How to fix Healthcare, take two

This is the drastically revised and edited version of the previous lousy post. Although it has been said that we are far from ready to build something (leaving aside the important question of why anybody should be to judge who is and is not ready to create something), call me a hopeless idealist. I do believe that a working system should be examined. Moreover, a revision of this topic was specifically asked for.

The objection has been made that one should not look to the system one digs up from Singapore. I find this argument confusing. First, much if not all of the material covered and discussed in class concerns looking outside one’s box, breaking through accepted terms. Second, much if not all of the issues covered and discussed in class reveal that the majority opinion is often wrong, and that things are not as they appear. Just because it’s the only country with this style of system should not disqualify it for study. Third, why not look at the healthcare system which has been rated fist in the world by the NCPA and see whether it could not be adapted to other countries?

Facts and Sources

Apparently, sources such as any book you find on Amazon should be disregarded, even if the author of said book is an economist for the Financial Times. I have hence limited myself to the WHO, the Singaporean Government, the Singaporean Ministry of Health and the NHEA.

Health Care quality The WHO gives the following facts about Singaporeand the USA:

In other words, people in Singapore live longer, healthier, and have a lower infant and adult mortality rate.

Arithmetic: Take the country’s GDP, multiply it with the percentage spent on healthcare, then divide by the population. The result is the per capita spending on healthcare (note that this does not disclose how much of this spending is public or private).

USA:

Sources: NHEA, National Health Expenditure Accounts

Singapore:

Sources: For GDP per year in S$ and US$, the Singaporean government, can be found here

For population, the Singaporean Government, can be found here

For GDP spent on healthcare, see the Singaporean ministry of health and the WHO, here, here and here.

The 2007 number for Health Care % GDP is taken from two 2008 articles and is hence not ‘official’. No number could be found for 2008. Assuming it would rise to 4.0% (and there is no reason to assume it would, this is only to demonstrate a point), per capita expenses would be$1503.88

There is another telling report from the WHO: WHO report 2004 (no more recent numbers available)

The 2003 report can be found here . Another valuable in-depth though older report can be found here .

Quality healthcare at per capita expense of less than $1500? At two thirds personal spending? This is preposterous. It’s ludicrous. It’s absurd. It’s impossible. It’s nonsense. This cannot work.

Except, it does.

Anyone insisting that this system could not work in the USA (or Germany, Great Britain, etc) would need to explain why – humans have the same organs and fall prey to the same diseases world-wide. What is this X factor which prevents a smart system taking root elsewhere?

We have two choices here. We can stomp our feet, fall prey to our own cognitive dissonance and disregard the evidence in front of us because it violates our own pet philosophies (it does not match up with mine for that matter either); we can insist that the possible is impossible, despite the data above. Or maybe we should look how this system works and whether it can be adapted to other countries. You don’t have to be to the right of Attila the Hun on the political spectrum to do that (although it’s a truly ironic analogy especially in the context of universal healthcare).

Maybe it cannot work in the USA, the UK, Germany and so forth. Maybe Singapore is simply unique. But to determine that, we need to look at how the system works and what problems arise.

How the system works:

1. Compulsory savings. The vast majority of the population (85%) have Medisave accounts. These are tax-free, earn interest, and become part of one’s estate after death. Accountholders can take money out of the account only to pay for approved categories of medical treatments like hospitalization, surgery, and radiotherapy. These pay for the individual and his immediate family.
2. Then there is Medishield, a communal fund for catastrophic costs. In Singapore this is voluntary but should, for our purposes, be mandatory.
3. Finally, Medifund covers those out of work. This too is borne by the public purse (read: tax money). In Singapore, only interest money from the fund may be distributed. This is a nice idea in theory but might be difficult to implement in a larger country.
4. The lower the income of the individual, the larger the government subsidy to the compulsory savings account. The sliding scale of how much government support is given at which income level can be found here .

What this creates:

1. Consumer choice. Instead of having the government or the insurance company go through elaborate formulae and fixed ideas on how to improve life quality, every consumer and every patient can decide for himself whether more money on the bank or treatment on the body would create more utility. A patient can choose his doctor, his treatments and thereby eliminates the wasteful middleman in form of the government or the insurance company.
2. Personal responsibility and real incentives. Given that one’s own money is in play as opposed to the deep pockets of the anonymous taxpayer, eating one’s vegetables and getting exercise is directly rewarded.
3. Complete coverage. Compulsory savings mean that people who otherwise would not have the self-restraint to save up do so; medishield covers catastrophic costs and medifund covers those without income. It does not just look after the rich and healthy.

By way of comparison:

• In the USA, insurance is voluntary; premiums are linked to risk, not to income. It is very expensive, costing much more than socialized systems in, say, Europe, with massive overheads. The risk-based analysis leads to the most exposed persons dropping outside the system. The insurers hence raise premiums again, driving out more people, and so forth. Given that healthcare comes usually with a job, there is little consumer choice as to which package is accepted.
• In Britain, the NHS (National Health Service) provides complete coverage. The system works, but is crowded, slow, lacks consumer choice and also suffers from overheads. For example the government uses the QUALYs – Quality-Adjusted-Life-Years as a way to decide where to spend its money. A treatment that saves ten years is better than one that saves five provided it’s less than twice as expensive. The value judgments are difficult – how do you compare a treatment saving the ability to walk with one preventing blindness? Should $1500 be spent on a therapy lowering your chances of going blind from 60% to 40%? Under the Singaporean model, there is no need to talk about QUALYs and governmental decisions. It’s your money, your body, your call.

Problems

Population is almost 100 times greater in the USA – there is no immediate reason apparent why this should be a direct objection other than generating overheads and logistics. On closer inspection, the Singaporean pharmaceutical market and the establishment of doctor’s practices are both heavily regulated. Given the US federal system, this might be problematic to implement yet not necessarily impossible.

*The average income*– …is actually very similar!

• Per Capita GDP in the USA: 47,025
• Per Capita GDP in Singapore: 51,649.25

Habits – it is a cliché, and possibly a true one, that most of East Asia eats and lives healthier than the developed western world. Changing these habits would take years, no doubt. Creating incentives to eat your vegetables is hence a good idea and one of the cornerstones of this system.

A younger population - Singapore has a very favorable demographic pyramid. The ageing population in the US (and any western country) will prove problematic. I have started thinking about this below.

Add more… It’s what the wiki is for.

Would this work for the USA?

Now, God knows I’m no health care economist, but I have a rough idea for a valuation. Any tech/math savvy law students can probably expand on this; it’s what a wiki is for.

Take the amount of the workforce of the population and find the ratio of the workforce to the non-workforce. By definition, the former can contribute, the latter usually does not (overlooking for the moment honorary employment, non-profits, etc).

(Sources: Wikipedia) Hence USA:

• Population: 305,917,000
• Labor force: 154,500,000 (includes unemployed)
• Unemployment 7.6% (January 2009)
• Hence actual Labor force: 142,758,000
• Worker to non-worker ratio: 1.09 to 1.24

Singapore:

• Population: 4,839,400
• Labor force: 2,670,000
• Unemployment: 1.7%
• Actual Labor force: 2,624,610
• Worker to non-worker ratio: 1.00 to 0.85

This means that for every healthcare-contributing worker in Singapore there are 0.85 non-working members in society, while in the USA the ratio is 1.09 to 1.24 meaning that the average American has to cover for about .45 extra persons. I'm not sure if this accounts for the different GDP percentage required for healthcare. It should not however account for a five-fold difference. Moreover, the average American earns almost as much as the average Singaporean does. Although the differences between Singapore and the USA are palpable – a city-state vs. a superpower for example – the Singaporean model is a real possibility for universal, cheap and effective healthcare reform, a possibility which ought not to be disregarded for purely dogmatic reasons.

Let’s build something.

-- TheodorBruening - 04 Mar 2009

One observation. I believe you forgot to take into account the difference in health care costs. This may render your approach untenable. The disparity in cost is vast enough to encourage the travel of Americans to Singapore in order to save on surgical procedures. Example: Singapore's Ministry of Health lists the median cost of a hip replacement at $14,816. That's about ten thousand less than what my uncle was quoted.

Thus, in order to sustain your approach, it seems likely that medical costs must be capped by the government or the compulsory savings must be raised to what may be a politically impractical amount.

-- JonathanGuerra - 05 Mar 2009

Jonathan,

As I read the argument, he is not failing to account for the difference in health care costs, but he is claiming that the lower costs may in fact be a result of the other system (Theo is this correct?).

I think it does bring up a chicken-and-egg problem, though. Are the costs lower because of the system, or is the system possible because of the low costs?

More significantly, I remain confused as to what happens when, say, a smoker gets lung cancer at age 40. He has some savings in the fund, which will be quickly exhausted. He did not eat his vegetables, so to speak, so he is not 'deserving' of care from the public till. At this point he is denied care? He uses his personal savings until he is bankrupt and then simply dies at home? If people are to be incentivized, we have to be prepared to show toughness towards people who do not behave as we would like, or the incentives are a myth. (Of course, we deny people care all the time because they have no insurance now).

The pamphlet you provided is very instructive. It describes medisave as a 'compulsory savings plan' and medishield as "a low cost medical insurance plan" (you call it "a communal fund for catastrophic costs" and recommend that it be mandatory). I am not sure how the resulting system is very different than, say, Hillary Clinton's plan that everyone be required to purchase health insurance, combined with some sort of flexible spending plan like those widely available in the US.

-- AndrewCase - 05 Mar 2009

Re: Why are hip replacements cheaper in Singapore. It's a fact that there has evolved a substantial health-tourism to Singapore for this reason. My personal opinion is one of two things (which are unfortunately mutually exclusive): either there is an open market of consumer choice driving down costs, or the government caps prices. I have read about the latter existing for pharmaceuticals in Singapore, so it seems the more likely option.

Re: Are the costs lower because of the system or is the system possible because of the low costs. I don't think anybody knows, for if it were either, then we'd lower the costs through caps and then import the system or vice versa. I tend to think that costs are lower due to the system for the reason that Singapore is a first-world nation with comparable living standards to the US. It is likely that a coke costs the same there as here. Must look into that.

Re: A smoker would never be denied healthcare - it's universal healthcare. The incentives not to smoke would come from being able to use the money later, it having accumulated through time and interest, for more and more comfortable healthcare once in retirement, and the prospect of leaving it to one's kin. For example, on the Singapore ministry of health website it cites the example of a person spending extra money on having a single as opposed to shared hospital bed.

I have not yet read Mrs Clinton's plan. Would the compulsory insurance be basing its premiums on income or risk? One difference to the link to the FSP that jumped out to me would be that the medisave has no 'use it or lose it' maturity date after a year. Although the purpose of that might be to prevent tax avoidance, it leads to people using up money when they may not want to and having insufficient funds at other times.

-- TheodorBruening - 05 Mar 2009