There is no reason why an American version of health savings accounts could not offer subsidies for poor people too.
Is Singapore’s “miracle” health care system the answer for America?
The Singapore model shows how liberal and conservative ideas can fuse.
By Ezra [email protected]
Apr 25, 2017, 9:20am EDT
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ROSLAN RAHMAN/AFP/Getty Images Singapore’s health care system is a marvel, but the reasons it works in Singapore are the reasons it wouldn’t work in America.
When liberals talk about their health care utopia, they have scores of examples to choose from. Some name France’s high-performing multi-payer system (No. 1 on the World Health Organization’s rankings, in case you haven’t heard). Others point to Canada’s single-payer simplicity. The Scandinavian countries all do health care well, and there’s much to recommend Germany’s hybrid approach.
Conservatives really only have one example of a free market health care paradise to point to: Singapore. But oh, what an example it is! In a New York Times column called “Make America Singapore,” Ross Douthat called it “the marvel of the wealthy world.” After the election, Fox News published an op-ed headlined, "Want to ditch ObamaCare? Let's copy Singapore's health care miracle.”
Why are conservatives so taken with Singapore? The American Enterprise Institute’s glowing write-up explains it well:
What’s the reason for Singapore’s success? It’s not government spending. The state, using taxes, funds only about one-fourth of Singapore’s total health costs. Individuals and their employers pay for the rest. In fact, the latest figures show that Singapore’s government spends only $381 (all dollars in this article are U.S.) per capita on health—or one-seventh what the U.S. government spends.
Singapore’s system requires individuals to take responsibility for their own health, and for much of their own spending on medical care.
Here’s what Singapore’s conservative admirers get right: Singapore really is the only truly universal health insurance system in the world based on the idea that patients, not insurers, should bear the costs of routine care.
But Singapore isn’t a free market utopia. Quite the opposite, really. It’s a largely state-run health care system where the government designed the insurance products with a healthy appreciation for free market principles — the kind of policy Milton Friedman might have crafted if he’d been a socialist.
Unlike in America, where the government’s main role is in managing insurance programs, Singapore’s government controls and pays for much of the medical system itself — hospitals are overwhelmingly public, a large portion of doctors work directly for the state, patients can only use their Medisave accounts to purchase preapproved drugs, and the government subsidizes many medical bills directly.
What Singapore shows is that unusual fusions of conservative and liberal ideas in health care really are possible. Singapore is a place where the government acts to keep costs low and then uses those low costs to make a market-driven insurance system possible. One thing you quickly realize when studying their system is it would be a disaster if you tried to impose it in a country with America’s out-of-control medical prices.
That speaks to the more depressing lesson of Singapore. As soon as you begin seriously comparing where they are, and how their system works, to where the US is, and how our system works, it becomes painfully clear how far America is from having the institutions or preconditions for truly radical health care reform.
How Singapore’s health insurance system works
Books could be written on the structure of Singapore’s health care system, and indeed, they have been. Jeremy Lim’s Myth or Magic: The Singapore Healthcare System is particularly excellent, though William Haseltine’s Affordable Excellence: The Singapore Healthcare Story has the advantage of being free. A deep dive here is rewarding, and my summary will necessarily oversimplify.
But the basic structure of Singapore’s insurance system is built around the “three M’s”: Medisave, Medishield, and Medifund. Let’s take them in turn.
Medisave: When conservatives praise Singapore’s health system, they are typically praising the Medisave system. Medisave is a forced savings plan that consumes between 7 and 9.5 percent of a working Singaporean’s wages — think of it like the Social Security payroll tax, if said tax funded a health savings account. Singaporeans then pay for some routine care out of their Medisave accounts.
Conservatives like Medisave because it is built on a deep appreciation for the idea that routine medical care can be treated like any other good, and patients can be pushed to act like consumers when buying it. Which is all true. Medisave distinguishes Singapore’s system from that of the US or Western Europe, where insurers typically cover most of the cost of routine care.
But again, the way Medisave actually works is the government forces you to divert 7 to 9.5 percent of your wages into this account, and then it decides what you can do with those savings — one way Singapore keeps drug prices low, for instance, is it only allows Medisave funds to be used for drugs that the government judges cost-effective (more on this later).
So while Medisave may look like a health savings account, it’s a mandatory health savings account funded by a payroll tax and only usable in certain conditions.
Medishield: Not all medical care is routine care. For the big expenses, Singapore runs Medishield, a nationwide catastrophic insurance program. The premiums are set by your age, and the deductibles are reasonably high — roughly $1,400 in US dollars. Enrollment is automatic, though you can opt out if you choose.
Together, Medishield and Medisave form the core of Singapore’s more market-oriented health insurance system — the idea is you pay routine expenses out of your Medisave account, and if things get bad enough that you hit your deductible, you begin using your Medishield account. This accords with the broader conservative view on health care: Insurance should cover unexpected costs, and for everything else, people should shop around as they do for most other products, and unleash the powers of the market.
But to make that structure work, Singapore relies on a massive amount of government coercion across the entire system. Fully funding your Medisave account is compulsory, not optional. You’re automatically enrolled in Medishield. The government limits the services both programs can purchase and, as we’ll see, often produces or reprices the services both programs purchase.
Medifund: Some Singaporeans fall through the cracks of Medisave and Medishield. For them, there’s Medifund — Singapore’s payer-of-last-resort.
Medifund’s structure is unusual in two ways. First, it’s based on a $3 billion endowment, with the government only able to spend the previous year’s investment income to pay for the needy’s medical bills; dipping into the endowment itself is forbidden. Second, it’s administered with a lot of discretion at the hospital level — so rather than qualifying for Medifund based on income, the way Americans do for Medicaid, hospital boards administer Medifund to the patients they judge needy enough to qualify. This is less restrictive than it might sound — the government says that more than 99 percent of applications are approved.
The big vulnerability of Medifund is that a bad investment year could wipe out the government’s ability to pay — and do so at the moment it was most needed. It’s a testament to Singapore’s economy, and to the government’s fiscal skill, that they’ve not faced this problem yet.
How Singapore’s health care system works
It’s easy, looking at Singapore’s insurance scheme, to see what conservatives find so attractive in the system. While there’s significant coercion, there’s also a real focus on pushing patients to act like consumers, and reserving insurance for unexpected, unusual costs. In addition, Singapore’s safety net — Medifund — is limited in its commitments and administered at the local level.
But all that happens within the context of a government-controlled — and often government-run — medical system.
This is a key difference between Singapore and America. The bulk of the American government’s intervention into the health care system is done through health insurance, and so American analysts often look at Singapore’s insurance system and stop there. But the bulk of the Singapore government’s intervention into the health care system is through the health care system itself.
Take the way the two countries subsidize medical care. In America, insurance is often subsidized — by paying the bills of Medicare or Medicaid enrollees, by giving tax credits to Obamacare enrollees and employer-sponsored health plans. In Singapore, medical treatment itself is subsidized.
More than 80 percent of the hospital beds in Singapore are in public hospitals, and those hospitals are cut into different “wards” with different levels of amenities: A-class wards provide unsubsidized care but have single rooms and air conditioning, while C-class wards are overwhelmingly subsidized but are set up like shared dormitories with common toilets. There are a number of ward levels in between, too, all with a sliding scale of comfort and subsidization. So both A-ward patients and C-ward patients are paying for their own care, but the prices they’re paying are very, very different, because the government is absorbing the direct cost of care in the C-wards.
These subsidies remain a huge part of the country’s overall health spending. In 2009, the 3 M’s only financed 23 percent of total inpatient care; by contrast, government subsidies accounted for 51 percent. (It’s worth noting that government subsidies are a lot less prominent in primary care.)
The government’s subsidies are designed to do more than simply make care affordable — they’re also designed to shape patient and provider decisions and influence pricing. “The policies around what services to subsidize, how much to subsidize, who to subsidize and what providers and patients need to do in exchange for subsidy eligibility, make subsidies one of the most impactful tools in the Ministry of Health’s policy armamentarium,” Lim writes.
Take pharmaceuticals. In 2009, Americans spent $947 per person on drugs. Singaporeans spent merely $389. A major way the Singaporean government holds down drug prices is deciding which drugs are eligible for subsidies and Medisave spending.
The Singaporean Ministry of Health publishes a “standard drug list.” These are drugs the government believes to be “cost-effective and essential.” Drugs on that list are provided at subsidized rates to patients. The government also decides which drugs can be bought with Medisave funds. Drugs that don’t appear on either list may still be available in hospitals, but at prohibitive prices.
Singapore is unusually secretive about how its pharmaceutical decisions are made — Britain’s much-criticized National Institute for Health and Care Excellence, which makes decisions about which drugs will qualify for public funds, is far more transparent. A previous health minister of Singapore says the opacity is to prevent “intense lobbying by pharmaceutical companies” — what they want are pharmaceutical companies selling all drugs at low prices in the hopes of getting onto the standard list. That’s how Singapore uses their subsidies to lower prices not just for the subsidized but for everyone.
Compare all this with America, where Medicare is prohibited, by law, from negotiating down the price of pharmaceuticals, even for its own enrollees!
One lesson of Singapore: everything is easier when costs are lower
According to the World Bank, in 2014 Singapore spent $2,752 per person on health care. America spent $9,403. Given this, it’s worth asking a few questions about what Singapore’s model really has to teach the US.
Are Singaporeans really more exposed to health costs than Americans? The basic argument for the Singaporean system is that Singaporeans, through Medisave and the deductibles in Medishield, pay more of the cost of their care, and so hold costs down. Americans, by contrast, have their care paid for by insurers and employers and the government, and so they have little incentive to act like shoppers and push back on prices. But is that actually true?
I doubt it. The chasm in total spending is the first problem. Health care prices are so much lower in Singapore that Singaporeans would have to pay for three times more of their care to feel as much total expense as Americans do. Given the growing size of deductibles and copays in the US, I doubt that’s true now, if it ever was. (It’s worth noting that, on average, Singaporeans are richer than Americans, so the issue here is not that we have more money to blow on health care.)
According to Singapore’s data, in 2008 cash and Medisave financed a bit less than half of the system’s total costs. Let’s say, generously, that’s $1,200 in annual spending. According to the Kaiser Family Foundation, the average deductible in employer health plans is now $1,478 — and that’s to say nothing of premiums, copays, etc. And of course, average deductibles outside the employer market are much, much higher.
Singapore’s system is probably better designed in terms of how consumers spend their own money. But the lower overall prices make them much less exposed to health costs than both patients and employers inside the American system — which suggests to me that Americans have at least as much incentive as Singaporeans to try to use their power as consumers to cut costs.
The fact that that hasn’t worked is, I think, a reason to believe we’ve gotten the lesson of Singapore’s health system backward. Singapore heavily regulates both the pricing and provision of medical care to keep costs low (as do all other developed countries) and then, working off that baseline of low costs, has Singaporeans pay out of pocket in order to keep them mindful of how much they’re spending.
In America, conservatives want to apply that strategy in reverse: working off a baseline of extremely high prices, they want to force people to pay out of pocket as a strategy to bring those prices down. That hasn’t worked so far, and my guess is efforts to double down on it — of which the Republican Obamacare alternative is one — will continue to fail.
What would happen if you brought Singapore’s system to the US? Spend a moment imagining a transition to a Singapore-like system in the US, given our prices. With per capita health spending over $9,000, we would need to force people to save far more than Singapore’s paltry 7 to 9.5 percent of monthly wages to build reasonable health savings accounts (remember, children and the elderly don’t earn much, and so need their expenses covered by their family’s savings).
A policy like this would make Obamacare’s individual mandate look gentle. Remember, the mandate doesn’t even apply if you can’t find a comprehensive health insurance plan that costs less than 8 percent of your household income. Here, you’d be forced to save more than 8 percent of household income, and that’s just for the part of the system managing out-of-pocket costs for routine care.
Which is all to say that there are a lot of program designs that are possible when health care is cheap, and very few that are possible when health care is as expensive as it is in the United States. Admirers of Singapore’s system often reverse the causality of their experiment: The Singaporean system is possible because the government keeps costs so low. If prices rose to US levels, their system wouldn’t be possible, as the out-of-pocket costs would lead to revolt.
Oh, and everything else in Singapore is different too
One difficulty with comparing anything in Singapore to anything anywhere else is Singapore is very, very weird.
It’s a city-state of 6 million people that’s only been governing itself since about 1960. Though elections are now considered broadly free in Singapore, power has only ever been held by one party — in part because that party has proven itself perhaps the most successful group of technocrats in human history. Singapore has gone from a poor country in the 1950s to holding the third highest per capita income today.
In part for that reason, trust in the government is extraordinarily high, and the government wields that power aggressively. Singapore’s health outcomes are excellent, but that’s not only because its health system is well-designed. Singapore manages a nanny state beyond anything Americans can imagine, or would permit.
Despite the country’s wealth, only 15 percent of Singaporeans have cars, because the government makes car ownership prohibitively expensive. There’s virtually no illegal drugs or gun crime in Singapore, in part because drug dealers are executed and guns are outlawed.
Cigarette and alcohol taxes are enormous by American standards. As Matt Yglesias said in our episode of The Weeds discussing Singapore, “If you imagine America with no guns, less booze, much less drugs, and radically less driving, our public health outcomes would soar.”
There’s much America could learn from Singapore. But the lessons need to be taken in whole. The Singaporean system is unusually good at applying market forces to routine health expenses. But that happens within a context where the government is aggressively managing the supply of health services, the price of treatments, and the broader behavioral environment in which the system operates. Singapore’s health care system relies much more on the government, and much less on the market, than America’s does.
Which is not to say liberals should be confident about adopting Singapore’s model either. America is far from having the kinds of low costs or faith in public institutions needed to replicate Singapore’s “miracle.”
A point that both Lim and Haseltine make in their books is that the Singaporean government has sought to keep control of the health system because leaders’ study of other countries persuaded them that once costs and medical interest groups grew out of control, the government could no longer effectively regulate the system. Quoting a former Singaporean health minister, Haseltine writes, “f the public healthcare system is too small, it becomes the ‘tail that tries to wag the dog.’ Once a private healthcare system becomes the dominant entrenched player, it is very difficult to unwind it — there are many vested interests and many pockets will be hurt.”
In America, the private health care system is the dominant entrenched player. And that makes radical reform, either toward a Singapore-like system or toward any other public-driven system, very, very difficult. There’s much you can imagine designing if we were starting from scratch, but it’s very challenging to design high-performing, clean systems that we could smoothly transition to from here, given how many hospitals and doctors and employers and even patients are dependent on the money flowing through system we have, and would viciously fight efforts to upend it.