I’m going to caveat this whole post by saying that health policy is not my expertise. (I spend a lot of time reading about economics and policy, and still would have trouble fully explaining the structure of health-care provision in the U.S. — but maybe this is part of the problem with U.S. healthcare?) But I’ve read a number of attractive things about Singapore’s healthcare system, and so I wanted to share my understanding of, and takeaways from, its Platonic ideal.
The basics, as I undertand them, are this:
First, everyone in Singapore has health-savings mandatorily and automatically deducted from their paychecks and placed into high-interest accounts. Since most people’s health expenses are low when they’re young, most people quickly accumulate a substantial buffer of health savings, which continue to compound over time.
Second, when it comes time to go to the doctor, you can pay for many, but not all, things out of this ‘Medisave’ account. Most medically necessary interventions and prescriptions qualify. Checkups for minor and non-life-threatening ailments or prescriptions for drugs that are helpful, but not actually cures for dangers-to-be-insured-against (e.g., an Ambien to help with jet-lag on international travel), might not be. This ensures that people don’t burden their health savings too much with their neuroses and sniffles, but also ensures that, when medical interventions *are* necessary, the money is there. It also requires medical providers to lower their costs to a point where they can actually attract demand in a free market — e.g., if people have to pay the full cost of Ambien, rather than a meaningless copay, you have to lower the price to a point where it’s worth it from an individual’s perspective.
Third, very interestingly, you can ‘donate’ some of your accumulated medi-savings to your family members. This increases your incentive to keep saving more and more and not overspend even if you are precociously and congenitally healthy, and provides an extra line of support to those who are congenitally and precociously unhealthy, provided that they have loving families with some healthy members. (It’s also interesting and heart-warming to me, because in economics we usually think of incentives as working on individuals, but this is an example of incentives working on the ‘extended self’ of a family. It also provides an extra level of ‘socialization of risk’ at the extended family level.)
Fourth, the government offers very low-cost and subsidized catastrophe insurance. This catastrophe insurance is ‘means-tested,’ meaning that if you have a million dollars of wealth lying around, the catastrophe insurance might not pay out even if you get in a car accident that runs up to $40,000 of medical expenses — because while your accident was tragic, you can plainly pay for it yourself. But if you’re middle class and that same accident would bankrupt you and your lifetime Medisavings, the catastrophe insurance would cover it. Catastrophe insurance represents the most basic, important function of insurance — to socialize the risks of unpredictable, rare, and extremely costly events, so that people don’t have their lives ruined by events over which they have no control.
Fifth, there are basic subsidies for the very poor. For some people, the regular required Medisave and catastrophe-insurance contributions are quite costly, and they, and they alone, receive subsidies. This means that the most vulnerable members of society are supported in procuring healthcare, but the median consumer of medical services has no incentive to consume more than is rational from his own cost/benefit analysis. By targeting subsidies at the very poor, Singapore’s health-care system provides universal access without (as we do here in the U.S.) incentivizing the over-consumption of medical resources.
Sixth, the government makes the market for medical services more competitive by enforcing radical transparency. Healthcare providers are required by law to publish their prices for services, in order to enable and encourage people to shop around for bargains. The U.S. system is radically untransparent. If your child has an ear infection in the middle of the night, and you go to an overnight emergency room to pick up a basic antibiotic (which must be a highly dangerous and addictive drug, given that only AMA-certified mandarins with seven years of education are allowed to dispense it!), the doctor who scribbles her signature on the prescription may charge $500. But you never see that cost — it is absorbed by your insurer who incorporates it into the annual costs paid by your employer, which employer has its medical costs subsidized by the government. We are five or six levels removed from the actual costs of our medical decisions, and so it’s no wonder at all our expenses are so irrationally high.
Seventh, at a certain age, Singaporean citizens can pass on what they have remaining in their Medisave accounts into their savings or retirement accounts. That is, once they’ve made it through most of their lives, they are rewarded for their efforts to control costs and allowed to spend the cash on other needs and wants. This simply closes the circle of giving people incentives to keep their costs low and allowing them to make their own tradeoffs about medical vs. other goods.
This system seems pretty theoretically ideal. It guarantees universal access via subsidies for the very poor and a mandate to ‘Medisave’ on everyone else. It achieves the most basic, fundamental function of insurance via cheap catastrophe insurance. And it keeps the costs on the public very low by relying on strong incentives at the individual and family levels, price transparency, competition, means-testing, and the general principal that individuals ought to bear their own costs for most things. (Ideal theory suggests that it might also be optimal to provide extra incentives for preventive steps — e.g., subsidizing gym memberships to nudge us to be healthier, and less costly, later on. But given that real-world governments are imperfect and subject to corruption and capture, Singapore’s more basic, keep-it-simple-and-stick-to-the-fundamentals approach is probably a better template for real governments.)
Singapore’s system is based around recognizing realities and trade-offs which are unfortunately a “third rail” for politicians to speak of in the U.S. Namely, medical resources are scarce, and health is one good among many that we want to enjoy in life. So, yes, sometimes it is rational to not get this checkup and not to get that prescription. If people knew and felt the costs of their medical services, they would be able to make these trade-offs more rationally. More, insurance adds value when it actually insures — socializing the risks of the irregular, the unpredictable, and the unavoidable. (Auto insurance does not cover the cost of refilling our gas tanks, because that is not what insurance is for.) And the Singaporean healthcare system exemplifies this. I would like an Ambien the next time I travel to Asia, but ‘I would like x’ is not tantamount to ‘it is rational for x to be fully covered by insurance.’ It would be better for society as a whole if I would bear the full cost of my non-clinical sleep aid and if the company that makes the drug were forced to meet me at a price which I myself would be willing to pay.
One thing that struck me about Singapore’s healthcare system is that in popular political cosmogonies, we posit the ideals of ‘strong active government’ and ‘individual choice and competition’ in opposition to each other. But Singapore’s system could be seen as both more government-driven and more market-driven than its Western equivalents. It begins with a universal government mandate in order to provide a well-defined public good — but then relies on intense competition, individual choice, transparency, simple and understandable rules, and strong incentives, to keep costs low.
This is my way of saying that I think the popular political cosmogony is misleading, and we should have fewer conversations about ‘big government’ in the abstract versus ‘free-markets’ in the abstract, and keep our eyes on the goal of ‘efficient provision of public services’ while being open to intelligent combinations of government mandates and market incentives/competition in achieving that goal. It’s not useful to say that Singapore’s system is characterized by ‘bigger’ or ‘smaller’ government than the U.S.’s — it’s just smarter government.