Medisave, Medishield ... Medi-crisis?

07 Jan 2008, Today

Question

Name of the Person: Stanley Jeremiah

Medisave, Medishield ... Medi-crisis?

Weekend January 5, 2008

IN AN October interview with Fortune magazine, Mr Alan Greenspan was asked what the biggest economic worries were at this point in history. Speaking of America, he said Medicare was the most serious fiscal problem out there.

"When the baby boomer retires, we are going to have either to raise taxes very sharply or cut benefits by half," he said. "Prudent policy would be to adjust the longer term now, not when it becomes a serious problem for people who have already retired and are told after the fact that they will not be getting the real Medicare that they expected."

We are running into the same problem here in Singapore. In place of "Medicare", read Medisave/ MediShield.

Statistics indicate medical inflation — which hit 6.2 per cent in October — is running at almost twice the national inflation rate.

In his New Year message, the Prime Minister has indicated that means testing will be used for hospital admission, which means that even if people are prepared to downgrade to a C or B2 class ward, they may have to pay more, because they fail the means test.

Is MEDISHIELD Alone Suffificent?

As a result, a significant portion of medical bills will remain uncovered and Medi-Shield policyholders will be left to pay these amounts from a combination of their Medisave account and cash.

We also have thousands of Singaporeans who are not even covered by MediShield. Many Singaporeans do not have adequate funds in their Medisave accounts to pay for their own medical bills, because their Medisave funds have been used to pay the bills of spouses, parents or siblings. The baby boomers have often had to take care of their parents' medical cost.

Many Singaporeans rely foolishly on the fact that they have some medical cover provided by their employers. Seldom do they realise that such cover is often woefully inadequate. Looking at a medical institution recently, I realised that their nurses had only between $7,000 and $10,000 in annual hospitalisation cover. This will beadequate only for minor conditions like appendicitis or fibroids, not for any significant medical treatment.

More significantly, people fail to consider the fact that the medical cover provided by their employers ceases when employment ends, including when they retire or if they are too ill to work.

Post-retirement is when people most need medical cover. A recent Ministry of Health (MOH) survey showed that Singaporeans "suffer eight years of poor health". The current Medisave balance of $33,000 isn't going to pay for eight years of medical treatment even if you also have MediShield, after taking into account payment for the deductibles, co-insurance and anything beyond the amount paid by the schedule of benefits.

In the case of a catastrophic medical condition like cancer, it may not even last two years. If the funds in Medisave are used to directly pay for medical bills, there may not be anything left to pay the MediShield premiums.

MEDISHIELD'S WEAKNESSES

The current MediShield plan has two inherent weaknesses: Firstly, it does not cover you for your lifetime.

Secondly, it has a complex structure of deductibles, co-insurance and sub-limits. Like many private shield plans, MediShield should become an "as charged" plan, which pays the bill as charged by the hospital for at least Class C hospitalisation.

I question the need for a deductible in the MediShield cover, since patients in Class C or B2 will not be hospitalised unless it is necessary.

The effect of imposing deductibles on people who can only afford Class C or B2 treatment is, as someone put it to me, "penalising the wrong party".

A level of co-insurance forces healthcare providers to consult patients when there are choices in treatment, as the patient bears some of the cost.

This reduces over-servicing by providers and thus reduces claims costs. However, even co-insurance should be subject to an annual limit to protect patients with catastrophic medical conditions.

MEDISAVE IS INADEQUATE

The idea that Medisave can be used to pay (directly) for medical cost should be banished. At the current rate of medical inflation, it will become totally inadequate.

Medisave should be a fund set aside for the payment of medical insurance premiums, post-retirement and perhaps for payment of a limited co-insurance amount.

Currently, many employers buy year-to-year inpatient medical insurance for their staff, known as Group Hospitalisation Schemes (GHS). For employers with several thousand employees the cost can run into hundreds of thousands of dollars, if not millions.

It is a pity that these funds are not now invested towards providing employees with port-able medical insurance plans, which will see them covered beyond retirement. It will also provide them with much higher limits of cover, sufficient to meet the cost of catastrophic medical conditions like cancer and stroke.

MINDSET CHANGE NEEDED

What is required is a mindset change on the part of both employers and employees. Both must focus on the longer term.

Medical cost as a percentage of total remuneration cost will rise disproportionately because medical inflation outstrips national inflation.

In the long run, employers cannot continue to increase spending on medical benefits at current levels. It is not sustainable. The only available option has been to cut back on the level of medical benefits, leaving employees more exposed in the case of a serious medical condition. The Civil Service was the first to impose such measures by using schemes such as the MSO scheme (Medisave cum Outpatient Scheme).

Employees and unions, on the other hand, have taken for granted that they have not had to directly contribute towards the cost of insuring or financing medical benefits and remain reluctant to take up this responsibility.

Yet, as a result of failing to co-share in the payment of premiums, employees have become even more vulnerable.They are left with limited company medical schemes, which leave them and their dependants exposed to the prospect of having to pay for all medical cost over the limited cover provided by the employer.

This is a risk most people cannot take. There are very few people in Singapore who can, like the former NTUC Income CEO Tan Kin Lian, say they can pay the medical bills out of their personal savings.

If the employee has his own portable plan to supplement the employer's GHS plan, there is duplication of cover to some extent and therefore duplication of premiums. This is not cost-efficient.

We should work to ensure that all dollars spent on medical cost are efficiently deployed. This includes premium dollars on medical insurance.

The danger of people being medically uninsured is a very serious one. Business Week, in a recent issue, highlighted the plight of thousands of Americans with little or no medical insurance who are being squeezed by financial companies who had taken over their debt from the medical providers.

"As doctors and hospitals turn to GE, Citi and smaller rivals to finance patient care, the sick pay much more," said the article. "Hospitals are transferring patient accounts to banks and finance firms that impose interest rates as high as 27 per cent."

This is a picture of the United States today. We may face the same situation if something is not done to address the way Singaporeans, particularly the baby boomers, finance their medical cost.

The writer is a lawyer and chartered insurer who is immediate past president and council member of the Singapore Insurance Institute.

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MAKE MEDICAL COVER COMPULSORY

In Weekend XTRA’s report on health costs in Singapore, STANLEY JEREMIAH took a critical look at the existing medical schemes. Today, he studies some possible solutions.

THE only real solution to the problem of inadequate medical cover is for the Government to legislate compulsory portable medical insurance plans for all Singaporeans and Permanent Residents (PR), and channel the funds the employers would have paid for the Group Hospitalisation Schemes (GHS) into portable plans.

The level of cover may be a matter of choice but MediShield should be the compulsory base level cover for every Singaporean and PR worker.

We should also avoid duplication of cover or premiums, and ensure that the funds going towards medical cost are efficiently utilised.

All Singaporean and PR employees should be covered by medical insurance plans integrated into MediShield.

PORTABLE PLANS

There are several difficulties with the current portable plans.

First, they either exclude or provide very limited cover for mental illness. A recent Ministry of Health (MOH) study showed that 11 per cent of elderly people suffer from mental disorders. This is as much as the proportion suffering from diabetes and stroke.

One has to ask why this exclusion is retained. It nullifies the value of portable medical policies for a sizeable number of people.

Second, many of the baby boomers have already contracted medical conditions such as diabetes and high blood pressure.

As they seek portable medical insurance, insurers impose exclusions on the very conditions that the baby boomers need to cover.

I recognise the insurer’s desire to limit its exposure to an obvious risk but this does not provide the baby boomers with the protection they need.

Some employers are looking at options to contain the impact of these exclusions during employment but what happens on retirement?

In my view, the only fair resolution is for the Government to legislate compulsory cover for these people by setting up insurance pools to carry the risk and to use the profits from the younger healthy insureds to help subsidise the cost.

We have to recognise that the covers that are available to the baby boomers now were not available when they were younger and fitter, and the situation has simply overtaken them.

They are largely victims of circumstance.

Another aspect of current portable plans is that, except for the prospect of having an existing medical condition excluded from cover, there is no incentive to enter early into an insured scheme. Everyone is charged the same premium for his age band.

Insurers should build a “loyalty bonus”  into their policy structure. The longer a person has been insured, the larger the discount over the standard premiums for his age.

This would encourage more young people to take out coverage, resulting in better protection. The schemes would also have a better pool of members.

FAST ACTION NEEDED

The impact of medical-cost financing is farreaching. To truly address the problem, steps must be taken beyond simply revising the MediShield limits.

The extent to which this problem is growing is revealed by the recent MOH statistics on Medifund applications.

Between 2005 and 2006, Medifund increased its payout to needy patients by about 1.2 per cent.

The number of aid applications, however, grew by 4.5 per cent.

This means there was less money given on a per application basis. Unfortunately, medical inflation is running at almost double the general inflation rate.

Therefore, from an individual standpoint, it means decreasing support when one is faced with increasing cost.

More than 300,000 successful applications were made to Medifund in 2006; they are by Singapore citizens who were unable to pay for their medical treatment in class B2 or C Wards.

According to a Straits Times report on Dec 27, the criteria to qualify for a grant seems to be that patients “have to produce documents to show that they and their family members have little or no money left in their Medisave or bank accounts” .

Dover Park Hospice pulled out of theMedifund scheme because of the requirements to qualify for a grant under the scheme.

“We felt it would add unnecessarily to our families’ distress,” a hospice spokesman said.

By far, the most disturbing fact was that the number of people whose applications for aid were rejected rose from 210 in 2005 to almost 6,500 in 2006. That is an increase of 3,000 per cent.

A growing number of people who think they need help with their medical bills do not qualify for aid.

As the chief financial officer of a medical institution put it in an interview with BusinessWeek: “If we heal somebody medically, but we break them financially, have we really done what is in the best interests of the patient?”

Former United States Federal Reserve chairman Alan Greenspan, in an interview with Fortune magazine in October, said that when it comes to the medical-cost financing situation in the US, “no politician wants to confront this and this is a very sad event ...I think it is unethical and immoral for a government, when confronted with these types of events, not to take action.

“What do we elect people for?”

AWARENESS AND REMEDY

The situation in Singapore may not be as bad as that in the US.

However, I see us heading in the same direction, unless something is done quickly to reverse that trend and put in place a system to ensure that most people, if not all, own a lifelong medical insurance plan with adequate limits to meet ever-increasing medical costs.

We cannot just tell people that they have the responsibility to meet the financial cost of their medical needs, we also need to provide them with effective and cost-efficient mechanisms for financing that cost.

I have only addressed inpatient medical cost. Equally, if not more significant, is the question of managing the cost of outpatient medical care, post-retirement.

That is an even more complex question and, right now, there is no solution in sight.

The writer, a lawyer and chartered insurer, is the immediate past president and council member of the Singapore Insurance Institute.

Reply

Reply from MOH 

WE CAN BE PROUD OF 3Ms

1. Citing major problems in the US healthcare system, Mr Stanley Jeremiah declared in a two-article commentary that Singapore’s healthcare system was running into a "Medi-crisis" (TODAY, Jan 5/6, and Jan 7). His conclusion was based on sweeping statements and most unfair to our healthcare workers. While our system is not perfect, it is nowhere near what Mr Jeremiah has portrayed.

2. Hospital bills in Singapore are largely affordable, quite unlike the situation in the US where hospital bills, even for minor treatment, easily run into thousands of US dollars. We have achieved this positive outcome through decades of careful planning and implementation, not by accident. Our healthcare financing model, with: (a) heavy Government subsidies at the point of use, (b) compulsory saving for hospitalisation expenses (Medisave), (c) risk-pooling via insurance (MediShield and ElderShield), and (d) an ultimate safety net (Medifund), was put in place precisely to avoid the type of medical crisis that Mr Jeremiah feared.

3. There are $36 billion in our Medisave Accounts today and this continues to grow at more than $1 billion each year. Singaporeans have more than $13,000 in their Medisave accounts on average, sufficient to cover 10 episodes of hospitalisation in a Class B2 ward, or 13 hospitalizations in Class C. 80% of patients made use of their Medisave to pay for their hospitalization, and over 80% of all Class B2 and Class C bills are fully covered by Medisave and MediShield. We are therefore surprised that Mr Jeremiah argued that Medisave "should be banished", thus dismantling a key pillar of our healthcare system.

4. As a chartered insurer, Mr Jeremiah should know how inexpensive our insurance premiums are, compared to the US. Again, this has not evolved by accident. By incorporating deductibles and co-payment in MediShield, we have reduced the problems of over-consumption and over-servicing experienced in the US, and hence kept our premiums low and affordable. It is therefore puzzling to read Mr Jeremiah’s argument for MediShield to become an "as-charged" plan, a practice which many national health insurance policies are trying to move away from.

5. But we know our system is not perfect and we will continue to enhance it. For example, we are reviewing MediShield to further reduce the burden on patients with large bills. We intend to bring this about later in the year. The current public discussion over means-testing is another way to further strengthen our system.

6. We agree with Mr Jeremiah that universal coverage of medical insurance is an important part of a healthcare system. This can be achieved through a mandatory scheme but the challenge is how to enforce compulsory subscription by the self-employed and the economically-inactive. We have taken an "opt-out" approach for MediShield, achieving a credible 90% coverage among all working adults. Soon all newborns will be automatically offered MediShield, increasing its coverage among our population.

7. MediShield and the various Medisave-approved private integrated plans are now portable. Such plans ensure that an employee is covered by medical insurance even if he leaves his job. We encourage more employers to incorporate such plans as part of their medical benefits.

8. Mr Jeremiah criticised Medifund by picking on the number of rejections which had gone up. But he has conveniently ignored the fact that almost all applications, 98%, were approved, nor the nature of cases which were rejected. Medifund applications are carefully processed by committees of compassionate volunteers who do not reject applications lightly without reason.

9. Overall, we have managed to deliver a high standard of healthcare for Singaporeans. Compared to most systems elsewhere, we can be proud of ours. The WHO has rated our system the best in Asia.

10. Healthcare is an emotional subject. It certainly is not helpful to alarm Singaporeans unnecessarily. Sensationalising the issue is also grossly unfair to the many dedicated healthcare workers who are doing their best to help Singaporeans recover and improve on their health.