Medical Savings Accounts: The Singapore Experience
Monday, April 01, 1996
by Thomas A. Massaro, M.D., Ph.D. and Yu-Ning Wong
Table of Contents
- Executive Summary
- Singapore?s Economic and Social Welfare Systems
- The Central Provident Fund
- Financing Medical Care in Singapore
- Government Subsidies for Health Care
- Physician Services
- The Hospital Sector
- Evaluation of the Singapore System
- Can Medisave Work in the United States?
- About the Authors
Financing Medical Care in Singapore
In 1992 Singapore spent S$2 billion, or 3.1 percent of its GDP, on health care. The delivery system is a mix of private and public services. Eighty percent of hospital care is delivered in public facilities, and 75 percent of ambulatory service is provided by private practitioners. Twenty-six government-run clinics provide outpatient treatment, health screening, immunizations, diagnostic testing and pharmacy services for those who use the less-expensive public sector. Even though these clinics are subsidized, they charge for most services, reflecting the philosophy that health care should not be free.
Objectives of Singapore's health care system. The government has defined five fundamental objectives for the Singapore health care system:9
- To promote good health throughout the nation as a whole;
- To encourage individuals to take responsibility for their own health and avoid over-reliance on state welfare or medical insurance;
- To provide good and affordable basic medical services to all Singaporeans;10
- To rely on competition and market forces to improve service and increase efficiency; and
- To intervene directly when markets fail to curtail health care costs.
To promote these ideals, the government has implemented three programs that help people pay for medical expenses: Medisave, Medishield and Medifund. With these three programs, Singapore has managed to create a largely self-funded health care system that requires people to first look to their own resources for health care, relying on the government only after their resources are depleted.
"Singapore designed the Medisave system to help citizens meet their individual responsibilities and supplement funds drawn from their own savings."
The Medisave Program. Created in 1984, Medisave is a compulsory national health care savings program that operates under the umbrella of the CPF. Consistent with the belief that self-reliance is the cornerstone of social policy, the Medisave system is designed to help citizens meet their individual responsibilities and to supplement funds drawn from their own savings. The program also indirectly helps manage price levels and resource allocations by limiting reimbursements for individual services and procedures.
Medisave contributions begin at 6 percent of the total wage, rise to 7 percent at age 35 (up to a maximum contribution of S$360 per month) and to 8 percent at 45 (with a maximum of S$420 per month).11 When an individual's account balance reaches S$16,000, future contributions are automatically transferred to that person's Ordinary account. Retirees are required to keep S$11,000, or their actual Medisave balance, whichever islower, in the account, and they may withdraw any surplus.12 Like other CPF contributions, Medisave contributions are not taxed and accounts earn tax-free interest.
Medisave funds can be used at all private and public hospitals. In 1992, 83 percent of hospitalized patients paid at least a portion of their bills from their Medisave accounts.
Patients can use their accounts to pay up to S$300 per day for hospital charges, S$50 for attending physicians fees and between S$150 and S$5,000 per surgical procedure (including surgeon, anesthesiologist and facility fees), based on its complexity. They must pay the rest of their expenses, if any, out of pocket. Medisave also provides up to S$150 per day for psychiatric treatment (to a maximum of S$3,000 per year) and for the delivery of a family's first three children; prenatal and postnatal care must be paid out of pocket.13 In the outpatient setting, only a few relatively expensive treatments are covered (e.g., hepatitis B vaccinations, assisted conception procedures, renal dialysis, radiotherapy, chemotherapy and AZT therapy).14
"Medishield is a catastrophic insurance program that pays extraordinary hospital expenses."
The Medishield Program. For low-income workers and others without large fund balances, Medisave accounts alone may be insufficient to cover a serious or prolonged illness. For that reason, Medishield was established in 1990 as a catastrophic insurance program to pay extraordinary hospital expenses for those under 70 years of age. Although 88 percent of all Medisave account holders participate in Medishield, perhaps only slightly over half of the total population is covered by the program. This is because children and the very elderly (who were retired when the Medisave system was created) do not have Medisave accounts.15
Annual Medishield premiums range from S$12 for those under the age of 30 to S$132 for those between 66 and 70 years, and are deducted automatically from Medisave accounts unless the employee requests otherwise. Claims are limited to S$20,000 per year with a lifetime maximum of $70,000. [See Table I, which compares the three Medishield options that are available.] Like Medisave, Medishield has preset limits based upon the complexity of the care provided. Medishield provides coverage only when the length of stay reaches 1.5 times the average for that procedure. Thus, if the average time needed for a hip replacement is 10 days, the patient will receive Medishield reimbursement only on the 15th day of hospitalization. Given the wide variation in hospital stays for any given procedure, only between 20 and 25 percent of hospitalizations receive any Medishield reimbursement.
Also like Medisave, Medishield does not cover everything. For example, Medishield does not cover normal deliveries, vaccinations, psychiatric treatment, AIDS-related conditions or drug and alcohol rehabilitation. Preexisting illnesses, congenital abnormalities or hereditary conditions and overseas medical treatment also are excluded.16
"The Medifund program aids those whose out-of-pocket, Medisave and Medishield payments may not cover all of their medical expenses."
The Medifund Program. Because mandatory Medisave deposits are a percent of wages, deposits are smaller for lower-wage workers, and the least affluent may not be able to pay much out of pocket. Thus the combination of out-of-pocket, Medisave and Medishield payments may not cover all of their medical expenses. Medifund is a government-funded program established in April 1993 to provide financial assistance to the poor whose Medisave accounts are low and who have few resources to pay the difference out of pocket. Initiated with a government grant of S$200 million, Medifund receives an additional S$100 million each year there is a government surplus. This provision is only theoretical at present, since government surpluses have been robust, but it underscores the government's position that health care is a good to be purchased within the limits of available resources and not an entitlement. Funds are distributed on a case-by-case basis. Preference is given to patients who have made regular contributions to Medisave/Medishield and to the elderly whose Medisave accounts have not grown adequately to cover expenses.
Third-party insurance. The Singapore government has not encouraged the growth of American-style third-party insurance on the grounds that it encourages the perception that medicine is a free good. Tax deductions for all allowed medical expenses are limited to 2 percent of the employee's base salary. Firms are encouraged to make additional Medisave contributions of up to 2 percent of salary instead of providing employees with additional hospitalization benefits. Since Medisave does not pay for most outpatient treatments, many companies provide some coverage for them.17