By Chris Kuan
On 31 October, Ministry of Health (MOH) reported that S$1.736 billion was collected in premiums for MediShield Life (MSL) from November last year to September this year — almost three times higher than the payouts.
Deflecting the question about the large disparity, MOH explained that to distribute premiums more evenly throughout a person’s lifetime, a proportion of an individual’s premium is also set aside for pre-funding of premiums in their senior year and that the pre-funding proportion “can go up to half of the premiums paid during the working ages”.
In isolation, this appears very reasonable in that the MSL Fund is managed to ensure its ability to meet all claims and liabilities under the worst case scenario. This is especially considering it is in line with the MAS’s Risk-based Capital Framework. The gap between premiums and claims ought to narrow over time with an ageing population.
However, the gap still looks very large and experts put it down to fiscal prudence on the part of the MOH erring on the side of caution.
That is very well and good and we can all go to sleep soundly at night knowing that the MOH is doing its absolute best to ensure healthcare costs will not bankrupt the nation. But does not this building up of reserves through collecting more premiums than claims to meet future contingencies look familiar to you?
It should. Conceptually and practically it is the same as the government building the reserves through land sales and excess returns earned on investing Central Provident Fund (CPF) debt proceeds in order to meet undefined future contingencies and that unknown “rainy day”.
Fiscal prudence or fiscal sustainability does not appear out of the thin air, it has to be paid for. By us and we do so three times – first through the building of the reserves, second through the low levels of social expenditures despite the building of reserves and third by front loading MSL premiums which given the MOH’s caution is probably far more frontloading than need be.
Reiterating a point I made before. The government, in fact, any government of an advanced country like Singapore, is in a unique position in which it can pool risk, resources and aggregate demand far better than any entity because the government has powers of legislation or coercion if you will.
If the medium by which fiscal sustainability is to be achieved is through the build up of national reserves, so be it. But social needs have to be financed and that ought to come from the national reserves, not building of yet more reserves at the lower levels of government such as the MOH and CPF, even Town Councils.
And to the argument that national reserves may be depleted by financing such social needs, then my retort is that the fall back position is not more reserves at the lower level of government but the incurrence of debt for expenditures, i.e. deficit spending. Because the state exists in perpetuity whereas individuals have a horizon limited to a lifetime, it can borrow to finance social needs at the lowest possible costs and over generations, an impossibility for individuals and corporations. Those AAA rating ought to be used to help citizens rather than being a decorative item or a means for state-owned companies to borrow at low costs.
The pervasive building of reserves that is endemic in the entire government apparatus is simply burdening citizens with costs which the government ought to meet through the national reserves and through deficit spending if need be. The depletion of savings and as a result the financial security are having very large consequences. It need not be so.