The Politics of Healthcare Reform

30 Mar 2010

By Mr Khaw Boon Wan

Venue: Fullerton Hotel

From Australia to the United States, healthcare reform has been a political buzz word in the developed world. 

2 While the context may differ, the key issues which underpin the call for reform are similar:

• Healthcare cost continues to rise faster than general CPI;

• More doctors do not lead to price reduction;

• More healthcare spending does not seem to lead to better health;

• Meanwhile, patients’ expectation continues to rise; and

• Employers and taxpayers are losing the appetite to pick up the bill.

3 There was a time when medical advances brought dramatic improvements to health outcomes, and were also affordable.  The 20th century saw life expectancy in developed countries increase by up to 30 years.  The decline in mortality rates was particularly sharp among children as most infectious diseases were eliminated through cost-effective interventions such as immunisation.  The 21st century continued to see medical advances, but many came with a high price tag with no clear victory over the diseases they tried to combat.

4 As a result, medical advances have become a major source of cost escalation and at times even accused of promoting demand for services of dubious benefits.  High-tech high-cost medical interventions which are also futile during end-of-life care have presented particularly difficult ethical choices.  In poor countries, the terminally ill will simply die.  In developed countries, it is not so easy to let go.

5  The recent Businessweek article (4 March 2010) on Terence Foley’s seven-year battle with kidney cancer was illustrative of the ethical dilemma.  His medical bills exceeded US$600,000 of which almost two-thirds were for his final 24 months.  Over the final four days before he was admitted to the hospice—two days in intensive care, two days in a cancer ward—his insurance was billed US$43,711 for doctors, medicines, monitors, X-rays, and scans.  His wife reflected that “the only thing I can see that the money bought for certain was confirmation he was dying”.

6 There was a time when the developed world was able and was prepared to pick up ballooning healthcare bills.  Strong economic growth and young demographic profiles made high-tech high-cost healthcare affordable.  Rising healthcare cost was accepted as a natural and perhaps even positive development as a better-off society devoted proportionately more resources to healthcare.

7 However, changing demographics and slowing economic growth are putting severe stresses on the sustainability of the existing healthcare model.  The American employers who have been shouldering the cost increases over the years are saying “enough is enough” as it is hurting their competitiveness.   Many are resorting to cost shifting to the employees, i.e. the patients.  In continental Europe, the Germans who invented the social health insurance scheme are demanding reforms of the system which is facing massive deficits.  A recent article in the German magazine, Focus (1 March 2010), discussed this issue.  It noted that under the proposed reform, the employers’ share in health insurance contributions would be capped, leaving the insured persons to cover all future increases in costs. 

8 While the healthcare cost conundrum seems intractable, the science of it is now fairly well understood:

(a) The fee-for-service remuneration system perversely incentivises over-servicing by providers;

(b) The provision of free healthcare at point of consumption wrongly incentivises over-consumption by patients;

(c) Over sub-specialisation has fragmented healthcare delivery and if poorly coordinated does not lead to better care but only higher cost,

(d) Health outcomes are not easy to measure, making comparison of providers’ performance difficult;

(e) The resultant lack of transparency causes market failure;

(f) The widespread use of defensive medicine in some countries adds significantly to healthcare cost.

9 While the science is known, the art of addressing it is not easy to apply.  In particular, politics has caused major distortions, resulting in more market failure. 

The Singapore Experience

10 Singapore is honoured to host this Economist Conference on healthcare in Asia.  We have a functioning healthcare system, providing universal coverage to all our citizens, of high clinical standard. For a population of 5 million, our total national healthcare spending was below US$8 billion.   This is less than 4% of our GDP.  My American and European friends find it amazing.

11 But we are not immune to cost escalation.  In the past decade, annual CPI increases averaged 1.5%, while annual health inflation was 2.9%.  So our National Health Expenditure would not stay at 4% of GDP.  With the ageing of our population, it will rise further.  But if we could sustain it at a single digit % of GDP, it would be a remarkable achievement.

12 Unlike most countries in Asia, we are merely a city state.  I therefore do not pretend to know fully the healthcare challenges facing Asia.  But in response to the organiser’s request, let me briefly outline our approach to healthcare.

13 As I see it, the key to a sustainable health care system is to depoliticise healthcare, minimise market distortions and allow healthcare to function as normally as other economic activities.  We do so by trying to stick to the basics.

a) First, health outcome is a personal matter.  Doctors and nurses can only point the way forward; the patient must play his part by dropping bad habits, adopting a healthy lifestyle and complying with his doctor’s prescriptions.  This is especially so in the case of chronic illnesses which account for the bulk of health problems.  Hence, we inculcate among our citizens a strong sense of personal responsibility over their own health. 

b) Second, there is no free healthcare.  Every healthcare service is eventually paid for by the patient, either through taxes, or reduced wages.  Ultimately, patients and their families pay for the bills.  Our job is to make sure that the cost of delivery is as low as possible.  This means cutting out abuses and other moral hazards;

c) Third, specialisation and subspecialisation have brought about medical advances, benefiting many acute patients.  But there is also such a thing as over-specialisation. For the elderly with several chronic illnesses, treatment by multiple subspecialists is often not the best approach. This often ends up as fragmented care without necessarily better outcomes;

d) Fourth, despite medical advances, we are still mortals. Everyone will have to go one day and we have to accept the limits to medical science.

14 When designing our healthcare system, we try to allow the market to function.  So while we inherited the British taxation-based system, we have carefully grafted in the US insurance-based system, to create a hybrid which tries to combine the best of both worlds.  We achieve universal coverage for all our citizens through multiple levels of heavy government subsidy, compulsory health savings account and a low-cost national insurance scheme with deductibles and co-payment.  The result is a high standard of healthcare, accessible to all citizens, and among the most cost-effective in the world.

15 Many economists have concluded that market is doomed to fail in healthcare.  There is empirical evidence of that.  But I believe that market fails in healthcare, because we allow it to fail.  If we do not promote competition among providers, how can the market flourish?  If we do not publish performance of providers, how do we expect the consumers to shop around?  If we do not measure health outcomes, how do we compare performance?  If we pick up the entire bill, why should consumers actively seek out value for money?  If consumers do not bother with value for money, why should providers actively try to innovate and save consumers money?

16 The Singapore healthcare market is far from perfect.  But there have been market successes in some areas of healthcare, to inspire us to continue down this journey of strengthening the healthcare market.  For example, the GP, the obstetrics and the LASIK markets in Singapore are highly competitive, with multiple players, good market information and active consumers shopping around.  The conditions are there to support a competitive market.

17 The challenge is to extend market competition to the other parts of the healthcare sector.  We publish the top 70 most common conditions for admission to hospital.  The bill sizes incurred in all the hospitals for these common conditions are analysed and updated regularly.  We are adding other important information, such as surgical complication rates and hospital-acquired infection rates.  Armed with such information and assisted by their family GPs, consumers will be able to make better choices.

Global Reform

18 President Obama’s political victory in getting his Healthcare Reform Bill through Congress gives hope that political hot potatoes are not untouchable in western democracies.  His reform is clearly not deep enough and may not even do much to reverse the cost escalation.  But it is an important step forward. Changing an established healthcare system is never easy and we should not expect overnight miracles.

19 Going forward, I am optimistic about global healthcare reform.  Patients are better educated and better informed, with higher expectations about process and outcomes.  Such a population has the potential and capacity to consciously choose healthy lifestyles, pursue disease prevention, early detection and treatment, and to comply with disease management regimes. 

20 City planners have recognised the importance of creating a living environment that promotes good health.  In Singapore, we have put a lot of efforts in this area.  Our parks, park connectors, water reservoirs and the many neighbourhood parks make it very easy for Singaporeans to exercise.  Even the low crime environment helps as our people feel safe to go out even in the night for walks.

21 I am particularly optimistic about medical advances.  While they are a cause of the current cost conundrum, eventually they have to be the solution to it.  Advances in genomics, stem cell research and biomedical science may eventually provide cures to chronic diseases like diabetes and corrections to genetic disorders. 

22 An old Chinese saying, “人生七十古来稀 ”, that it is rare to live up to 70, articulated mankind’s aspiration for a long life.  We have now broken this glass ceiling, and it is no longer rare to live to 100. 

23 This is a triumph for mankind.  It is our duty to make sure the healthcare system supporting this triumph is fully equipped to give the seniors peace of mind as they age with dignity as they walk the final lap.  To do so, we must be prepared to break the mould, innovate, and for politicians to tell the people the plain truth.

24 Serious economists and other academics can help the politicians in their job by backing them up with robust analysis, unbiased by political or ideological inclinations.  It is my hope that this Economist Conference can make a significant contribution in this direction.