Medical Serices Account in Singapore - Essay Example

MEDICAL SERVICES ACCOUNT mla uk “Demand for consumer-directed health care is growing among purchasers of care, and early evidence about its effects is beginning to emerge. Studies to date are consistent with effects predicted by earlier literature: There is evidence of modest favourable health selection and early reports that consumer-directed plans are associated with both lower costs and lower cost increases. The early effects of CDHC on quality are mixed, with evidence of both appropriate and inappropriate changes in care use. Greater information about prices, quality, and treatment choices will be critical if CDHC is to achieve its goals.” [Health Affairs 25 (2006): w516–w530 (published online 24 October 2006; 10.1377/hlthaff.25.w516)] INTRODUCTION Over the years, expenditure on medicare has been a growing concern for most governments across the world. While it has become almost prohibitive for most individuals to finance their own medical expenses without any support from an employer or an insurer, the burden on these agencies has also been a cause of concern whereby many governments and employers have gradually started encouraging individuals to become responsible for bearing at least partial cost of medication. Another problem has been tremendous inflation in medical field due to individuals using their medical insurance irresponsibly or immorally as is a preferred terminology. Most insurees are not bothered to moderate medical expenses primarily because costs are being borne by others and not themselves (moral Hazard). Further, medical practitioners have themselves been particularly irresponsible in advising individuals regarding medical treatments with a view to making monetary profits since it didn’t matter to anyone (except insurers and employers) as to how much money was spent on medical treatment. Such a situation cannot be expected to go on for ever. Led by Singapore in 1980s, a new model was brought into effect called Medical Services Account or MSA. This required partial and compulsory contribution from the individual and was supported by the employer or the insurer beyond certain limits for some catastrophic ailments requiring expensive treatments. The model has since been adopted by many countries across the world with mixed results and varying attitudes among individuals, medical practitioners and even governments. AIM This paper attempts to highlight salient features of the Medical Savings Account policy adopted by many countries and bring out various advantages and disadvantages of MSA for an individual, employers and governments to choose best possible medical care option for meeting individual requirements. MEDICAL CARE REQUIREMENTS The medical care requirements of individuals are met through various choices available to an individual including whether to have insurance at all, choosing the insurer, right to choose particular benefits, physician or hospital and so on. MSA comes in a kind of medical benefit fund or account where the individual is contributing and paying for his own routine expenses up to a certain level, while for high deductible and catastrophic diseases, the contribution comes from the savings account up to a certain level and thereafter supplemented fully by the insurer or employer. The surplus/unused balance in these personal accounts may be used differently as per individual plans at the end of the coverage periods. In most such accounts, supplementary assistance doesn’t begin unless some basic laid down amount has been exceeded for most out patient treatments but some expensive outpatient services and most in-patient diseases are covered. The premise here is that consumers can afford minor outpatient treatments on their own and being responsible for financial consequences themselves, they will seek best available market price, avoid injudicious medical consumption and demand better quality of care for the price. Medical Savings Accounts allow for tax-free deposits by employers and individuals and allow seniors availing medical insurance to switch over to an MSA as an option. While such options have been debated as good for healthy people while bad for the sick, it need not be so. In fact, young people suffering from high deductible ailments would benefit much more than healthy seniors by virtue of better choice of hospitals, physicians and treatment plans in the long run. Let us now study Singapore plan in some details. THE SINGAPORE MODEL The MSA based healthcare system was introduced in Singapore during early 1980s due to various reasons including heavy burden on government for free medical care facilitation, increase in medical costs due to technological advancements, high insurance costs due to injudicious consumption and moral hazards. As per government, “The system widened choice available to a consumer, increased patient’s direct payment at the point of service and employed market forces and competition to bring about greater efficiency and offer hospitals and clinics to offer patients better value for their money.” 1 The new financing scheme had three components including Medisave, Medishield and Medifund.2 Medisave requires patients to save and pay directly whereby every working individual compulsorily deposits a percentage of his emoluments into individual savings account. This amount can be withdrawn only for hospital in-patient services and few out- patient services. While there is open choice of medical service providers, since they pay for services, they pay more when they demand higher level services. As per one report, by 1992, 95% of working population above age of 15 had medisave accounts and fund balance had increased from $3 billion to $9 billion between 1984 and 1992. Medishield was introduced in 1990 to cover possible catastrophic medical expenses. This was a risk pooling insurance plan whereupon opting for it; premium is deducted directly from medisave account. It has a high deductible and only covers in patient hospital expensive treatments like kidney dialysis and out patient cancer treatments. Medifund was an endowment fund created in 1993 to assist persons in poverty that cannot pay for their hospitalisation expenses. The patient has to prove this fact and they are accommodated in lower category wards for treatment. Medisave is also administered by the CPF Board. Under the compulsory savings scheme, every employee and employer is required to contribute a proportion of the monthly wage to the CPF. The rates vary according to the age of the employees. The contribution goes into the employees three accounts: Ordinary account, Special account and Medisave account. These savings while earn interest, are fully tax exempted. Savings in the Special account can only be withdrawn upon retirement but savings in both the Ordinary and Special accounts can be withdrawn even before retirement for home purchases and other approved investments. Contributions to the Central Provident Fund, January 20023 Employee age (years) Contribution by employer (% of wage) Contribution by employee (% of wage) Total contribution (% of wage) Credited to Ordinary account (%) Special account (%) Medisave account (%) ≤35 16 20 36 26 4 6 >35–45 16 20 36 23 6 7 >45–55 16 20 36 22 6 8 >55–60 6 12.5 18.5 10.5 0 8 >60–65 3.5 7.5 11 2.5 0 8.5 While the model has worked well in Singapore and has since been incorporated in many countries to reduce medical expenditure burden, its efficacy to achieve this particular result has been debated, since it did not reduce this burden in Singapore itself. Some other advantages and disadvantages pertaining to this scheme particularly in other developed countries are discussed in succeeding paragraphs. MSA – BENEFICIAL OR NOT This debate is an ongoing one, and likely to remain so for the foreseeable future. The salient advantages to individuals, insurers, employers and governments are discussed below: The concept has emerged to reduce financial burden on governments /employers /insurers due to prohibitive medical expenses incurred by the individuals. The concept of MSA essentially attempts to tackle injudicious and the moral hazard aspects of medical insurance practices prevailing in most countries. MSA makes contribution from consumers mandatory, thereby forcing them to make a judicious choice when selecting a medical practitioner, a hospital or quality of treatment. It attempts to reduce inflation in medical expenses which was very high due to indiscriminatory control of prices by physicians, their money-oriented advices to patients and tendencies of consumers to choose treatment patterns irrespective of cost, since it was borne by insurers or employers. Most governments have encouraged these accounts through 100% tax benefits for both deposits and withdrawals from these accounts. MSAs have reduced demand for services; while patients have better reasons to shop around for less expensive providers. This would make them wiser health consumers.4 Increase of health insurance coverage for the previously uninsured. Currently, 25 million people working for companies with 50 or fewer employees in the USA are uninsured. Another 9.7 million self-employed individuals are uninsured. A total of 35.7 million are therefore eligible for MSAs. Almost 15 to 20% of the MSA policyholders were previously uninsured.5 Against all perceptions, people with high medical expenses do not loose anything, or very little.6 While most of these aspects are valid, the governmental intervention has been questioned by many parties affected adversely due to such accounts. Further, like everything else in life, there is always a shade of grey in these aspects too. Particular disadvantages propagated by opponents of MSA are as discussed below: The number of uninsured could increase. The facts state otherwise. There will be deterioration in health insurance sector. This again is debatable because high deductible diseases are still covered by the MSAs. This would encourage healthier and rich people to opt for high deductible health plans to secure high tax benefits provided, withdraw funds at a later stage without tax penalty while poorer would opt to remain uninsured and hope they will never need them. This would increase the number of uninsured Americans by 600,000 despite spending more than $10 billion annually. An exaggerated figure though, it might affect the poorer sections of the society more adversely.7 MSAs do tend to shift risks to individuals, leave moderately unhealthy individuals facing substantial costs, and potentially result in worse health outcomes. The top 10 percent of health-care use up 70 percent of total health expenditures, while the bottom 50 percent of users require just 3% percent. Thus, it is important that consumers must have professional guidance on quality and costs of different doctors and treatments, necessity of medical procedures etc. 8 MSA tax sops would substantially increase budget deficits as they would cost $156 billion over ten years.9 THE DECISION TO CHOOSE The decision in favour of or against choosing MSAs in future will have to be taken after considering various options. Among the better points, a person living on meagre means need not reach the deductible or delay in going to a physician. He can pay the fees due to minor expenditure and use the incentive of withdrawing the tax-free money at the end of term for future use. No such facility is available with medical insurances presently. Next is relief from co-payments on small as well as large bills since all bills for catastrophic illnesses shall be borne entirely by the insurance exclusively. Further, MSAs offer efficient and lower low deductible expenditure than traditional insurance plans for several thousand of dollars. MSAs lower this to about $1000 or even lesser. Consequently, healthy people have a definite advantage over others in MSAs because in case of no expenditure, a person can withdraw the annual contribution and spend as he likes. Similarly, a sick person also benefits with small deposits of about $1000 covers his entire expenditure of thousand of dollars by avoiding co-payment part.10 The person with moderate medical expenses is the biggest loser apparently where his expenditure doesn’t reach the high deductible figure whereby he loses the tax free withdrawal benefit, as well as doesn’t get that advantage of co-payment from insurers. A patient with $2,000 to $5,000 of medical expenses is at the worst end since he is likely to recover from critical but brief medical problem, or he is on the way to a serious illness or suffering from chronic condition like Diabetes which will continue for the rest of his life. Thus while first two categories will benefit from choosing a MSA option, the chronic one has little to gain from switching over to MSA from medicare plans. 11 Healthy seniors would be better off to stay away from an MSA since they are not likely to incur planned expenditure on medical care. An insurance to cater for emergencies would perhaps be a better option for them. Thus, choosing a policy in these cases is a rather complicated procedure for most individuals. This complication is also one disadvantage cited by many opponents of MSAs in developed countries. CONCLUSION The data available is from variety of cultures, governments, systems and people. This data cannot be directly interpolated as uniformly applicable to all countries across the world. To reach a comfortable conclusion, one would need to conduct an extensive survey regarding individual requirements, prevailing ground realities, quality of medicare available, expenditure patterns, resources utilisation, patient and provider satisfaction and overall outcome of promulgating a nationwide policy. While it is a known fact that moral hazard exists across the board, implementing this policy would only partially tackle this part of the problem, but might cause long term disadvantages to government due to tax sops and consequent loss of revenue. It might benefit wealthy and healthy people, who would enjoy tremendous tax benefits, while poorer sections of the society would actually opt out of this system due to high costs at low deductible medical expenses which they have to bear from their own pockets. The overall aim of cost reduction and control of medical expenses inflation has not been apparently achieved in Singapore. Moral hazard continues through tax benefits enjoyed by some while others losing out due to their financial status. Coupled with loss to the US treasury on these accounts, it seems that MSA may not been have fully achieved all the purposes it was implemented for. It can be safely stated that while the future of MSAs is safe and they are here to stay, a nobler way to help the social cause and one which would provide optimum healthcare facilities to weaker sections of the society needs to be encouraged. Free/low cost medical facilities for poorer sections need to be provided and if this clause can be introduced in present system, it would perhaps serve adequate purpose. Most policies are implemented by certain lobbyists to safeguard their own interests in the long term with an overtly visible social cause. If this aspect can be avoided, then finding a more beneficial solution to most problems of society is not that difficult. It is sufficient to say here that while MSAs serve certain purposes, it definitely does not meet a social cause of benefit to poorer sections, and nor tackle the medical expenditure inflation. On the basis of limited evidence available, it may not be the final solution to tackle the stated issues in current form. RECOMMENDATIONS It is stated that MSAs cannot and should not be made compulsory across the board. While it is tremendously beneficial to some categories of people, it does not meet the requirements of some others. The following is recommended: While MSA is a good option for some people, it should not be the only option. Healthy people with low medical expenditure and very sick people suffering from high deductible diseases requiring expensive treatment clearly benefit from these and should opt for MSAs. Sick people with chronic illnesses requiring medical care expenditure to the tune of $ 2000 to $ 5000 should continue with medical insurance plans as earlier. Healthy seniors should opt for traditional medical insurance to cater for emergencies. Tax benefit offered by governments is very attractive proposition, and thus this can also be an investment option for people who can afford to keep some funds away for a year. The MSAs do shift risks to individuals to a certain extent, and hence must be opted for with due caution. Since MSAs have not been able to tackle the objective of moral hazard in true terms, and just shifted the benefit to those who are financially better-off, some innovation to tackle this issue in long term should be researched. The choice of better medical care, hospitals and physicians should be made aware to the public through some means so that an individual can truly benefit from exercising an intelligent and professionally guided choice. An unbiased governmental agency to provide this service for small fees can be a viable option. Like any policy, MSAs have some useful while some not so useful advantages. A rational decision between choosing MSA or traditional insurance can be arrived at by an individual based on his own circumstances thereby exploiting true advantages of each option, and thus have a truly satisfying medical care in times of need. REFERENCES 1. Ngee-Choon Chia and Albert K.C. 2005. Medical savings accounts in Singapore: how much is adequate? 2. Richard Cheffler and Wil Yu. 2005. Medical savings accounts: a worthy experiment: The Motivation And Potential Benefits Of Medical Savings Accounts. 3. John C Goodman. 1995. Are Medical Savings Accounts Good for the Sick. 4. Jason Furman. 2006. Expansion In HSA Tax Breaks Is Larger – And More Problematic–Than Previously Understood. 5. Melinda Beeuwkes Buntin, Cheryl Damberg, Amelia Haviland, Kanika Kapur, Nicole Lurie, Roland McDevitt, and M. Susan Marquis. 2006. Consumer-Directed Health Care: Early Evidence About Effects On Cost And Quality. 6. Dr. Samuel E.D. Shortt, 2006. A Brief Overview Of The Major Flaws With Health Savings Accounts 7. Richard B. Saltman. 1998. Medical Savings Accounts: A Notably Uninteresting Policy Idea Read More