Thomas A. Massaro, M.D., Ph.D.

Yu-Ning Wong

Singapore also compares favorably to other "Asian tigers" in terms of spending and overall health indicators. For example, Singapore had an infant mortality rate of five per 1,000 live births in 1992, equal to that of Japan and lower than that of Hong Kong, which was six.

To achieve this record, the government has implemented three programs that help people pay for medical expenses: Medisave, Medishield and Medifund.

The Medisave Program.

The Medishield Program.

The Medifund Program.

Public institutions dominate Singapore's hospital sector: 13 of the 23 hospitals and 8,640 of the 10,469 beds are in facilities controlled by the Ministry of Health. A key component of the government'spolicy is a tiered structure of subsidies based on the setting in which care is delivered and the amenities provided with it. In the public hospitals, there are five classes of wards that receive varying degrees of subsidy, while private hospitals are unsubsidized.

In principle, individuals are free to choose among the five levels. Medical social workers provide financial counseling to everyone at the time of admission into the public hospitals. They advise patients that it is their responsibility to choose a ward class they can afford and to cover their expenses through a combination of subsidy, Medisave, Medishield and personal funds. If necessary, patients can draw on their spouse's, children's or parents' Medisave accounts.

Quality of service is an important issue for Singapore's hospitals. Hospital personnel are responsible for improving service, and senior management makes decisions based on the satisfaction of patients and other customers. For example, patients waiting less than 15 minutes at admission increased from 40 to 71 percent between 1991 and 1992.

Singapore has one of the most sophisticated health care delivery systems in Asia, serving citizens and foreign nationals alike in both private and public hospitals. In terms of efficiency of delivery, Singapore is comparable to U.S. managed health networks and point-of-service plans.

• The hospital admission rate for residents is approximately 1.10 per year per 1,000 population, about the same as aggressively administered HMOs in the U.S.
• The ratio of caregivers to support personnel is 5:1 at Singapore General Hospital - it is 2:1 in benchmark American hospitals - reflecting the increased efficiency that comes from lighter bureaucratic and regulatory loads that Singapore places on the delivery system.
• The average length of stay at Singapore General Hospital is 5.4 days, also comparable to the best American managed care and far less than that in other developed countries.

Introduction

In 1984 Singapore adopted a system of Medisave accounts, individually owned accounts used to pay for many of the health care expenditures that would normally be covered by health insurance in the United States. The fact that people are spending their own money rather than that of a third-party insurer has helped to curtail Singapore's health care costs. Singapore spends only 3.1 percent of its gross domestic product (GDP) on health care, while the U.S. spends about 14 percent, yet Singapore's hospitalization rate is about equal to that of HMOs in the United States.

In addition, Singapore spends less than many of the other "sian tigers," while maintaining strong health statistics. For example, Singapore had an infant mortality rate of five per 1,000 live births in 1992, equal to that of Japan and lower than that of Hong Kong, which was six.1 But even with these low expenditures, the Singapore experiment has succeeded in expanding patients' choices and providing easy access to technology.

"The fact that people are spending their own money rather than that of a third-party insurer has helped to curtail Singapore's health care costs."

Since the U.S. Congress is moving to make tax-free Medical Savings Accounts available to the public, an examination of Singapore's experience should prove beneficial.2

Singapore's Economic and Social Welfare Systems

In 1993 the Singapore economy grew by 9 percent and generated a per capita income of S$27,864, or about $18,116 in United States dollars.3 Its foreign reserve account is the fifth largest in the world after those of Japan, Taiwan, Germany and the U.S. The unemployment rate is 1.5 percent and the literacy rate 91 percent.

Since independence, the ruling People's Action Party4 has managed a paternalistic and authoritarian government and promoted an aggressive social program, under which people are required to save to finance benefits that are provided by government in most developed countries.5

"Singapore's provident fund system was originally designed to force citizens to save for their own retirement."

Members maintain three accounts with the Central Provident Fund Board - Ordinary, Medisave and Special accounts. Among these three, the total contribution of 40 percent of income is credited as follows:

• 30 percentage points go to the Ordinary account, which can be used for housing, approved investments, certain types of insurance, loans for college education expenses and topping up parents' retirement accounts.8
• Between 6 and 8 percentage points, depending on age, go to the Medisave account for hospitalization and certain other medical expenses.
• 4 percentage points go to the Special account for old age retirement and contingencies.

Financing Medical Care in Singapore

Objectives of Singapore's health care system.

• 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.

The Medisave Program.

"Singapore designed the Medisave system to help citizens meet their individual responsibilities and supplement funds drawn from their own savings."

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

The Medishield Program.

"Medishield is a catastrophic insurance program that pays extraordinary hospital expenses."

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. 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. 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.

"Under the three Medishield plans, coverage varies according to the level of service chosen."

"The Medifund program aids those whose out-of-pocket, Medisave and Medishield payments may not cover all of their medical 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

A key component of the government's policy is a tiered structure of subsidies based on the setting in which care is delivered and the amenities provided with it. In the public hospitals, the five classes of wards receive varying degrees of subsidy, while private hospitals are unsubsidized.

In principle, individuals are free to choose among the five levels. Medical social workers provide financial counseling to everyone at the time of admission into the public hospitals. They advise patients that it is their responsibility to choose a ward class they can afford and to cover their expenses through a combination of subsidy, Medisave, Medishield and personal funds. If necessary, patients can draw on their spouse's, children's or parents' Medisave accounts.

"Medical social workers advise patients that it is their responsibility to choose a ward class they can afford."

Class A wards have no subsidy and compete with private sector hospitals, offering private rooms with such amenities as air-conditioning, television and VCRs, in addition to the government's list of basic services. Care delivered in the remaining four wards - B1, B2+, B2 and C - is supported by varying levels of government allowances. For example, the subsidy level in a class B1 ward is 20 percent of the total charges. Patients are responsible for the remaining 80 percent, which may be covered by Medisave, Medishield and/or personal resources. The fraction paid directly by the government increases incrementally, reaching 80 percent for class C, with the patient responsible for the remainder. As the subsidies increase, the amenities decrease. B1 wards have four beds to a room; B2 patients do not have choice of physicians; class C wards are unair-conditioned, open wards.

In addition, Medishield pays a greater fraction of the hospital charges for poorer patients and those who elect to receive their inpatient care in the subsidized hospital settings.18

Physician training. The government strictly monitors the licensing and specialization of doctors. To manage physician supply, the medical school class at the National University of Singapore is limited to 150, and the number of foreign medical schools whose degrees are recognized has recently been reduced from 176 to 28.19 Training is not dissimilar to that in the U.S. The five-year undergraduate medical school experience is followed by one year as a house doctor and two or three additional years of basic training. Those who choose and are able to find slots must train for an additional two to three years to practice a specialty.

Physician compensation. Doctors appear to be reasonably well-compensated. Physicians in government-owned facilities receive a civil service pay scale plus a "clinical faculty supplement" of 25 percent of their base wage. Those with very heavy clinical loads, especially in procedure-based specialties, may opt for an incentive based on their total billings in place of the fixed 25 percent supplement. Table II shows average salaries for clinical personnel. A senior registrar (roughly equivalent to a post-residency fellowship in the U.S.) receives a salary equal to three times the country's average annual wage. A junior staff physician receives five times the average wage, and a senior physician earns about six times the average wage. These income levels are comparable to the U.S., where five to six times the average wage is normal.20

vate physicians are probably better compensated than their public sector counterparts. They are generally paid on a fee-for-service basis. Office visits cost S$12 to S$120, depending on duration, complexity and qualifications of the physician. Surcharges apply for first visits, after-hours service and emergency care. Hospital consultations bring S$50 to S$200 per day. Maternity care, including prenatal and postnatal visits, costs S$1,500 to S$4,000.21 Table III shows excerpts from the Singapore Medical Association Guideline on Fees for billing in the private sector.22

Paperwork. How do Singapore doctors generate their high personal incomes while being compensated at the low reimbursement rates shown in Table III? The answer uniformly given by those who have practiced in both the U.S. and Singapore is: relative freedom from administrative encumbrances. Singapore restricts practice options by limiting the number of physicians, the ratio of specialists and the amount and location of high-technology services, but it imposes little regulation on the interaction between patient and physician. As a result, physicians see more patients and their practice costs are lower because billing is simple. Thus a greater fraction of the professional fee goes to the clinician's salary.

Singapore General Hospital (SGH), the largest hospital in Singapore and one of the two public tertiary centers, where high-technology procedures are concentrated, was restructured in 1989. It is managed much like a private hospital in the United States. Although the fraction of the total hospital cost due to labor in Singapore is very similar to that in the United States,23 SGH is considerably leaner than its American counterparts, with a total of 3.6 full-time equivalent employees per occupied bed. This efficiency comes primarily from fewer clerical and administrative personnel rather than from fewer direct caregivers.

"More of the professional fee goes to the clinicians because of the relative freedom from bureaucratic encumbrances."

• Of the 3,640 nonphysician personnel at SGH in 1992, 2,077 were nurses and paramedical personnel, and another 953 were involved in ancillary services.
• Only 610 were involved in administrative and clerical functions.24

Although nurse-to-patient staffing ratios in Singapore hospitals are in line with international standards,26 nurses are relatively underpaid.27 As Table II shows, a junior nurse receives about 80 percent of the average annual wage for the country as a whole, and a senior nurse receives about one-and-a-half times the average wage. This is about 50 percent of the level for junior nurses in the U.S. and perhaps 35 to 50 percent of the level for senior administrative positions.28

"Singapore General Hospital is efficient primarily because it has fewer clerical and administrative personnel."

Quality of care. Quality of service is an important issue for the restructured hospitals. Hospital personnel are responsible for improving service, and senior management makes decisions based on the satisfaction of patients and other customers. Two examples show recent improvements:

• Patients waiting less than 15 minutes at admission increased from 40 to 71 percent between 1991 and 1992.
• Outpatient visits begun without the medical record were reduced from 388 per month in 1990 to one per month by 1993.29

The government has begun to place revenue caps on MOH hospitals. It is establishing limits on average charges per patient day and will adjust them annually.31 Hospitals that exceed the limits will have their government subsidies cut by that amount, while hospitals with a budget surplus will keep the additional funds.

Historically, the rate structure of MOH hospitals may have indirectly influenced rates in private hospitals under the assumption that the public would be price-sensitive to the incremental cost differences between the two. Recently, the government began to impose more direct cost constraints on private hospitals. For the first time, private physicians and hospitals will face limits on the balances billed to Medisave patients. Billing practices for those patients who do not use Medisave will not be changed

Delivery of services. Singapore has one of the most sophisticated health care delivery systems in Asia, serving citizens and foreign nationals alike in both private and public hospitals. In terms of efficiency of delivery, Singapore is comparable to U.S. managed health networks and point-of-service plans.32 The admission rate for residents is approximately 1.10 per year per 1,000 population, about the same as aggressively administered HMOs in the U.S. Average length of stay at Singapore General Hospital is 5.4 days, also comparable to the best American managed care and far less than that in Organization for Economic Cooperation and Development (OECD) and other developed countries.

"The hospital admission rate and average length of stay are comparable to the best American managed care."

Community health programs. Both culturally and structurally, Singapore is ideally positioned to achieve commu Large educational and behavioral programs are in place within the public health clinic network. Smoking rates have been cut by 50 percent, and the government has set a target of less than 10 percent of the population using tobacco by the year 2000. When studies showed 13.2 percent of school-age children were significantly overweight, the government set a target of 9 percent by the year 2000, and the health system achieved a 2 percent reduction during the first two years of the program.33

Administrative efficiency. Overhead costs of the Medisave program are less than 2 percent, while the administrative costs of the U.S. Social Security insurance system are 2.8 percent of benefits.34 U.S. Medicaid shows a 4.4 percent computable administrative and training cost.35

New technology. High-technology services are provided at what appear to be appropriate levels. In 1993, of the 1,051 coronary artery bypass surgeries performed, 676 were provided to Singapore residents for a raw utilization rate of 24 per 100,000 population.36 Because the Singapore population is relatively young, on an age-adjusted basis the utilization rate, while lower than in the United States, probably approaches that of Canada, Germany and most West European nations.37 These data suggest that services are available at levels acceptable by most international standards.

They are also available at reasonable cost. The charge for coronary artery bypass surgery at Singapore General Hospital, is S$13,000, including physician fees. SGH requires a S$28,000 deposit from foreign residents to cover anticipated expenses and probably to bar overuse of the public sector by non-Singaporeans. The private hospital service is presumably more expensive, but even it is inexpensive compared to average American charges for the same procedure.38

Finally, high-technology services are available in a timely manner. Singaporeans do not face the queues and long waiting times that characterize heavily regulated systems like the National Health Service of Britain and many other developed countries. MOH data indicate that the longest waiting times - slightly less than two months - are for cataract surgery in public sector clinics, and the Ministry is working to reduce these to more acceptable levels.

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.

Despite the nation's economic success and the government's paternalistic nature, the welfare system is spartan and public assistance is meager. Individuals are expected to provide for themselves and their families, and the population of Singapore generally accepts the role of personal responsibility in areas of social welfare. Without this sense of personal responsibility the Medisave system would work less well.

Nevertheless, Medisave works in Singapore because the prudent buyer can obtain quality health care at low cost. Currently, even prudent buyers find the U.S. system expensive. Few Americans would be comfortable with only $11,000, to cover health care costs. Yet this amount purchases a good bit of care in Singapore. This fact suggests that, if MSAs were available in the United States, prudent buying would begin to chip away at the high price of care and might reduce it significantly.

"If MSAs were available in the United States, prudent buying would begin to chip away at the high cost of care."

About the Authors

Yu-Ning Wong was an undergraduate at the University of Virginia at the time the peer review article, "Positive Experience With Medical Savings Accounts in Singapore" was written. At present, she is a first-year medical student at the Robert Wood Johnson Medical School in New Jersey.

About the NCPA

NCPA forecasts show that repeal of the Social Security earnings test would cause no loss of federal revenue, that a capital gains tax cut would increase federal revenue and that the federal government gets virtually all the money back from the current child care tax credit. Its forecasts are an alternative to the forecasts of the Congressional Budget Office and the Joint Committee on Taxation and are frequently used by Republicans and Democrats in Congress. The NCPA also has produced a first-of-its-kind, pro-free enterprise health care task force report, written by 40 representatives of think tanks and research institutes, and a first-of-its-kind, pro-free enterprise environmental task force report, written by 76 representatives of think tanks and research institutes.

The NCPA is the source of numerous discoveries that have been reported in the national news. According to NCPA reports:

• Blacks and other minorities are severely disadvantaged under Social Security, Medicare and other age-based entitlement programs;
• Special taxes on the elderly have destroyed the value of tax-deferred savings (IRAs, employee pensions, etc.) for a large portion of young workers; and
• Man-made food additives, pesticides and airborne pollutants are much less of a health risk than carcinogens that exist naturally in our environment.