62466 NOTE NUMBER 261 P U B L I C P O L I C Y F O R T H E privatesector MAY 2003 Financing Health Care Rob Taylor and Simon Singapore’s Innovative Approach Blair S i n g a p o re ’s h e a l t h f i n a n c i n g s y s t e m c o m b i n e s u n i ve r s a l m e d i c a l Rob Taylor (rtaylor@ s av i n g s a c c o u n t s w i t h s u p p l e m e n t a r y p rog r a m s t o p ro t e c t t h e p o o r ifc.org) is a principal financial analyst in the a n d a dd re s s p o t e n t i a l m a r ke t f a i l u re s i n h e a l t h f i n a n c i n g . T h e re s u l t s T H E W O R L D B A N K G R O U P PRIVATE SECTOR AND INFRASTRUCTURE NETWORK World Bank Group’s h ave b e e n i m p re s s i ve , w i t h l ow c o s t s , ex c e l l e n t h e a l t h o u t c o m e s , a n d Private Sector Advisory Services. Simon Blair is f u l l c o n s u m e r c h o i c e o f p rov i d e r s a n d q u a l i t y o f c a re . chief operating officer of Medibank Private, a Health care costs are escalating rapidly in many years) to 2001 (78) and is now one of the world’s health insurer in countries. While many factors contribute to ris- longest. Its infant mortality rate is the world’s Australia. Before joining ing costs, health insurance plays a part by shield- lowest, at 2.2 per 1,000 live births, much Medibank, he was lead ing patients and physicians from the real cost. improved from 6.6 in 1990 (and 34.9 in 1960) health specialist for two In an effort to contain costs, governments, and far lower than rates in most other countries. years in the World Bank’s employers, and insurers have modified payment Europe and Central Asia Region. Before joining the schemes and coverage, often leading to Health care World Bank, he was chief rationing and restricted consumer choice and Both the public and the private sector provide executive officer of in some cases to denial of care. health care in Singapore. The public sector pro- Australia's largest public Singapore is unique among developed coun- vides 20 percent of primary care and 80 percent health provider. tries in achieving excellent health outcomes at of hospital care through two integrated care net- a low economic cost. Part of its success may be works. The private sector dominates primary attributable to its health financing system, health care, providing 80 percent through its which combines individual responsibility with 1,900 clinics. The 13 private hospitals account for targeted subsidies. 20 percent of inpatient admissions. Singapore Despite Singapore’s small size, with only 3.2 has 11,800 hospital beds (3.7 per 1,000 people). million residents in a land area of 660 square Patients can choose their providers at all lev- kilometers, the country has been a stellar eco- els of care. All Singaporeans are entitled to basic nomic performer, rising from impoverishment medical services at government polyclinics and only 40 years ago. Its per capita GDP, US$427 in hospitals, where rates are regulated and subsi- 1960, rose to US$24,740 in 2000, one of the dized. Patients are expected to pay part of the highest in the world.1 Singapore’s health indi- cost, and to pay more when they demand higher cators are equally impressive. Its average life levels of service. Rates at private clinics and hos- expectancy increased by 15 years from 1960 (63 pitals are unregulated. F I N A N C I N G H E A L T H C A R E SINGAPORE’S INNOVATIVE APPROACH Singapore’s health spending totaled US$2.8 At the end of 2000 there were 2.7 million billion (US$870 per capita) in 2000, equivalent Medisave accounts with a total balance of to 3 percent of GDP. In comparison, the global US$13.1 billion. Roughly 85–90 percent of inpa- average is 8 percent of GDP, with health spend- tients use their MSAs to pay their hospital bills. ing in OECD countries ranging from 5.8 per- In 2000 new Medisave contributions totaled cent in the United Kingdom to 13.7 percent US$1.1 billion, and withdrawals US$227 million. (US$4,187 per capita) in the United States. Medishield Health financing In most countries people face the risk of cata- 2 Singapore’s health financing system includes strophic illness with very high expenses. complementary programs designed to promote Traditional insurance pools this risk among individual responsibility, protect the poor, and many policyholders. In Singapore Medisave address potential market failures. account holders face the risk that catastrophic illness could wipe out their MSAs. To address Medisave this risk—and in the absence of a traditional Under the Medisave program introduced in national health insurance program—Singapore 1984, employees contribute 6–8 percent of their introduced the Medishield program in 1990. All monthly salary (with the share depending on Medisave account holders under age 80 are eli- their age) to an individual medical savings gible to buy Medishield insurance and can pay account (MSA), while employers make a match- their premiums using their MSAs. Medishield ing contribution. Medisave contributions are covers hospital expenses (surgery, intensive part of a broader compulsory savings program care) and some high-cost outpatient treatments. in which employees contribute 16 percent of Medishield limits its use to catastrophic illness salaries, and employers 20 percent, to a central by setting deductibles for hospital expenses, provident fund to cover hospitalization requiring patient copayments of 20 percent for (Medisave), pensions, and mortgages. amounts above the deductible levels (patients Medisave contributions are capped monthly can use their Medisave accounts to pay the and over a lifetime to prevent unnecessary use deductibles and copayments), and setting limits of medical services. Contributions from the pay- on claims per treatment, policy year, and life- roll tax in excess of the caps are automatically time.3 In 1994 the government introduced an transferred to an individual’s ordinary account enhanced program, Medishield Plus, to provide within the broader compulsory savings pro- reimbursement for accommodation in private gram. Withdrawals above a specified level are hospitals and premium wards in public hospitals. permitted after age 55. Upon death, any remain- In 2000 there were 87,000 Medishield claims, ing balance is paid to the nominees of the with payments totaling US$35 million. account holder, free of estate taxes. Individuals can use their MSA to pay hospital Medifund expenses incurred by themselves or their imme- To ensure that no Singaporean is denied good diate family.2 To encourage prudent use and dis- basic care because of inability to pay, the gov- courage unnecessary hospitalization, there are ernment set up Medifund in 1993 to subsidize limits on how much of the MSAs can be used for health care for the poor (roughly 10 percent of daily hospital charges, physician fees, and surgi- the population). The fund’s initial capital of cal fees. The limits generally allow full coverage US$150 million has grown to US$500 million of the bills of most patients staying in subsidized with contributions during years of overall budget wards in public hospitals, but copayments are surplus. Under Medifund rules only interest required from those opting for private hospitals income, not capital, may be disbursed. At each or more expensive accommodation in public hospital a medical social worker assesses appli- hospitals. MSAs can also be used for expensive cants’ eligibility through means testing. The hos- outpatient treatments such as chemotherapy, pital’s Medifund committee then reviews and HIV drugs, and kidney dialysis. approves applications. Hospitals have consider- able flexibility in determining income criteria. be kept low, since catastrophic events (and In 2001 they approved 156,800 applications, with payouts) are relatively rare. People can pay disbursements totaling US$15.2 million. their Medishield and ElderShield premiums from their MSAs. Through these two pro- ElderShield grams most Singaporeans have some basic In June 2002 the government introduced a low- insurance coverage for long-term care. cost insurance program, ElderShield, to provide ▪ Targeted subsidies. To assist those who may financial protection for people with severe dis- have insufficient income to accrue MSAs or abilities. Medisave account holders are automat- pay Medishield premiums—the poor, the 3 ically enrolled in ElderShield when they reach unemployed, and the elderly—the govern- age 40 unless they opt out. ElderShield pays a ment provides targeted subsidies through monthly cash allowance (for a maximum of 60 Medifund and “top-ups” to Medisave and months) to those unable to perform three or Medishield funds. It also provides direct sub- more basic “activities of daily living.” Because the sidies to public hospitals to ensure that basic insurance payout is not tied to reimbursement of services are available and affordable for all. institutional care, policyholders have the flexi- bility of being cared for at home or in a health Lessons care facility. By the end of 2002 ElderShield cov- Most observers agree that Singapore’s health ered more than 700,000 policyholders. system has succeeded in restraining costs while delivering excellent health outcomes. The Provider subsidies country has the lowest-cost health system among The financing system is designed to help individ- developed countries and ranks high on all uals pay their share of medical costs. But to ensure health indicators. But how much of this success that basic medical care is available for all, the gov- can be attributed to its health financing ernment also provides direct subsidies to public system—in particular, to its MSAs? And how hospitals, polyclinics, and nursing homes for the replicable is this financing system in other elderly. In 2000 direct subsidies totaled US$700 countries? million, or 25 percent of health spending. Singapore’s health financing system is sup- ported by characteristics not present in most Unique features countries: a high national savings rate, high lev- Singapore’s health financing system has a els of education and income, and a relatively unique mix of features that differentiate it from young population. These factors have helped traditional government-funded or national restrain demand for health care, allow the health insurance programs: buildup of Medisave balances, fund subsidies, ▪ Incentives. Unlike traditional indemnity and enable copayments to fund a large share of insurance, MSAs encourage individuals to spending. take responsibility for their own health care It may still be possible to introduce similar needs—by providing incentives to save and to programs in other countries, with adjustments avoid unnecessary use of medical services. for demographic and fiscal differences. MSAs belong to the individual, accumulate ▪ Countries without national insurance pro- over a lifetime, and can be used at the indi- grams or well-developed private insurance vidual’s discretion. Health insurance premi- could introduce MSAs by requiring all ums in other countries do not belong to the employers and employees to set up accounts individual, do not accrue over time, and are like those in Singapore. This option would be often subject to restrictions on services and well suited for countries contemplating providers. payroll-financed national health insurance. ▪ Low-cost insurance. To address the risk of ▪ Countries with national insurance programs catastrophic illness, Singapore complements funded primarily by general tax revenue MSAs with catastrophic insurance— (Canada, the United Kingdom) could intro- Medishield and ElderShield. Premiums can duce MSAs by allocating part of the tax rev- F I N A N C I N G H E A L T H C A R E SINGAPORE’S INNOVATIVE APPROACH enue spent on health care directly to individu- The initial net fiscal impact of moving to a als to set up MSAs.4 After the initial allocation, Singapore-type program will depend on the the government could continue to collect the underlying health needs of the population and same level of tax revenue, annually allocating the complementary measures and restrictions the share previously used for health spending adopted. Fiscal sustainability will be reinforced directly to individual MSAs, or progressively as people accrue MSAs and moderate their viewpoint reduce general taxes and replace them with demands over time. payroll deductions allocated to MSAs. ▪ is an open forum to Countries with payroll-funded national encourage dissemination of health insurance (most of Europe) could public policy innovations for allocate part or all of existing payroll contri- Notes private sector–led and butions to individual accounts. Consumers 1. All monetary amounts are expressed in U.S. dollars market-based solutions for would then choose their provider and pay for at current exchange rates. development. The views eligible expenses, and the national health 2. Primary care expenses are not eligible for Medisave. published are those of the insurance fund would no longer need to act 3. There are no deductibles for certain drugs and out- authors and should not be as the sole buyer of health care on their patient chemotherapy, radiotherapy, and kidney dialysis. attributed to the World behalf. 4. This approach was proposed by Cynthia Ramsey Bank or any other affiliated ▪ Countries with well-developed private health (1998). organizations. Nor do any of insurance covering basic services (Australia, the conclusions represent the Netherlands, the United States) could References official policy of the World allow consumers to opt for MSAs with a cata- Ramsey, Cynthia. 1998. Medical Savings Accounts: Bank or of its Executive strophic insurance provision rather than tra- Universal, Accessible, Portable, and Comprehensive Health Care Directors or the countries ditional insurance or managed care. But for for Canadians. Vancouver: Fraser Institute. [http:// they represent. MSAs to become truly universal, govern- www.fraserinstitute.ca]. ments would have to allocate public Singapore, Ministry of Health. 2003. “Our Healthcare To order additional copies funding—from general tax revenue or pay- System.” [http://www.moh.gov.sg]. February 2003. contact Suzanne Smith, roll taxes—to individual MSAs. World Health Organization. 2000. World Health Report managing editor, Room I9-009, 2000: Health Systems—Improving Performance. Geneva. The World Bank, Issues 1818 H Street, NW, Governments considering a Singapore-type Washington, DC 20433. health financing system will need to address sev- eral design issues: ▪ Whether to make MSAs mandatory and uni- Telephone: 001 202 458 7281 versal (as in Singapore) or private and vol- Fax: untary (as in the United States). 001 202 522 3480 ▪ Whether to fund universal MSAs through Email: payroll contributions (as in Singapore) or ssmith7@worldbank.org through general tax revenue allocated to individual accounts (and, if so, how to make Copyedited and produced by the allocations). Communications ▪ What restrictions to impose on eligible Development Inc. expenses and whether to use deductibles and copayments to ensure fiscal solvency and fur- Printed on recycled paper ther restrain demand (as in Singapore). ▪ How to structure and fund subsidies for low- income patients without sufficient MSA bal- ances and catastrophic insurance. ▪ Whether to provide tax incentives to pro- mote MSAs and, if so, how to structure such incentives. This Note is available online: http://rru.worldbank.org/Viewpoint/index.asp