Earlier this week, the Life Insurance Association (LIA) of Singapore shared some worrying trends about the cost of private healthcare in Singapore. Here are some extracts to consider.
The above chart, obtained from the Ministry Of Health (MOH), shows that the median bill size for private hospitals have been increasing at a rate of about 15% per annum over the past two years. This is in contrast to public hospitals, which have seen a reasonable increase of about 2-3%.
Singapore long-term inflation rate is about 2-3% per annum. What this means is that while medical bills from public hospitals are in line with our inflation rate, the same cannot be said for bills from private hospitals.
When we look at the average bill sizes incurred by the five insurers that provide integrated shield plans, we observe a similar trend.
Bills across private hospitals increased by about 9% per annum while public hospital saw an increase of only 0.6% per annum. This figure, while slightly different from the one reported by MOH, tells us a similar story.
Is The Cost Of Healthcare Going Up?
It’s easy to push this problem away by suggesting that increasing healthcare cost is inevitable given that we progressively enjoy better treatment due to medical advancement. As treatments become more complex, we should expect cost to increase. Sounds logical? Not necessarily true.Source
The above table is a simple look at 4 types of common procedures typically performed by hospitals. It’s arranged in order of complexity from left to right, with Colonoscopy being seen as the least complex procedure while Knee replacement is seen as the most complex.
It’s interesting to note that this distribution suggests that public hospitals in Singapore are well sought after when it comes to performing complex treatment. This should debunk any thoughts that public hospitals are able to keep their cost low only because are performing less complex treatments.
Are Private Doctors Overcharging?
A simple conclusion at this point in time would be to assume that private healthcare providers are overcharging. But would that be the right conclusion?
First and foremost, let’s remember that private healthcare providers work within a free market system, which is largely dependent on the concept of supply against demand. If there is a higher demand for private healthcare consumption, prices should naturally increase.
This is in contrast with government hospitals, where additional demand for healthcare may not automatically lead to an increase in price.
Private healthcare providers are also subjected to market conditions. Rental is one such example. Similar to operating a retail shop at Ion Orchard, private medical practitioners have to bear any increase in rent as part of their operating cost. The cost of rendering service to patients is also higher, as anyone who has stayed in both public and private hospital can testify.
The bottom line is that private healthcare providers are operating within a free market condition and the increase in price is likely to be the result of additional demand in their services.
The Moral Hazard Of Healthcare Insurance
A common challenge faced by healthcare insurance providers around the world is moral hazard. Moral hazard refers to the situation where people may lack the incentive to guard against risks because they are protected from its consequences. The situation in Singapore is no exception.
For those of us who already have a private integrated shield plan along with a rider, we are likely to pay almost nothing if we ever require hospitalisation. For example, if we play football and injure ourselves, the cost of our surgery and hospitalisation even in private hospital would be completely covered by the insurance policy that we have bought.
We are not suggesting that people are deliberately getting themselves injured so that they can consume treatment. Rather, the idea here is that having insurance coverage means that we no longer have to worry about the bill, and can focus on our recovery.
Though we are not paying anything, private healthcare consumption is far from free. A consumer in his 30s could pay about $400 or more for the insurance coverage that is provided. This is not a small sum, and would increase as the person grows older.
The logic in the argument is that having paid quite a significant premium each year for coverage, why would a policyholder not maximise the healthcare consumption when the need arises?
Defensive medicine refers to the recommendation of a diagnostic test or treatment by a doctor that is not necessarily needed, but still recommended, because a doctor wants to be on the “safe” side. For example, a doctor who sees a patient who was hit on the head could be reasonably sure that there is no internal head damage just by the physical examination. Yet, he may order a CT scan just to be on the safe side, especially if he knows that an insurance company is going to cover the bill.
Generally speaking, it does make sense for doctors to know whether or not their patients are covered for insurance. No doctors would want a situation of recommending treatments or tests that could send their patients into financial hardship.
However, the flipside of that argument would be whether or not doctors are recommending treatments and tests that are driving up the cost of medical treatment unnecessarily? Patients who are already covered under insurance have no incentive to not go for treatments or tests that their doctor recommends, since they don’t bear the additional cost.
The question then gets redirected back to us, the consumers, on how we would react if we knew that a doctor did not recommend to us a test or treatment that could potentially have a small chance of helping us, or to get a more accurate diagnose, just because the doctor felt it was not needed.
Solving The Cost Issues
It is to no one’s advantage if private healthcare cost continues to increase in an unsustainable manner. Consumers would ultimately have to bear the cost of the increase through higher insurance premiums. In fact, the table below suggests that insurance companies in Singapore are making close to no profit for such insurances.
If prices increase, then consumers who continue paying the premium for their private integrated shield plans would have even more reasons to increase their healthcare consumption when the need arises, considering that they are now paying more. If left unchecked, this becomes a vicious cycle that would cause the system to ultimately fail.
The provision of healthcare at a fair, sustainable cost is an area that involved multiple stakeholders. Insurance companies need to design policies that are fair, and which gives policyholders an incentive to keep their own healthcare cost in check. Examples could include having co-insurance, deductibles or even premium rebates for those who claim below a certain limit.
By giving consumers incentives, insurance companies can solicit the support of their own policyholders to ensure that private hospitals are not charging excessively for treatments. This will help manage cost in the long run and help in ensuring premiums do not need to keep on increasing indefinitely due to poor product design.
At the same time, private insurance companies can exercise better discretion in keeping healthcare cost in check with the added knowledge that the patients whom they are treating are indeed footing part of the overall bill as well. Providing guidance on the cost of treatment would also be a good start towards price transparency.
What are your thoughts on the escalating healthcare costs in Singapore? Share with us thoughts on our Facebook Page. Or join the SG Insurance Discussion Group to have an open discussion about the cost of healthcare in Singapore.