285-301.
  36. The Singapore population is relatively young. Only 6.2 percent of the population was above age 65 in 1990, compared to 12.6 percent in the U.S., 11.4 percent in Canada and 15.4 percent in the United Kingdom and West Germany. The mean age of coronary artery bypass surgery patients in the United States and Europe approaches 65 years, so any meaningful comparison must be age-adjusted.
  37. D. Naylor, M. Ugnat, D. Weinkauf et al., "Coronary Artery Bypass Grafting in Canada: What Is Its Rate of Use? Which Rate Is Right?" Canadian Medical Association Journal, vol. 146, no. 6, March 15, 1992, pp. 851-59.
  38. In a Medicare "best practice" demonstration project, charges started at $40,000, but in some heavily managed markets coronary artery bypass surgery costs $15,000 to $20,000.
  39. See, for example, Pauly and Goodman, "Tax Credits for Health Insurance and Medical Savings Accounts"; William C. Hsiao, "Medical Savings Accounts: Lessons From Singapore" Thomas A. Massaro and Yu-Ning Wong, "Positive Experience With Medical Savings Accounts in Singapore" and Deborah Chollet, "Why the Pauly/Goodman Proposal Won't Work," Health Affairs, Summer 1995, pp. 260-74.
  40. For example, the economy of Singapore has grown at a phenomenal rate, averaging 10 percent annual growth over the first 10 years of the Medisave program. Medical expenses have grown at roughly the same rate as the economy, but because of account expenditures, caps on contributions and conservative rates of return on the money in the accounts, Medisave balances have not grown as rapidly. Between 1984 and 1989, the CPI rose 1 percent annually, medical inflation was at 3.5 percent and total health care expenditures rose at an annual rate of 11 percent.

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