Stretching Your Medisave Dollar

29 Aug 2001

With effect from 1 October 2001, the interest rate on the Medisave Account will be increased to that of the Special Account. The Ministry will also be mounting a public education programme to counsel and assist Singaporeans in using their Medisave dollar prudently.

The Medisave Account

The Government introduced Medisave in 1984 to help Singaporeans build up sufficient savings for their hospitalisation expenses, especially during old age. Under the Medisave scheme, every working individual contributes 6-8% (depending on the age group) of his monthly income to his personal Medisave account. He can use his Medisave savings to pay for his and his immediate family members' hospitalisation expenses. The Medisave contribution rate will be increased to 7-9% when the CPF contribution rate is fully restored and the targeted rates in the Ordinary Account and Special Account have been reached.

Since the inception of Medisave, the use of Medisave has become increasingly prevalent. Besides inpatient expenses, we have allowed Medisave to be used to pay for certain expensive outpatient treatments such as radiotherapy and chemotherapy. We have also liberalised the use of Medisave to cover selected types of step-down care such as community hospitals and hospices, which has helped alleviate the financial burden on elderly patients. Medisave can also be used to pay for the premiums of MediShield or Medisave-approved insurance schemes, and in the near future, ElderShield premiums. The total amount of Medisave withdrawn last year was $391 mn.

The Ministry notes that the success of Medisave has led to less restraint by Singaporeans in choosing the level of healthcare services that they really require. Only 56% of Singaporeans who reached age 55 last year have Medisave savings that were at least the Medisave Minimum Sum1. The Medisave balances of Singaporeans who turned 55 last year were also not high, at about $16,0002. Please see Annex A (7.65 KB) for the Medisave balances by age group.

Statistically, a Singaporean can expect to be hospitalised, on average, 11 times in his lifetime, of which 8 hospitalisation episodes would occur after the age of 55. While the Government has introduced a series of Medisave top-ups and pre-Medisave top-ups in the past few years3, it is also essential that Singaporeans build up their Medisave savings over their working life so that they have sufficient Medisave to pay for their old age hospitalisation needs. This is especially so for single-income families.

Increase in Interest Rate of Medisave Account

Currently, the interest rate of the Ordinary Account and Medisave Account is based on 80% of the 12-monthly fixed deposit (FD) and 20% of the savings deposit (SD) rates of the Big Four local banks, subject to a floor of 2.5%. The interest rate of the Special Account is higher as it is pegged at 1.5% above the Ordinary Account interest rate.

To help Singaporeans build up their Medisave savings at a faster pace, the Government has decided to peg the interest rate of Medisave Account to that of the Special Account. In other words, the interest rate of Medisave Account will be pegged at 1.5% above the Ordinary Account interest rate. Based on the total Medisave balance of $22.7 bn as at 31 Dec 2000, the Government will have to pay an additional $340 mn per year due to the 1.5% increase in Medisave Account interest rate.

With the higher Medisave Account interest rate, Singaporeans will be able to grow their Medisave savings faster which will help them to better meet their hospitalisation expenses. As a result of the higher interest rate on Medisave Account, a typical Medisave Account holder at age 40 now would be able to accumulate an additional $8,100 Medisave savings by the time he reaches 55. Please see Annex C(6.60 KB) for an illustration.

Using the Medisave Dollar Prudently

Notwithstanding the higher interest rate on Medisave Account, Singaporeans should continue to be prudent in their use of Medisave savings so that they have sufficient savings for their old age. Singaporeans should choose the healthcare service level that is commensurate with their financial means, especially the type of hospital for admission and class of ward.

To help Singaporeans make that choice, they should make full use of the financial counselling services which are mandatory and available in both public and private hospitals. Financial counselling would provide an estimate of the expected hospitalisation cost so that Singaporeans are able to make informed choices on the type of hospital and ward class.

To help the lower income Singaporeans access the heavily subsidised healthcare services in the public healthcare system, the Ministry has prepared a brochure entitled "Ten Tips to Stretch Your Health Dollar". The brochure will be widely available at the various community clubs and centres, polyclinics, national centres and public hospitals. In addition, the Ministry will be visiting the various Community Development Councils to obtain feedback and directly address concerns about rising healthcare costs.

Conclusion

The higher Medisave Account interest rate and the public education programme would help Singaporeans, especially the lower income group, to stretch their Medisave dollar. Singaporeans can also play their part by contributing regularly to Medisave and not depleting their Medisave savings unnecessarily, and choosing their hospital and ward class according to their financial means.

1. The Medisave Minimum Sum was $19,000 last year.

2. The figures quoted for Singaporeans at age 55 apply to employees only and exclude pensioners and self-employed persons.

3. See details of the Medisave top-up and pre-Medisave top-up schemes at Annex B (7.64 KB).