Saturday 17 August 2013

A Dutch example of health-care financing

By Jan Van Den Berg, Published The Straits Times, 16 Aug 2013

IT WAS late in the evening in 2008 when I entered the taxi at Changi Airport's Terminal 2. I was jet-lagged and mumbled my home address to the driver. It was not until we were on the PIE (Pan-Island Expressway) that I realised something was wrong.

The taxi moved slowly and was zigzagging. I asked the driver: "Sir, are you okay?"

The driver jolted, sat up straight and corrected his driving. He was very old. We got talking and he told me his story.

"I was lucky and not so lucky," he told me. "When I turned 61, I decided to retire from my job. I had been a team leader in a manufacturing plant for a pharmaceutical company."

"My two sons had graduated from university and had good jobs. My wife and I looked forward to an easier life together. But a year later, I developed a cancer. I was lucky - look at me, I survived and am fully cured.

"I was not so lucky - the treatment cost me all my savings. And so two years later, I became a taxi driver."

He was 76 and intended to drive as long as he could, to avoid burdening his sons.

How was it possible that someone who had a good job in Singapore and worked all his life did not have medical insurance after retirement and was exposed to such financial risks? I had difficulty believing that these things were not arranged in Singapore.

I went on a quest to find out how health-care insurance and financing are organised in Singapore. While MediShield penetration in the total Singaporean population stands at 92 per cent, I learnt that a large proportion of the elderly are not MediShield insured, many of them opted out: the 8 per cent uninsured are predominantly the elderly.

Why was that? MediShield premiums rise quickly with age. Because medical costs for the elderly are much higher, so are their premiums. A 70-year-old pays about eight times the premium of a 35-year-old person. And after 70, the premiums increase rapidly. Many elderly decide that this premium is too high and "opt out".

Many elderly Singaporeans have relatively low Medisave balances because they have not been able to participate long enough, simply because Medisave was created when they were already relatively aged.

Singapore's health system has attracted widespread acclaim in the international community. It is funded mainly by private resources. This creates strong incentives for patients to ration health-care consumption, which is good for the sustainability of the system.

Singapore only spends about 4 per cent of its gross domestic product on medical expenses, low by industrialised country standards. But a large proportion of Singapore's elderly are uninsured, which means there is a hurdle to their access to health care. Many elderly may actually not get the health care that they need.

On May 29, the Institute of Policy Studies held a one-day seminar on health-care financing, involving experts from government, universities, insurers, hospitals and other interested parties. I was with a team that presented a potential solution from the Netherlands that we think fits in with the values and principles of Singapore's system.

In the Netherlands, all the elderly had a "once only" opportunity at age 65 to join a special and affordable health scheme called the Standaard Pakket Polis. Those who declined could not join later. This was to prevent people from waiting till they were sick to join.

People with pre-existing conditions paid the same premium as healthy people. This could be done since the risks of the total population of insured people were pooled between all insurance companies. The premium was fixed yearly based on the previous year's insurance results.

In practice, nearly all the elderly joined. Coverage was assured so long as premiums were paid annually. This health package was in use between 1987 and 2006, when it was folded into the national insurance system.

This Dutch system can be worked into Singapore's system, as it is driven by similar values. It can be done based on the following principles:

First, give all Singaporeans above the age of 65, including people with pre-existing medical conditions, a one-off choice to join a "whole life" insurance scheme, meaning an insurance cover like MediShield that they keep after they retire and until they die.

Second, change the premium structure for MediShield and make it a whole life plan. This simply means that the insured person pays a premium that is commensurate with the risk over his whole life, and the premium can be spread out to equalise the annual cost for the respective years of his life. It means that younger people start paying a relatively higher premium, whilst the premium for elderly people can be capped at an affordable level.

This is different from a term insurance system, where the premiums are determined for the risk group of certain age bands and people pay the premium that is exactly based on the medical risk of the particular age band they are in. This is why younger people pay today a much lower premium than the elderly.

In the Dutch system, the premiums were much more equalised across age bands and could be kept affordable for the elderly. The younger paid a top-up of about 10 to 15 per cent on their premiums, in exchange for which they had the certainty of being covered during their entire life, at an affordable premium.

Recent changes to MediShield have brought children and babies with congenital diseases within the MediShield umbrella. However, many elderly Singaporeans remain uninsured or uninsurable due to pre-existing illnesses or lack of ability to afford premiums.

They can be given a second chance with a proposed Dutch-style system which offers a one-time amnesty to all to join. Since it pools risks across the entire population, premiums can be kept affordable.

The writer is Asia president for a multinational insurance company. He is a Dutch national and Singapore permanent resident, who has lived here since 2007.


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