Introduction
The issue of financing retirement and health care expenses for the elderly has received increasing attention in recent years. In 1990, close to 500 million people, estimated to be around 9% of the world’s population, were over 60 years old. It is predicted that by 2030, the number will increase to 1.4 billion, almost triple of what it was, and more than half of them will be living in Asia (Ståhlberg, 1995). Thus, it has become increasingly important for governments to come up with policies to help with the transition of these people into old age to ensure their welfare is taken care of. Implemented in 1984 (Phua, 1991), Medisave is one of the 3M’s (Medisave, Medishield and Medifund) of Singapore’s Healthcare Financing Model that has been in use to date (Lim, 2005). Medisave is a Medical Savings Account (MSA) model that makes it mandatory for a percentage of a Singaporean’s salary to be put into the Medisave account. Subsequently, the funds in the Medisave account is assured to earn interests that is often higher than the local banks, with a guarantee of at least 2.5% (Haseltine, 2013). There are several benefits from the implementation of Medisave. First, Medisave helps to keep government expenditure on healthcare low. Second, Medisave makes its citizens less reliant on the government to finance their healthcare. However, despite the benefits of Medisave scheme, there are several drawbacks of the scheme which should not be ignored. In this essay, we will be discussing both the benefits and drawbacks of Medisave scheme. This will enable us to better understand the extent to which the implementation of Medisave scheme has met Singapore’s needs.
Medisave Keeps Government Expenditure Low
Implemented in April 1984 (Phua, 1991) the Medisave scheme was proposed under the ideology of “self-responsibility” (Lim, 2013). It was envisioned that citizens should take on the responsibility of their health and wellbeing as opposed to adopting the western welfare-state approach to the healthcare system.
The designs of the Medisave scheme employs high deductibles that does not cover most outpatient services. Additionally, it has a limit imposed on the amount they can claim per treatment, forcing patients to make cash payments for their health services (Hsiao, 2001). Citizens are incentivised to prevent themselves from falling sick as they had pay out of pocket for medical treatments. Subsequently, they will also be able to earn more interest over time in their Medisave accounts if they do not fall sick. This as a result, effectively prevents the dangers of a ‘moral hazard’, which refers to individuals abusing the usage of health insurance or fully subsidised healthcare (Hsiao, 2001) Thereby, Medisave also has the effect of preventing overconsumption on healthcare services through curbing demand for unnecessary healthcare services. Consequentially, the government is better able to moderate healthcare expenditure (Hsiao, 2001).
Thus, by making sure that citizens have to pay cash for their healthcare, the implementation of Medisave has the effect of preventing overconsumption on healthcare services. Singapore’s implementation of Medisave allows for government expenditure on healthcare to be low without having any discernible impact on the quality of healthcare. This is in stark contrast to the welfare states which would experience an exponential increase in healthcare expenditures had they not implemented limitations on healthcare spending and access to expensive treatments – at the expense of the quality of healthcare.
Medisave frees up tax revenue that can be better spent in other areas
When Medisave was first proposed in 1983, it attracted a lot of media attention and sparked a wide-spread debate across the nation (Phua, 1987). When posed the question of “whether healthcare services should be fully subsidised”, the government argues that even if healthcare was fully subsidized, taxes would have to be raised to account for the increase in expenditure on healthcare. If healthcare was to be paid by insurance companies, premiums would increase, considering the risk pool of the entire population. On the contrary, if employers were to subsidize for healthcare, it would be deducted from the salary of the employees and they would take home lesser salary. No matter the situation, the people will have to “pay out of their own pocket” for healthcare. (Lim, 2005). Therefore, by making it mandatory for citizens to “save for a rainy day” in their Medisave account, the government effectively helps its citizens plan for their future financial needs without having to raise taxes to serve the same purpose, and that is, ensuring healthcare is easily available and affordable to all.
Medisave serves as a form of personal savings for healthcare expenditure incurred by the citizens when they fall ill (Lim, 2012). Its primary purpose is curb overconsumption of healthcare services, to prevent demand-push inflation so that costs of healthcare services can be kept low. Consequentially, by making citizens more self-reliant and able to finance their own healthcare, Medisave has the secondary effect of freeing up tax revenues, so that they can be put to better use like the improvement of infrastructures and public amenities. All these would lead to an improvement in sanitation levels which is also an important aspect of public health (Phua, 1987). Thus, it can be argued that Medisave is beneficial in this regard.
Medisave Worsens Inequity
In an attempt to incentivize citizens to put more money into their Medisave accounts, all the savings in the Medisave accounts are exempted from tax during both deposit and withdrawal (Haseltine, 2013). Furthermore, it is guaranteed to earn a fixed interest rate established by the CPF boards with a minimum interest of 2.5% (Haseltine, 2013). Medisave contribution is derived from CPF contribution which is a percentage of their salary (Asher, 1995). This would result in the rich benefiting most from the tax exemption as they have the financial capability to put in more money into the savings account as compared to their poorer counterparts.
More often than not, the savings in the Medisave accounts of poorer citizens is not sufficient to sustain their healthcare expenditures. They run the risk of being completely depleted in the event of a single catastrophic illness or chronic disease (Taylor & Blair, 2003). Thus, one of the drawbacks of Medisave is that it benefits the rich more than the poor and contributes to the widening of income disparity and inequity between the poor and the rich in Singapore.
However, we must also consider that there is no such thing as a single ‘perfect’ policy. This is precisely why the Medisave scheme was implemented alongside Medishield as a supplementary national insurance coverage to enhance the Medisave scheme (Taylor & Blair, 2003). It does this by providing additional coverage for catastrophic illnesses and chronic illnesses. Therefore, the implementation of Medisave together with Medishield provides a more wholesome financing solution for Singapore’s citizens of different financial backgrounds.
Medisave is Overly Restrictive
Singapore has a unique composition of citizens with different ethnicity and religions, a large majority of its citizens are Chinese, and many people turn to traditional Chinese medicine to treat their illnesses. (Bar, 2001) Chinese Medicine has been used to treat multiple ailments such as chronic muscular pains and high blood pressure (Wilkinson & Faleiro, 2007). These falls under the category of Complementary & Alternative Medicine (CAM) which are alternatives to modern medicine (Lim, Sadarangani, Chan, & Heng, 2005).
In Singapore, there is a high prevalence of CAM being utilised (Lim et al., 2005), however, monies in the Medisave account can only be used for western medicine (Bar, 2001). Therefore, those who choose to receive CAM treatments will have to pay out of their own pockets despite having funds in their Medisave account. Critics may say that this raises a question of ethics, as the government has made it mandatory for the citizens to save and put money into their Medisave account at their own opportunity costs. At the same time, they are denied the freedom of choice to choose the form of treatments they receive.
However, alternative medicine in general may lack the empirical evidence required to back its claims on its effectiveness. Many a times, it is based on cultural or religious beliefs and history, which could result in unwanted side-effects that could hinder or interfere with modern medicine treatments (Noras, Yousefi, & Kiani, 2013). Thus more research on CAM is required (Noras et al,. 2013) before utilisation of Medisave funds on CAMs should be allowed. This will help to prevent inefficient wastage of funds in the Medisave accounts on treatments that do not work.
Medisave and its Impact on Singaporeans
Medisave was implemented under the ideology of self-responsibility and self-reliance, which in theory helps to control the prices of healthcare by curbing demand to ease demand-push inflation and preventing “moral hazard”, a social problem that welfare systems of the West face. However, it also results in decreased accessibility of healthcare to its citizens. When considering the effectiveness and standard of healthcare systems, we often look at the “iron triangle of healthcare”, where the three prongs of the triangle are “Accessibility, Cost, and Quality”. ‘Accessibility’ refers to how easily accessible healthcare is to the citizens, whereas ‘Cost’ refers to the government’s expenditure on healthcare. Lastly, we have ‘Quality’ which refers to the standard of healthcare received by citizens in general. In every situation one of the prongs which will have to be sacrificed, also known as a ‘trade-off’, a ‘perfect’ equilateral triangle can never be achieved (Kissick, 1994).
In Singapore’s healthcare system philosophy, the emphasis is on self-reliance, the consequence of this philosophy is that healthcare accessibility is not equal amongst citizens. This is consistent when we look at the designs of the Medisave scheme which places an emphasis on financing one’s healthcare as an individual responsibility. The consequence is that the rich are better able and more willing to afford healthcare as compared to the poor who have less ability to do so. Thus, in reference to the “iron triangle of healthcare” (Kissick, 1994) it can be inferred that the Singapore government may have made a conscious decision to keep healthcare expenditure low and a high-standard of healthcare services at the expense of accessibility to its citizens. Therefore, if judged solely on the Medisave scheme alone, this raises an issue of ethics and inequity.
On the other hand, it should also be taken into consideration that Medisave is only one of the 3M’s of Singapore’s Healthcare Financing Model. The other two M’s referring to Medifund and Medishield, helps to tackle the shortfalls of the Medisave scheme. Medifund was set-up to further subsidise citizens who are unable to pay for healthcare services. Working in tandem with Medisave to prevent the issue of ‘moral hazard’, a Medifund committee will review every application to determine the applicant’s eligibility for the Medifund subsidies through means testing. The Medifund scheme was well-received and effective in filling the equity gap that arises from the Medisave scheme. In fact, in 2001, 156,800 applications were approved amounting to US$15.2 million (Taylor & Blair, 2003). Medisave controls and curbs overconsumption, to keep costs of healthcare low. Whereas Medifund helps to reduce inequity, supplementing the Medisave scheme, to subsidise individuals who do not have the financial capability to afford healthcare services. Thus, implementation of Medisave together with Medifund effectively ensures that all citizens will have access to healthcare services regardless of financial ability.
Conclusion
Upon the thorough analysis of both benefits and drawbacks of Medisave performed above, it is observed that the policy has benefited Singaporeans to a large extent despite its drawbacks. Notwithstanding the fact that the implementation of Medisave has widened the income gap among Singaporeans while interfering with their preferences towards medical treatments. Medisave has effectively enabled Singapore’s government to better make use of their tax revenue in other aspects such as improving infrastructures. Additionally, this policy has inhibited the probability of the abuse of healthcare services due to moral hazard.
Furthermore, the implementation of policies together with the Medisave scheme has proven to be effective in compensating areas where the Medisave scheme falls short. This has led to Singapore being one of the most successful nations in achieving an effective and efficient healthcare system amongst other developed nations.