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

Evaluation of the Singapore System

"The Singapore system is efficient and effective."

Legislative proposals to permit U.S. citizens to make tax-free deposits to a Medical Savings Account (MSA), which they would combine with a catastrophic insurance policy, closely resemble Singapore's combination of Medisave and Medishield programs.39 MSAs provide incentives to reduce consumption, and they offer protection against extraordinary events and free-rider abuses. The comparable approach in Singapore works very well. The system is efficient and effective; the health status of the people is improving; and the national investment in health care is surprisingly low, while hospitals are profitable and physician incomes relatively high. How much of this is due directly to the savings program? Stated another way, is Medisave the cause or the consequence of Singapore's successful health care environment?

Philosophy of saving. Singapore is the optimum climate for a medical savings program. Singaporeans have an average savings rate of 46 percent of wages, and the CPF is a cornerstone of social policy, an effective conceptual framework and infrastructure for the saving process.

Proper incentives. Medical Savings Accounts force individuals to anticipate future risks and to accumulate reserves during periods of low use (early adulthood) for periods of anticipated high use (later in life). Young people must plan to care for themselves as they age. This intragenerational accountability contrasts with most European systems, where young people must pay for the needs of their elders, and pressure to limit consumption is nil. Medical Savings Accounts address overconsumption directly by providing incentives for patients to conserve.

Concerns facing the Singapore system. A primary concern is whether Singaporeans can create sufficient reserves early in life to cover their expenses later.40 Given the rapid introduction of new technology and new services, estimating how much to set aside for future health care needs is difficult. The government originally opposed risk-sharing across larger pools, but it now recognizes the potential for underestimating the growth of health care costs and acknowledges that the basic Medisave contribution alone might prove inadequate. That is why the Singapore government adopted the Medishield program.

In addition, the government recently initiated a program of Medisave augmentation for government employees and civil servants who have not had access to standard Medisave accounts and is increasing salaries significantly so government workers can contribute more to the system.

While these programs are too new to evaluate, their existence demonstrates government efforts to help all Singaporeans meet medical care needs.

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