Pre-funded MediShield: Good Idea?

I was quoted in the newspaper ‘Today’ (See bottom of post for the article) supporting the idea of the younger Singaporean paying higher premiums so that the elderly pay less than what they would have paid had their premiums been actuarially computed. However, I also warned that while this was politically positioned as pre-funding or paying more now so that the individual pays less when he/she is old, it was in reality an inter-generational transfer based on the assumption that the future young would do the same in the years to come. Unlike Medisave which is personal to holder monies, MediShield is pooled monies and the pre-funds the young pay today if the scheme is implemented is very unlikely to be earmarked for their use in future.

That said, I am fully supportive of the proposal for two reasons:

1. The elderly find it increasingly difficult to afford premiums which are risk-based. The premiums increase virtually every year and without regular income, the elderly are at risk of not being able to afford and dropping out of health insurance when they most need it.

2. I see a pre-funded, inter-generational transfer model as supporting nation building and deepening the notion that we as a country help our fellow citizens and grow the ethos that the young look out for the elderly and other vulnerable groups. All in, hopefully this together with many other efforts bring us closer to “One Nation, One People, One Singapore”.

Anyway, below are the responses I emailed back to the journalist in [bold]:

So out of the 50 people between 21-40 that we polled, only 12 said no to the idea of paying higher premiums while young and lower ones as they age. A majority of those who said yes are willing to pay up to 30% more. 7 are willing to pay 40% and more.
[This finding is really very encouraging- Singaporeans are taking a long term view when it comes to healthcare financing. I am fully supportive of front-loading premiums or pre-funding as you use the term because it encourages setting aside of monies in a pooled manner when young and reduces the financial strain once one is retired without steady income.
Medisave remains important but insufficient. Medisave is personal to the individual and because it does not have the risk-pooling component built in, Medisave cannot provide for the catastrophic illnesses and associated costs that MediShield is designed for.
 However, there is room for some caution. While implicit in this finding is the confidence or ‘faith’ Singaporeans have in the system, both today and tomorrow, it is simply not possible to predict with confidence whether paying 30 or 40% more now will be sufficient for future healthcare needs. We don’t know how medical science will advance and what the price tag will be. Hence I would be sensitive to the possibility that despite Singaporeans paying their entire working life higher premiums in this front-loaded model, Singaporeans may find that the coverage in their advanced years may not be as comprehensive as they expect. Communication and management of expectations remain crucial regardless of how healthcare is financed but especially in pre-funded models.]

From Today 12 July 2013

MediShield: Young people willing to pay higher premium

SINGAPORE — As the Government mulls over a suggestion to have the young pay higher premiums for MediShield to reduce the burden on the elderly, a poll conducted by TODAY of 50 young working adults aged 21 to 40 found overwhelming support for the idea.
By Kok Xing Hui –
SINGAPORE — As the Government mulls over a suggestion to have the young pay higher premiums for MediShield to reduce the burden on the elderly, a poll conducted by TODAY of 50 young working adults aged 21 to 40 found overwhelming support for the idea.

Three quarters of the respondents, or 38 out of 50, said they are willing to pay more so that the elderly — and themselves eventually — pay less.

Of these, most said they are willing to pay up to 30 per cent more of their current premiums. Currently, the premiums increase with age for MediShield, which is a national catastrophic insurance scheme primarily for larger in-patient bills.

For example, a Singaporean or Permanent Resident aged between 21 and 30 pays an annual premium of S$66. At the other end of the spectrum, a Singaporean or PR aged between 86 and 90 pays S$1,190 a year. Those who said “yes” to pre-funding cited the higher earning power of younger workers as a reason, as well as “goodwill” towards the elderly who might not be able to afford the high premiums.

“The elderly have made their contributions to society and the younger generation should step up to help them,” said Miss Cheryl Chan, 27, a communications consultant.

Ms Aurelia Ang, 23, a copywriter, added that while young working adults might have more financial obligations — such as children’s education expenses, housing or car loans — they have the capacity to earn more money.

“I know I’ll find it tough when I’m young but I’ll really appreciate (paying less) when I become a senior — and probably feel relieved,” she said.

One respondent in her 30s, who declined to be named, suggested that the premium be pegged to income levels “so as to make it affordable”. She added that because of a fear that she would be unable to afford MediShield premiums when she gets older, she was willing to pay up to 50 per cent more on her current premiums.

The idea of having the young pay more for MediShield has been floated several times in the past. With the Government in the midst of a comprehensive review of the healthcare financing system, it is something the authorities are looking into. Most recently, it was brought up again by participants of a Ministry of Health’s Our Singapore Conversation session held via a Facebook chat where Minister of State (Health) Amy Khor told reporters the suggestion was “worth considering”.

Health Minister Gan Kim Yong had cautioned previously in Parliament that implementing this could risk placing too much burden on the young and cause some to drop out of MediShield.

On the poll findings, Tanjong Pagar GRC Member of Parliament Chia Shi-Lu, who sits on the Government Parliamentary Committee (GPC) for Health, said if younger Singaporeans are willing to pay higher premiums, “that might free up government resources to better focus on meeting the elderly’s medical demands”. Marine Parade GRC MP Fatimah Lateef, the Deputy Chair of the GPC, suggested an increase of between S$10 and S$20 a year. “It may not be enough, but it is definitely a way forward,” she said.

But healthcare financing experts whom TODAY spoke to urged caution against such a move, given the difficulty of predicting how much healthcare costs could go up or down in the future and the danger of straying from the fundamental principle of insurance — that a person who is at a higher risk should pay a higher premium.

Professor Phua Kai Hong of the Lee Kuan Yew School of Public Policy said that, while the willingness of the young to pay more to reduce the burden of healthcare costs on the elderly was to be lauded, MediShield is ultimately an insurance scheme and not a savings scheme. He said: “What is fair is that people who have the risk should be paying the amount, then they will take the responsibility of reducing the risk … you don’t use insurance to achieve your income distribution objective.”

He described MediShield as the weakest link in Singapore’s 3M — Medifund, Medisave and MediShield — system. He stressed that “not just young people, everybody should pay more” to enhance MediShield.

“Right now, the payout is very minimal. If you want it to be a high quality scheme, you’ve to enhance it by collecting higher premiums,” he said.

Supporting the idea, Dr Jeremy Lim, Principal Consultant at Insights Health Associates, pointed to the Dutch insurance system from 1987 to 2006, where premiums stopped rising at the age of 65. The burden of the deficit incurred was placed on younger citizens and the system worked “very well in meeting its primary objective” of reducing the premiums for the elderly, he said. The scheme was subsequently revised to base premiums on income instead, with everyone paying a percentage of what they earn.

However, he called for caution. “While implicit in (TODAY’s poll) findings is the confidence or ‘faith’ Singaporeans have in the system … it is simply not possible to predict with confidence whether paying 30 per cent or 40 per cent more now will be sufficient for future healthcare needs,” he said. “We don’t know how medical science will advance and what the price tag will be.”

There is a possibility that despite Singaporeans paying higher premiums throughout their working life in a front-loaded model, “Singaporeans may find that the coverage in their advanced years may not be as comprehensive as they expect”, he added.

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One comment

  1. […] – Insights Health Associates : Pre-funded MediShield: Good Idea? […]

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