Means testing or comprehensive medical insurance?

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By Gerald Giam

Health Minister Khaw Boon Wan has announced that means testing will likely be implemented in restructured hospitals by the end of this year.

Although the details of how it is going to be administered have not been confirmed, one fact seems clear: Many middle-income Singaporeans are going to have to foot larger medical bills in the near future.

Low income Singaporeans can probably breathe easy as means testing is unlikely to negatively affect them, since the Minister has said that only the top half of income earners who stay in Class B2 or C wards will undergo a means test.

Currently, patients admitted to Class C wards in restructured hospitals enjoy an 80 per cent subsidy on their hospital bill. With the introduction of means testing, many of them may no longer receive that subsidy, or may have to accept a lower subsidy.

The Government's rationale for introducing means testing is to reduce overcrowding in Class C wards and ensure a sustainable healthcare financing system by providing heavy subsidies to only deserving low income patients.

Having heard the government's arguments for means testing, many Singaporeans may be questioning whether it is really necessary, and if there are other better ways to contain rising healthcare costs.

Show us the numbers

The means testing concept makes sense in theory: Rich folks ought to be subsidised less than poor folks. Means testing could prevent "cheapo" rich people from consuming taxpayer-funded subsidies when they can well afford to pay for their own medical expenses.

However I wonder whether the rate of abuse of the system is really as high as the government makes it out to be. Singaporeans have been presented with the rationale for means testing, but not the numbers to back it up.

The Minister has said that means testing is likely to be administered only for patients in the upper 50th percentile income bracket. How many patients currently in Class C wards are in the upper income bracket?

The median monthly income for Singaporeans last year was $2,330. That is not very much. Is it fair to consider a sole breadwinner who earns $2,400 a high income earner not entitled to Class B2/C ward subsidies?

Will the cost of planning and administering means testing exceed any savings for the government? These costs could be significant. They could include extra medical social workers to conduct assessments and investigations, new computer systems to manage the data, and time and effort spent by officials to respond to questions and complaints.

Mr Khaw, in fact mentioned that he is considering a graduated reduced subsidy from 80 per cent, point by point down, to 60 per cent for the top 20th percentile income earners. So after all this debate, we may be looking at just a 20 per cent reduction in subsidies for top income earners.

At the end of the day, the savings from means testing may not even justify implementing the system. It may be more efficient to keep the current system of letting patients decide which ward they want to go to, based on their own assessment of what they can afford.

Medical insurance and Medisave

Since means testing will be targeted at middle income earners, it is important to look into why so many of them would rather stay in Class C wards rather than more comfortable and less crowded B1 or B2 wards. Why do they still have to depend on government subsidies and why can't their health insurance adequately cover their costs?

Most Singaporeans are insured under MediShield, Singapore's national insurance scheme. MediShield helps cover the costs of catastrophic illnesses which require long hospital stays and result in crippling medical bills. The premiums for MediShield can be paid using Medisave, the national medical savings scheme. Typically, employees contribute 6.5 to 8.5 per cent of their wages to their Medisave accounts.

Unfortunately, MediShield's coverage does not cover the entire hospital bill. For patients staying in Class B2 or C wards, an average of 40 per cent of their medical bill must be paid using cash or Medisave. Class A, B1 or private patients can expect to pay even more. Most of this payment is due to deductibles and co-payment. The deductible ranges from $1,000 to $3,000, depending on the ward chosen. Co-insurance will be 10 to 20 per cent of the claimable amount.

This means that for a claimable amount of $8,000, a Class A patient will have to pay a deductible of $3,000 and co-insurance of 10 per cent on the excess of $5,000. Hence, he will have to fork out $3,500 on top of the portion of the medical bill that wasn't claimable under MediShield. Is it any wonder then that many relatively well-off people choose to be warded in Class C where the base charges are lower?

There are riders offered by private insurance companies to offset the co-payment and deductibles, but the premiums for these riders cannot be paid using Medisave. Consequently, most people do not take them up as it involves having to fork out additional cash.

This results in a vicious cycle of large hospital bills that MediShield doesn't adequately cover, leading people to try to incur smaller bills by staying in Class C wards and costing taxpayers more.

Allow Medisave to pay for riders

To help to lessen this problem, the government should allow Medisave to be used to purchase not just MediShield, but also the riders to offset the deductible and perhaps even part of the co-payment. If CPF members are allowed to use Medisave to pay for these riders, surely many more will sign up for them. After all, many of them have more money stashed in their Medisave accounts than in their Ordinary accounts, as the latter is usually used to pay for their HDB mortgage.

This proposal was raised in Parliament by Nominated MP Cham Hui Fong during the budget debate in 2006. The Health Minister's response then was, "This is not wise and we do not encourage this. That is why we do not allow Medisave to pay for the premiums of such riders, as proposed by NMP Cham Hui Fong. But if Singaporeans want to buy such riders out of their cash savings, I cannot stop them."

I can imagine what the government's concerns with this proposal might be: Excessive drawing down of one's Medisave; over-consumption by patients and over-servicing by hospitals, leading to higher premiums across the board; and people buying unnecessary policies from aggressive insurance agents.

Fears that people will exhaust their Medisave by paying medical insurance premiums don't make sense when Medisave can already be used to make direct payments for huge hospital bills, and even the bills of one's family members (including parents). These direct payments surely amount to much more than insurance premiums.

The concern that patients will opt to stay in hospitals for longer than necessary won't apply to the majority of patients. Who in the right mind would want to stay in hospital if they have recovered from their illness? There may be exceptional cases, but these can be dealt with by doctors who have the authority to send patents home after they have recovered, or to step down care in community hospitals. As for over-servicing, surely we should have a little more faith in the integrity and professionalism of our doctors!

Lastly, to lessen the confusion about which rider to purchase, the government could simplify things by opening a tender for private insurers to provide a single, low-cost MediShield rider that people can choose from — much like how MediShield Plus was transferred to a private insurer (NTUC Income) through a competitive tender in 2005.

If most Singaporeans and permanent residents sign up for this proposed MediShield rider, the insurance companies may be able lower their premiums. With a system like this in place, Singaporeans will benefit from low cost and more comprehensive coverage and the government too will spend less on subsidies. Even insurance companies will find something to cheer about.

Conclusion

Means testing is probably going to be one of the hot button political issues this year, as would any issue that involves the removal of key government subsidies. The Health Minister has got his work cut out for him convincing Singaporeans that it is the right way to go.

Less than two years ago, his first attempt to impose it got beaten back during the heat of elections. ("Means-testing not likely in the next two years: Health Minister").

This time, he will need to present more convincing arguments to an increasingly sceptical populace, or better still, explore a win-win solution by allowing Medisave to be used to pay for more comprehensive health insurance.

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