Medical Savings Accounts: The Singapore Experience Thomas A. Massaro and Yu-Ning Wong

1. Medical Savings Accounts: The Singapore ExperienceThomas A. Massaro and Yu-Ning Wong Updated in 2009 with five new slides

2. Background – Singapore • Statistics: 2007 Singapore1 2006 U.S.2 • Total Population 4,588,600 299,398,484 • 15(S)/18(US) to 64 Pop 56.6% 63.0% • 65+ Pop 6.7% 12.4% • Support Ratio 8.5 5.0 • Pop Density (per mile2) 16,191 79.6 (2000) • Male LE at Birth 78.0 (2006) 75.2 (2007)3 • Female LE at Birth 82.8 (2006) 81.0 (2007)3 • Male LE at 65 17.2 (2006) 16.6 (2007)4 • Female LE at 65 20.6 (2006) 19.5 (2007)4 1 Singapore Statistics - Key Annual Indicators, http://www.singstat.gov.sg/stats/keyind.html 2 U.S. Census Bureau USA Quickfacts,http://quickfacts.census.gov/qfd/states/00000.html 3 Life Expectancy http://en.wikipedia.org/wiki/List_of_countries_by_life_expectancy 4 Life Expectancy http://www.news-medical.net/?id=6655, accessed on 04/20/2008

3. Background – Singapore 1995 • Singapore is 240 square miles • 1995 Population of 2.9 million • 2008 population 4,382,000 (rapidly growing) • Health care spending is 3.1% of GDP (1992) • U.S. Health care spending is 14% • Infant Mortality 5 per 1,000 (1992), similar to other Asian countries. • 1993 per capita income of SGD 27,864 ($19,116) • Unemployment Rate is 1.5% • Literacy Rate 91%

4. WHO Statistics 2009:Total population: 4,382,000 Gross national income per capita (PPP international $): 43,300 Life expectancy at birth m/f (years): 78/83 Healthy life expectancy at birth m/f (years, 2003): 69/71 Probability of dying under five (per 1 000 live births): 3 Probability of dying between 15 and 60 years m/f (per 1 000 population): 83/50 Total expenditure on health per capita (Intl $, 2006): 1,228 Total expenditure on health as % of GDP (2006): 3.4 Source: http://www.who.int/countries/sgp/en/ (on April 27, 2009)

5. http://www.watsonwyatt.com/europe/pubs/healthcare/render2.asp?ID=13850http://www.watsonwyatt.com/europe/pubs/healthcare/render2.asp?ID=13850

6. http://www.watsonwyatt.com/europe/pubs/healthcare/render2.asp?ID=13850http://www.watsonwyatt.com/europe/pubs/healthcare/render2.asp?ID=13850

8. Overview of the Singapore health system Combination of government subsidies (through taxation) and individual responsibility. Government has established the ‘3M’ framework of Medisave, Medishield and Medifund that combine individual responsibility and is overlaid with government funding, particularly to provide a safety net to support the health needs of low income earners and poorer individuals. Public financing of healthcare Taxation subsidies The Government subsidizes healthcare through taxation revenue, for public hospitals and health promotion As discussed earlier, this amounts to approximately one third of Singapore’s total annual health expenditure. Medifund • Assists those in financial hardship in funding their medical needs. • safety net for those who cannot afford the subsidised charges • for hospital or • specialist out-patient treatment, • after Medisave or Medishield funds. • Qualification is means tested, based on an individual’s financial circumstances at the time of application.

9. Singapore Social Welfare Programs • The Central Provident Fund (CPF) is funded through income taxation (or compulsory savings): • 30 percent to Ordinary account used for housing, investments, insurance, education, retirement • 6 - 8 percent (age dependent) to Medisave account for hospitalization and other medical expenses • 4 percent to Special account for old age retirement and contingencies • The CPF had 2.4 million participants and totaled $57 billion in 1994 • All deposits and withdrawals are tax-free

10. Singapore Health Care System • 80 percent Hospital care provided at public facilities • 75 percent Ambulatory care provided by private practitioners • 26 public clinics provide health services at a subsidy • Objectives of health system: • Promote good health • Encourage individual responsibility in paying medical expenses • Provide good and affordable basic medical services to all Singaporeans • Rely on competition and market forces for improvement and efficiency • Intervene directly when markets fail to curtail health care costs

11. Singapore Health Care System (2) • Three programs help pay for medical expenses: • Medisave: • Compulsory national health care savings program, supplements personal savings, and helps manage price levels and resource allocations. • 6% of income up to age 34, 7% for 35 to 44 year olds, 8% for those 45+ (relative maximum limits). • Account balances over SGD 16,000 are automatically transferred to an individual’s Ordinary Account. Retirees must keep SGD 11,000 minimum balance in their Medisave Account. • Defined limits of use based types of medical services, remainder is paid out-of-pocket.

12. Singapore Health Care System (3) • Medishield: • Three plans offer catastrophic insurance coverage for extraordinary hospital expenses for under 70 years old, for people with low incomes or insufficient Medisave account balances. • Premiums range from SGD 12 for people under age 30 to SGD 132 for those 66 to 70 years old, and are deducted from Medisave accounts. • 88% of Medisave account holders participate in Medishield. • Claims have annual and life-time expenditure limits, as well as service limits: • normal deliveries, vaccinations, psychiatric, AIDS-related, drug/ alcohol rehab, preexisting illnesses, congenital abnormalities, hereditary conditions, and overseas treatment are excluded.

13. Singapore Health Care System (4) • Medifund: • Government funded program to provide assistance to the poor whose Medisave accounts or out-of-pocket resources are too low. • Initiated by a SGD 200 million government grant and receives SGD 100 million in each year there is a government surplus. • At the time of publication, there had been a government surplus in every year. • Distributed on a case-by-case basis, with preference to people who regularly contribute to Medisave/Medishield accounts, and elderly without adequate Medisave account balances.

14. Singapore Health Care System (5)

15. Singapore Health Care System (6) • Third-party insurers are not encouraged as it encourages the idea that medicine is a free good. • Tax deductions for allowed medical expenses are limited to 2 percent of base salary. • Though only theoretical, the lack of a government surplus would result in no annual funding for Medifund underscores the position that health care is a good to be purchased within limits of available resources, it is not an entitlement. • “The fact that people are paying their own money rather than that of a third-party insurer has helped curtail Singapore’s health care costs.”

16. Singapore Government Subsidies for Health Care • 1992 government subsidy totaled SGD 360 million, 19 percent of health care expenses, or 0.7 percent of GDP. • Tiered structure of subsidies based on setting for care and amenities. • Hospitals: 5 ward classes, people are advised to choose a ward class they can afford. • Class A: No subsidy - Private room, TV, A/C, basic government services • Class B1: 20% subsidy - 4 beds to a room • Class B2+: 20 - 80% subsidy • Class B2: 20 - 80% subsidy - No physician choice • Class C: 80% subsidy - Open wards, no A/C

17. Singapore Physician Services • Training: Limitations on medical school entry and limited foreign schools recognized to manage physician supply. • Compensation: Civil Service pay plus either 25% supplement or incentive-based supplement based on total billing. Total physician wage is 5-6 times the average wage, similar ratio to U.S. • Paperwork: Few administrative encumbrances allow physicians to make high wages via larger portion of physician fees go to salary. • Government Regulation on ratio of specialists and amount / location of high-technology services; however, little regulation on physician / patient interaction.

18. Singapore Hospital Sector • 13 of 23 hospitals are public, restructuring to introduce accounting responsibility and commercial discipline. • Quality: Ratio of Caregivers to Support staff is 5:1, compared to 2:1 in American hospitals. Waiting times are decreasing and Record keeping / management is improving. • Class A services are being discouraged so that people do not select service levels that are not affordable. • Admission rates and Length of Stay similar to aggressive American HMOs. • High-technology services are provided at similar levels to Canada and Western Europe, are relatively inexpensive, and do not have long wait times (less than 2 months for cataract surgery is the longest wait).

19. Singapore Evaluation / U.S. Comparison • U.S. citizens can now make tax-free deposits into a Medical Savings Account (MSA), similar to a combination of Singapore’s Medisave and Medishield programs. • Singaporeans save an average of 46%of wages. • MSAs (as in Singapore) produce individual incentives to plan to care for themselves and make appropriate choices about seeking care; though there is some concern about ability to generate large reserves while working for later in life.

20. Singapore Evaluation / Comparison • U.S.: • Would probably not accept strict regulation on physician supply / education, price setting, and service limits (Deliveries, vaccinations, AIDS, hereditary conditions). • “Singapore generally accepts the role of personal responsibility in areas of social welfare.” • Attitudes of personal responsibility may be less strict in the U.S. (incentive structures of Social Security, Medicare, Medicaid, and beliefs about Welfare allow for a “safety net”). • Health Care is much more expensive in the U.S., Americans have higher expected quantities / qualities of care. • Conclusion: Many cultural and social differences exist between the Health Care systems in the U.S. and Singapore; however, MSAs should be a part of the solution to limit growing health expenditures.