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CHAPTER 3

Helping Patients Pay

The success of healthcare in Singapore today is largely due to the government's creative use of the Central Provident Fund. The CPF's medical savings component, called Medisave, makes it possible for Singaporeans to pay for much of their own medical care. Medisave is, in essence, a compulsory savings account. The government sets contribution rates for workers and their employers as a percentage of wages. Once in their accounts, the money may be used to pay for personal and family healthcare—always along carefully-established guidelines.

As mentioned in Chapter 1, the Central Provident Fund was first introduced under British colonial rule and functioned as a simple, mandatory retirement savings plan. Workers contributed five percent of their wages into the Fund, and their employers matched the amount.¹ The nest eggs grew through these combined contributions plus interest paid on the balances. When participants reached 55, people could begin withdrawing the money to help pay for retirement.

Soon after independence, the government expanded the scope of the CPF and turned it into a vital factor in improving the lives, living conditions, and health of Singaporeans. It was determined early on that compelling health savings would play an increasingly larger role in the lives of the people, and it became a central part of long-term planning. Changes to the Fund were to be introduced in small doses over the years, so as not to cause concern and confusion among the population and to make them more acceptable. As wages rose, so too did the percentage of the salary contribution to the CPF. However, the increases were carefully calibrated so that an increase in wages always meant a net increase in take-home pay.²

The first significant step was taken in 1968 when, for the first time, in addition to retirement expenses, workers were allowed to use a portion of their CPF to help purchase apartments built by the Housing and Development Board. Since then, the rules governing the Fund have been changed to allow workers to use their savings to also pay for healthcare, approved insurance schemes, and education.

When employed Singaporeans and their employers make their monthly contributions, the money is dispersed into three accounts: Ordinary Account: to be used to buy a home, pay for CPF insurance against death and disability, investment and education; Special Account: for old age and investment in retirement-related financial products; and Medisave Account: to be used for healthcare expenses and approved medical insurance.

The mandatory allocation among the three accounts changes according to the age of the participant. 30-year-olds see their total contribution divided as follows: 23 percent of wages to the Ordinary Account; six percent to the Special Account; and seven percent to Medisave. For 50-year-olds: 19 percent to Ordinary; eight percent to Special; nine percent to Medisave. The “percent of wage” figures represent the combined contribution of employee and employer.

I will focus on the Fund's healthcare components and the central role they play in maintaining the health and wellness of Singaporeans. The component parts that impact healthcare include: medical care savings programs (Medisave); supplemental catastrophic, chronic, and long-term care insurance programs (MediShield); as well as funds for paying healthcare costs for the poor (Medifund). Together, they are known as the 3Ms—Medisave, MediShield, and Medifund—and I believe they play an integral role in the success of the system. Private insurance plays a limited role, and I will examine it as well.

What Patients Pay For

The government provides access to a basic level of care and subsidizes most of its cost so that no one goes without fundamental healthcare. However, as I have discussed, the system is designed to make sure patients do contribute to the cost of their care. In addition, as part of the system's choice initiative, patients are allowed to spend their own money on care beyond the basic level, including amenities in public hospitals, private hospitals, private doctors, and other services. They pay the costs using their own money, Medisave funds, and approved health insurance within the limitations established by guidelines, which I will explain in this chapter. No one, then, is obligated to stay with the publicly subsidized programs if they are willing to pay for some things beyond what they offer.

Table 3.1

Table 3.1a

The public hospitals provide a good example of how the system works. Wards are classified by amenities and level of government subsidy provided. There are five ward classes: A, B1, B2+, B2, and C. A costs the patient most, and C the least. A-class patients have a private room with a bathroom, air conditioning, and access to private doctors of their choice. C-class patients are in open wards, eight to nine in a room, sharing a bathroom, and without air conditioning. Their doctors are assigned to them.

There is no government subsidy for A-class patients, while those in C-class receive a subsidy of up to 80 percent of inpatient ward charges, drugs, and other medical treatment. C-class patients also receive subsidies on surgical procedures and on physicians’ fees. In all the other wards between A and C, amenities and choices decline as the subsidy increases. Financial means testing is used to determine eligibility for subsidy for anyone seeking admittance to C and B2 wards. I will provide more details on all this in a later chapter.³

Medisave

Medisave was the first health-related expansion of the Central Provident Fund. Initially unveiled in 1983 as part of the National Health Plan, Medisave was created as an account within an individual's CPF. At the time, Medisave was the first of its kind in the world. It contained a simple and powerful idea: help the people of Singapore save for their healthcare expenses, just as the Central Provident Fund helped people save for retirement. I view Medisave as an initiative in keeping with the national philosophy encouraging self-reliance, personal responsibility, and family responsibility. Since it was determined by the architects of the system early on that individuals would pay for most of their healthcare cost after heavy government subsidy, the government saw Medisave as a way to ensure everyone would have money to do so.

Contributions to Medisave

Under Medisave, workers and their employers contribute a specified percentage of monthly wages to the individual's CPF account of which a certain portion, as I pointed out above, goes into Medisave. Contributions are based on the age of the employee. As of 2012, workers up through age 50 contribute 20 percent of their wages, and their employers add another 16 percent for a total contribution equaling 36 percent of their wages. The money is divided into the three abovementioned accounts, with the Medisave account receiving between 7 and 9.5 percent of the wage depending on age. The worker contribution is lowered to 18.5 percent for those over 50 through 55, and the employer rate drops to 14 percent, with 9.5 percent going to Medisave. Above age 65, employee contribution drops to five percent, employers 6.5 percent, with 9.5 percent of wage going to Medisave (see Table 3.1). This is not considered to be a tax by the Singaporeans I have met, no more than are the 401k plans of the United States.

All the savings are tax exempt, both at the time of deposit and of withdrawal, and they are guaranteed to earn a fixed interest rate established by the CPF Board with a minimum rate of 2.5 percent. In recent years, the rate had stayed at 4 percent. The rate is often pegged to the average yield of specifically-designated Singapore Government Securities. Self-employed individuals initially were excluded from Medisave, but beginning in 1992, anyone earning above S6,000 a month was also required to contribute. The self-employed must declare their income to the government and from there a determination is made on the amount of their Medisave contribution.

The government sets a maximum amount that individuals can accumulate in their Medisave account. The maximum specified for Medisave is presumed to be adequate for an individual's projected future healthcare needs, freeing up the person's other funds to go toward other retirement purposes. In 2012, it was fixed at S43,500, but the ceiling is adjusted yearly to take into account the impact of healthcare inflation and to ensure that account holders have sufficient savings by the time of retirement. Contributions beyond the ceiling are transferred to other CPF accounts.⁴

The government also sets account minimums; this is the amount individuals must retain in their Medisave accounts when they make a withdrawal of CPF savings. In 2012, it required participants 55 and over to have at least S32,000 in their accounts. If that minimum is not met, then the account must be topped-up before withdrawals from excess savings in other CPF accounts will be allowed. Account holders need to name a beneficiary to whom the funds are passed upon death, or the funds will be distributed in accordance with intestacy laws.

Putting Medisave Funds to Use

Although dollars put into a Medisave account belong to the contributing worker, the government has issued tight guidelines over how the money can be spent. But as part of an ongoing task, it remains responsive to the healthcare environment and continually revises the guidelines on how funds can be used as conditions change. All this while keeping to its principle of balancing affordable healthcare against over-consumption and preventing the premature depletion of Medisave funds.

A Singaporean may use his Medisave to pay for certain medical expenses. Immediate family members (spouse, parents, and children) are allowed to draw upon each other's accounts. Initially, Medisave could only be used to pay for charges for a hospital stay in the highly-subsidized wards. Gradually it was extended to include other hospital ward classes but subject to maximum daily limits. Now it can be used to pay for hospitalization charges as well as specified outpatient expenses. Medisave can presently be used for medical and surgical inpatient cases, approved day surgeries, and psychiatry treatment. Stays in approved community hospitals, hospices, maternity, and day rehabilitation are also eligible. Also allowed are treatment in approved day hospitals, outpatient treatments of approved chronic diseases, vaccinations, outpatient MRI scans, CT scans and other diagnostics for cancer patients, assisted conception procedures, and renal dialysis treatment. Cancer patients may use Medisave for radiotherapy, radio surgery, and chemotherapy. Also eligible are HIV anti-retroviral drugs, desferal drug and blood transfusion for Thalassemia treatment, hyperbaric oxygen therapy, outpatient intravenous antibiotic treatment, long-term oxygen therapy and infant continuous positive airway pressure therapy, immune-suppressants for patients after organ transplants.⁵ Medisave and insurance do not cover the costs of consultation alone. Patients generally pay out of pocket if they wish to seek a second opinion.

Recent guideline changes have reflected the changing demographics of the nation and the changing needs of the populace, as well as voter sentiment. Some examples:

Women 50 and over may spend up to S400 from their Medisave for mammogram screening. The usual cost at polyclinics is S100. However, the test is offered at a subsidized rate of S50 for citizens and S75 for permanent residents.⁶ To address the increase in chronic diseases as Singapore's proportion of elderly people grows, a new program helps pay for outpatient treatment of common chronic conditions: diabetes mellitus, hypertension, lipid disorders, stroke, asthma, chronic obstructive pulmonary disorder, schizophrenia, major depression, bipolar disorder, and dementia. The program provides incentives for people to seek structured treatment and management of their chronic diseases at the primary care level, where better disease management can help reduce the need for hospitalization. A S30 deductible and a co-payment of 15 percent of the total bill still needs to be paid by the individual, but Medisave can be used to pay the remaining balance of the bill. Up to ten family-related accounts can be drawn upon, and the annual withdrawal limit is capped at S400 per year for each account.⁷

In Singapore, the birthrate has been well below replacement levels for many years, a matter of great concern for the future of the country. The total fertility rate in 2011 was just over one child per woman. A rate of two children per woman is considered necessary to keep the population at current levels. Rates below two children indicate that the population is decreasing with a growing percentage of older people.⁸ Furthermore, Singaporeans are marrying later, having children later, or choosing to have fewer children.⁹